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Correction: Fitch Downgrades OeVAG to 'B'/RWN Following Spin-Off Plans
February 12, 2015 / 2:42 PM / 3 years ago

Correction: Fitch Downgrades OeVAG to 'B'/RWN Following Spin-Off Plans

(The following statement was released by the rating agency) FRANKFURT/LONDON, February 12 (Fitch) This announcement corrects the version published on 10 February 2015 to clarify why we do not assign a Recovery Rating to OeVAG's rated securities. Fitch Ratings has downgraded Oesterreichische Volksbanken-Aktiengesellschaft's (OeVAG) Long-term Issuer Default Rating (IDR) to 'B' from 'BBB-' and Short-term IDR to 'B' from 'F3', and maintained the IDRs on Rating Watch Negative (RWN). A full list of rating actions is at the end of this rating action commentary. Fitch downgraded OeVAG's Long-term IDR to 'BBB-' in October 2014 following the decision of OeVAG's board to spin off the bank's non-core business from Volksbanken-Verbund (VB-Verbund; A/Negative/bb-/RWP). At this time, there was limited information on OeVAG's future set-up. The bank's Long-term IDR remained within investment grade to reflect the possibility of further state support being available following the spin-off. The downgrade to 'B'/RWN reflects our expectation that state support for OeVAG can no longer be relied upon, in light of subsequent information regarding the structure of the planned spin-off. It also reflects the implementation of the EU's Bank Recovery and Resolution Directive and its bail-in provisions into Austrian national law on 1 January 2015, which significantly increase the risk that OeVAG's creditors may be subject to some form of bail-in if further state support was required as long as OeVAG has its banking licence. According to the spin-off plan, OeVAG will leave VB-Verbund's mutual support scheme and return its bank licence during 2015 and focus exclusively on the orderly wind-down of its non-core assets as a partly-regulated wind-down institution, without any additional state support. The downgrade reflects our assessment that state support can no longer be relied on for OeVAG, meaning that its IDRs are now driven by our view of the likelihood of institutional support from VB-Verbund. However, the latter's ability to support is constrained, as expressed by its Viability Rating of 'bb-'/RWP. OeVAG's remaining core assets and central clearing and support functions for VB-Verbund's members will be transferred to one of VB-Verbund's primary banks (most likely the largest of the group, Volksbank Wien-Baden AG; A/Negative). OeVAG intends to implement most of these transformations by end-1H15. KEY RATING DRIVERS - IDRS, NATIONAL RATINGS AND SENIOR DEBT OeVAG's Long-term IDR is now linked to VB-Verbund's Viability Rating of 'bb-'/RWP. We do not notch from VB-Verbund's Long-term IDR as this is driven by state support and we do not believe that the state will provide further support to OeVAG, either directly or indirectly via VB-Verbund. We believe that VB-Verbund will still be incentivised to support OeVAG if needed, while OeVAG remains a part of the co-operative group and its mutual support mechanism. The RWN on OeVAG's Long-term IDR reflects our expectation that VB-Verbund will no longer provide support to OeVAG once it is spun off, and that any contingent liabilities following the spin-off will be negligible. The two-notch difference between VB-Verbund's VR and OeVAG's Long-term IDR reflects the large size of OeVAG relative to VB-Verbund group as a whole. The RWP on VB-Verbund's VR is driven by our expectation of the benefits of OeVAG's planned spin-off on VB-Verbund's standalone profile (see 'Fitch Downgrades OeVAG's IDRs; Puts VB-Verbund's VR on RWP' dated 8 October 2014 at, and consequently does not apply to OeVAG's Long-term IDR. The 'B' support-driven Long-term IDR is consistent with a Support Rating of '4'. The revision of OeVAG's Support Rating Floor to 'No Floor', and its subsequent withdrawal, reflects our view that state support can no longer be relied upon. VB-Verbund's ratings are unaffected by these rating actions. Fitch does not typically assign VRs to banks in orderly wind down, such as OeVAG, because in our view they have no viable standalone business model, and could not operate without receiving or being expected to receive external support. Fitch typically assigns Recovery Ratings to the rated securities of issuers with Long-term IDRs of 'B+' or lower, as is the case for OeVAG. However, in light of the significant restructuring that OeVAG is currently undergoing, sufficient detailed information regarding OeVAG's likely balance sheet structure is not yet available. As a result we do not possess the necessary information to make a meaningful determination of the Recovery Rating at this time. We expect to be able to assign a Recovery Rating to OeVAG's rated securities once more detailed information is available, most likely at the time of OeVAG's spin-off planned for 1H15. RATING SENSITIVITIES - IDRS, NATIONAL RATINGS AND SENIOR DEBT We have maintained the RWN on OeVAG's IDRs to reflect our expectation that support for OeVAG will be unlikely once it leaves the mutual support mechanism. We therefore expect to resolve the RWN on OeVAG's ratings when the bank executes its planned exit from VB-Verbund's mutual support scheme, expected in 1H15. However, the resolution of the RWN could extend beyond the typical six-month horizon, as technical, legal and regulatory aspects may delay the process beyond the expected timeline. In resolving the RWN, we will in particular assess OeVAG's new ownership structure, asset wind-down profile and performance implications, and funding structure, as well as any residual explicit or implicit state or institutional (VB-Verbund) support, which we consider will be unlikely. Assuming that no external support can be relied upon, we will likely assess OeVAG as a non-bank financial institution. In this case a multi-notch downgrade could be possible, reflected in the RWN on OeVAG's Short-term IDR. OeVAG's senior debt ratings are aligned with its Long-term IDR. We have placed these instruments on Rating Watch Evolving (RWE) to reflect the uncertainty as to whether they will be allocated to VB-Verbund's future central institution, in which case their ratings would be upgraded to the level of VB-Verbund's IDRs, or if they will be spun off with OeVAG, in which case a further downgrade of the debt ratings in line with OeVAG's Long-term IDR would be likely. We will resolve the RWE when this allocation has been formally decided, which we expect to occur at the time of OeVAG's spin-off at the latest. The rating actions are as follows: Long-term IDR: downgraded to 'B' from 'BBB-' and maintained on RWN Short-term IDR: downgraded to 'B' from 'F3' and maintained on RWN Support Rating: downgraded to '4' from '2' and maintained on RWN Support Rating Floor: revised to 'No Floor' from 'BBB-' and withdrawn Senior unsecured notes: downgraded to 'B'/'B' from 'BBB-'/'F3' and revised to RWE Market linked securities: downgraded to 'B emr' from 'BBB- emr' and revised to RWE Contact: Primary Analyst Patrick Rioual Director +49 69 768 076 123 Fitch Deutschland GmbH Taunusanlage 17 D-60325 Frankfurt am Main Secondary Analyst Krista Davies Associate Director +44 20 3530 1579 Committee Chairperson Gordon Scott Managing Director +44 20 3530 1075 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: Additional information is available on Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 31 January 2014, 'Banking Structures Backed by Mutual Support Mechanisms', dated 18 December 2013 and 'Rating FI Subsidiaries and Holding Companies', dated 10 August 2012, are available at Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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