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German banks face big but manageable Heta losses -Fitch
March 12, 2015 / 1:01 PM / 3 years ago

German banks face big but manageable Heta losses -Fitch

FRANKFURT, March 12 (Reuters) - Germany’s banks were sucked deeper into Austria’s bad bank debacle on Thursday after ratings agency Fitch warned of big losses for the sector, two days after it said commercial real estate lender Duesseldorfer Hypothekenbank was in urgent need of capital support.

German banks have large exposures to Austrian lender Hypo Alpe Adria’s “bad bank” Heta and face material, though manageable, losses from a suspension of its debt imposed by Austrian regulator FMA, credit rating agency Fitch said.

“The moratorium imposed on Heta by the Austrian authorities on 1 March 2015 will put most pressure on German covered bond issuers,” Fitch said in a statement on Thursday.

On Tuesday, Fitch downgraded DHB’s viability rating and warned of further cuts, citing a vulnerability “to adverse credit events”. It did not specify what these were but said in a report on Thursday that German banks held the greatest exposure to debt from Heta.

The small German bank declined to comment on the Fitch downgrade note which highlighted credit events that “could overstretch its tight financial flexibility.”

Regulators this month took control of Austria’s Heta and imposed a debt moratorium until May 2016 after an outside audit found writedown needs that blew a 7.6 billion-euro ($8.05 billion) hole in its balance sheet. This leaves holders of Heta debt in limbo and facing the prospect of losses.

Heta could still be declared insolvent despite plans to wind it down, FMA said this week.

On the assumption that German banks hold around 40 percent of the Heta liabilities affected by the moratorium, Fitch calculated the impact of a 50 percent haircut on the holdings and found that losses would not exceed 15 basis points of the German banking sector’s CET1 regulatory capital ratio.

“However, we estimate this could cost up to 10 percent of the sector’s 2015 net profit, illustrating the potential of a single resolution to dent the performance of even large, diversified banking systems under the EU Bank Recovery and Resolution Directive regime,” Fitch said.

Debt analysts at Commerzbank said it was likely that Heta debt was “leaving its mark” on DHB, which had received support from Germany’s deposit protection fund in the past.

Fitch said it did not factor any capital support for DHB into its decision to downgrade the bank but that support from the deposit protection fund would likely be available.

A spokesman for Fitch declined to comment, as did Germany’s banking association BDB which operates the insurance scheme.

Plans for DHB owner Lone Star to sell the bank to a group of financial investors as agreed in 2014 still requires regulatory approval and is likely to be delayed, Fitch said. (Reporting by Thomas Atkins and Jonathan Gould in Frankfurt and by Angelika Gruber and Shadia Nasralla in Vienna; Editing by Vincent Baby)

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