Moody's Puts Greek Ba1, 24 German Banks' Debt Rating On Downgrade Review

From Moody's:

Moody's Investors Service has today placed Greece's Ba1 local
and foreign currency government bond ratings on review for possible downgrade.
Greece's country ceilings for bonds and bank deposits are unaffected
by the review and remain at Aaa (in line with the Eurozone's rating).

Moody's decision to initiate this review was prompted, despite
significant progress in implementing a very large fiscal consolidation
effort, by the increased uncertainty over (1) Greece's ability
to reduce its debt to sustainable levels given the recent substantial
upward revision in debt levels; (2) the substantial revenue shortfall
that we have observed in 2010; and (3) the level and conditions of
ongoing support that would be available to Greece in the event that its
market access remains cut off. Therefore, Moody's review
will focus on the factors, namely nominal growth and fiscal consolidation,
that will drive the country's debt dynamics over the next few years.
It will also consider implementation risk, which appears to be particularly
high in 2011 for both political and administrative reasons.

Moody's says that a multi-notch downgrade would be possible
if it concludes that there is an increased risk that Greece's debt-to-GDP
ratio will fail to stabilize in the next three to five years, or
that there is a greater risk that EU support will turn out to be less
strong after 2013 than the rating agency had previously assumed.

RATIONALE FOR REVIEW

"Greece has made significant progress in implementing a very large
fiscal consolidation effort. However, the challenge of reducing
debt to sustainable levels has also become greater due to both domestic
and regional developments," says Sarah Carlson, Vice
President-Senior Analyst at Moody's Investors Service and
lead sovereign analyst for Greece.

These developments include:

1.) Substantial upward revision in debt levels: Greek debt
was already at a high level before Eurostat's recent revision of
Greece's 2009 debt statistics to 126.8% of GDP.
This 11.7 percentage point revision is almost twice the level that
Moody's had anticipated and amplifies the risks stemming from the
country's uncertain growth and interest rate outlook over the coming
years.

2.) Weak revenue growth: Greece has fallen well short of
its revenue growth targets in 2009, a factor that contributed to
the upward revision in its deficit projections for 2010. Although
there are signs that VAT collections are improving in spite of the weak
macroeconomic climate, the vigorous implementation of reforms to
fight tax evasion will be critical to a sustainable improvement in public
finances.

3.) Uncertainty surrounding ongoing support: The level and
conditions of ongoing support on offer to Greece is no longer certain.
The IMF and European authorities have expressed very strong support for
Greece, as long as Greece follows through with its economic programme.
However, the authorities' willingness and ability to provide
Greece with additional assistance is not assured and particularly depends
on programme implementation. Moreover, the precise nature
and conditions of support that will be forthcoming after 2013 --
and the implications that this will have for bondholders -- is unclear.

Moody's recognises the impressive progress that the government has
made in implementing the fiscal consolidation programme so far.
The reduction of the fiscal deficit by around 6 percentage points and
the passage of landmark pension and labour-market reform are noteworthy
achievements.

"However, the substantial upward revision of debt levels,
weak revenue growth and lack of certainty surrounding long-term
support, if required, are negative factors that outweigh the
many positive developments that Moody's has observed in Greece since
it accepted the Eurozone/IMF assistance package in May 2010,"
says Ms. Carlson.

FACTORS TO BE CONSIDERED IN THE REVIEW

Firstly, Moody's rating review will focus on Greece's
ability to reduce debt to sustainable levels in a challenging economic
and political environment. This will be affected by two variables:
nominal growth and fiscal consolidation. Therefore, a key
element of this review is Greece's 2012-2014 plan for fiscal
consolidation and economic reform. The Eurozone/IMF programme that
was adopted in May 2010 encourages the implementation of a credible,
feasible and incentive-compatible set of structural reforms.
However, the programme has relatively few details about the policy
agenda for 2012-2014. The revision of debt statistics has
raised the bar for what these future reforms need to accomplish.
"In order for Greece to achieve large primary surpluses over a sustained
period of time, further structural fiscal adjustments will be required,"
says Ms. Carlson.

Moreover, the Greek government's ability to speed up the implementation
of the fiscal and structural reform programme will also be a factor in
Moody's review. "The government is clearly very determined
to push the adjustment process forward, but it is facing significant
political and administrative headwinds," says Ms. Carlson.
Implementation risk is particularly high in 2011, and during the
review Moody's will be looking at how those risks are being addressed.

The external environment in which Greece has been operating has clearly
deteriorated, which has had an adverse impact on its creditworthiness.
Although support from the Eurozone has been very strong up until now,
Moody's believes that changing market conditions imply that there
are realistic limitations to any such support. Moreover,
the nature of this support after the European Financial Stability Facility
(EFSF, rated Aaa) winds down in June 2013 is unclear. "Uncertainty
surrounding plans for burden-sharing with investors in the event
of a crisis are likely to negatively affect market access and funding
costs for Greece," says Ms. Carlson.

PREVIOUS RATING ACTIONS AND METHODOLOGIES

Moody's last rating action affecting Greece was implemented on 14
June 2010, when the rating agency downgraded Greece's government
bond ratings to Ba1 and assigned a stable outlook. Prior to that,
Moody's last rating action on Greece was taken on 22 April 2010,
when the rating agency downgraded Greece's government bond ratings
to A3 and placed the rating on review for further possible downgrade.

The principal methodology used in rating the Government of Greece is "Moody's
Sovereign Bond Methodology" published in September 2008, which
can be found at www.moodys.com. Other methodologies
and factors that may have been considered in the process of rating this
issuer can also be found on Moody's website.

---

And Germany is on the hook too:

Moody's Investors Service has today placed on review for possible downgrade
the ratings of 246 subordinated debt securities together with the subordinated
tranches of the relevant debt programs issued or guaranteed by 24 banks
in Germany (including one Irish subsidiary of a German bank). This
follows the German parliament's approval of the German Bank Restructuring
Act, which will become legally effective as of 1 January 2011.

RATINGS RATIONALE

The Bank Restructuring Act -- and related amendments to
the German Banking Act (KWG) -- will establish a framework
for dealing with banks in distress, allowing the regulator to trigger
losses outside of liquidation on senior debt as well as on subordinated
bank debt that is typically classified as Lower Tier 2 for regulatory
capital purposes. While Moody's believes that, for
the time being, regulators are unlikely to impose losses on senior
debt due to the need to preserve systemic stability in the current fragile
market conditions, this change of law implies significantly higher
risk for subordinated bank debt. In Moody's view it materially
reduces the likelihood of systemic support for Lower Tier 2 debt in the
context of bank bail-outs and may lead to multi-notch rating
downgrades for this category of debt.

A detailed list of the affected ratings is available on Moody's
website, which may be accessed by clicking here http://v3.moodys.com/viewresearchdoc.aspx?docid=PBC_129542.
The ratings of grandfathered debt qualifying for "Gewaehrtraegerhaftung"
(a guarantee obligation) by regional governments are not affected and
hence, are excluded from the list.

Moody's review for possible downgrade will focus on the implied
higher risk for subordinated debt under the newly established bank resolution
regime. For the first time in Germany, it will be possible
to separate subordinated from senior claims under a reorganisation procedure.
This would be achieved through either (i) imposing losses on subordinated
debt of a going-concern entity under a reorganisation plan;
or (ii) separating classes of debt into 'going concern' and
'gone concern' legal entities, de facto changing the
pari passu status of subordinated debt outside of liquidation.

"The law allows losses to be selectively imposed on subordinated
debt. In a post-crisis scenario, we believe that its
provisions could be used without having a material adverse impact on the
stability of the financial markets", says Carola Schuler,
Managing Director for Banking at Moody's in Frankfurt. "Going
forward, the regulators may take advantage of such wider resolution
options on a case-by-case basis."

Even though the regulatory tools provided by the Bank Restructuring Act
and the German Banking Act are broad enough to allow the imposition of
losses on senior unsecured bondholders as well, Moody's is
not considering rating actions in respect of senior debt for the time
being. Haircuts on senior unsecured debt would be likely to severely
disrupt financial markets and, hence, Moody's expects the
regulator to tread very carefully and in accordance with market conditions.
Moody's will, however, continue to monitor the funding
situation of German banks and will reassess the relevance of systemic
support and financial stability accordingly on an ongoing basis.

Please see "Assessment of Post-Crisis Support for German
Banks" published in April 2010, for an earlier comment by
Moody's on the rising risk of losses imposed on subordinated debt
issued by German banks.

FUTURE RATINGS OF SUBORDINATED DEBT LIKELY TO EXCLUDE SYSTEMIC SUPPORT,
BUT MAY STILL BENEFIT FROM REGIONAL GOVERNMENT SUPPORT

As a consequence of the increased probability that losses may be imposed
on subordinated debt, Moody's will consider removing the systemic
support which currently accounts, on average, for three notches
of uplift for this class of bank debt in Germany. Upon the conclusion
of the review and in line with "Moody's Guidelines for Rating
Bank Hybrid Securities and Subordinated Debt", Moody's
may position the ratings one notch below its Adjusted Baseline Credit
Assessment (Adjusted BCA) which reflects the bank's stand-alone
financial strength including parental and cooperative support.

Currently, the rating of subordinated debt of German banks is positioned
one notch below the Bank Deposit Rating and thus incorporates uplift for
all types of external support, including systemic as well as regional
and local government support. The Adjusted BCA adds parental and
cooperative support to the intrinsic financial strength of a bank,
but excludes regional and local government and systemic support on a regular
basis. In the process of this review, Moody's may,
on a case-by-case basis, consider adding some degree
of regional and local government support to the Adjusted BCA for this
particular class of debt, mainly limited to the Landesbanken.
The review will therefore focus on potential support scenarios for public
sector banks under the new law where regional and local governments effectively
take a first-loss position and are able and willing to provide
support in the future.

Moody's expects to conclude its review within a few weeks of the
new law becoming effective.

For the ratings of junior subordinated and hybrid debt in Germany,
the Adjusted BCA will continue to exclude both systemic and regional and
local government support and is not affected by this review.

LIST OF BANKS AFFECTED AND THEIR CURRENT ADJUSTED BCAS

Please see below for a full list of the affected banks and their current
Adjusted BCA excluding systemic and regional and local government (RLG)
support. All outstanding deposit and debt ratings are available
on www.moodys.com. For the banks indicated by RLG
and as discussed above, Moody's may decide to include some
degree of RLG support in the Adjusted BCA for the purpose of rating subordinated
debt as part of its review.

Bayerische Landesbank: Adjusted BCA equivalent to Baa3 (RLG);

Bremer Landesbank Kreditanstalt Oldenburg GZ: Adjusted BCA equivalent
to A2 (RLG);

Commerzbank AG: Adjusted BCA equivalent to Baa1;

DekaBank: Adjusted BCA equivalent to A2;

DEPFA Bank plc (Ireland): Adjusted BCA equivalent to B2;

Deutsche Apotheker- und Aerztebank eG: Adjusted BCA equivalent
to Baa1;

Deutsche Bank: Adjusted BCA equivalent to A2;

Deutsche Hypothekenbank AG: Adjusted BCA equivalent to A3;

Deutsche Pfandbriefbank AG: Adjusted BCA equivalent to B1;

Deutsche Postbank: Adjusted BCA equivalent to Baa1;

DVB Bank S.E.: Adjusted BCA equivalent to A2;

DZ BANK AG Deutsche Zentral-Genossenschaftsbank: Adjusted
BCA equivalent to A2;

Eurohypo AG: Adjusted BCA equivalent to Ba1;

HSH Nordbank AG: Adjusted BCA equivalent to Ba2 (RLG);

IKB Deutsche Industriebank AG: Adjusted BCA equivalent to Caa1;

Landesbank Baden-Wuerttemberg: Adjusted BCA equivalent to
A3 (RLG);

Landesbank Berlin AG: Adjusted BCA equivalent to Baa1;

Landesbank Hessen-Thueringen GZ: Adjusted BCA equivalent
to A3 (RLG);

Muenchener Hypothekenbank eG: Adjusted BCA equivalent to A2;

Norddeutsche Landesbank GZ: Adjusted BCA equivalent to A2 (RLG);

Sparkasse KoelnBonn: Adjusted BCA equivalent to Baa3 (RLG);

UniCredit Bank AG: Adjusted BCA equivalent to A3;

Volkswagen Bank GmbH: Adjusted BCA equivalent to A3;

WestLB AG: Adjusted BCA equivalent to Ba3 (RLG).

Comments

[Quintus]

I guess the recent downgrades of Spain and Belgium didn't scare enough money into USTs.  I guess Moodys and S&P are going to continue downgrading every country in the world at Ben and Timmay's bidding until only the US has a non-Junk rating.  That should do the trick.

[ATG]

China beat Moody's to the punch on the US debt downgrade

[Quintus]

Not a big achievement.  Moody's S&P and the rest will downgrade the US only after the last ragged peasant has burnt the last wad of trillion dollar notes to keep warm.

[aint no fortuna...]

Plenty of good news tho, Season 10 starts in just about a month.. can't wait!!!!

http://www.americanidol.com/

Markets rallying on the possible downgrades... I mean, how many more things can possibly be downgraded? Booyah!!!

[Max Hunter]

I was thinking this announcement was for the government to keep pressure on the riots.  Can't have the masses influencing the Banker's prostitutes making all the big decisions for the people.

Things will work out just fine.. /sarc/

[SheepDog-One]

Right, SP and Moody's only draw the chalk outlines after the carnage, for US interests anyway. Moodys had Enron at AAA+ the day before bankruptcy was declared. Same for Bear Stearns, and there are many other examples as well.

[Spalding_Smailes]

Euro = toilet paper/circle jerk = long term issue = strong dollar.

The Euro was the next big thing, the new reserve currency, her time has passed prepare accordingly.

[ATG]

Euro now targeting 176

http://stockcharts.com/charts/gallery.html?$XEU

[SheepDog-One]

Targets, schmargets.

[Greyzone]

Looks like a head and shoulders pattern developing there maybe? 176? Sorry, but that's absurd given the debt load in Europe right now.

[ATG]

Euro now targeting 176

http://stockcharts.com/charts/gallery.html?$XEU

[Spitzer]

Dollar = toilet paper

The Euro has its best days ahead of it, it is built for a Fed/Dollar collapse. The elite are not stupid, there really is a plan B, it is the Euro.

And you will never understand the Euro if you don't understand gold.

[ATG]

Euro now targeting 176

http://stockcharts.com/charts/gallery.html?$XEU

[kengland]

This is incredible news. Who would have thought

[TWORIVER]

Should be fun to the close. First support for SPY at 122.50. Gold and Silver finishing small diminishing volume bounces as well.

[Flore]

so you really think that Standard and Poors can influence what Europe must do... ? Those poors are surely the American middle class

[Gordon Freeman]

What a geek show, er, greek show...

[David99]

Assange gets bail

[Atomizer]

When will Moody's declare another coded software error?

Patiently waits.

[Spitzer]

FUCK MOODYS

NOBODY CARES WTF THEY HAVE TO SAY.

[ATG]

Tourette's?

[macholatte]

http://www.youtube.com/watch?v=5wcKpoAQKj4

[DavidRicardo]

Frankfurt Germans I talked to 3 YEARS AGO!! said that all German banks are insolvent.

I don't think it has quite occurred to most people that Germany's "export miracle" has simply been Germany throwing EVERYTHING overboard in an effort to get the last crumbs of trade before its economy collapses.

The best kept secret in the world, apparently, is that Germany is nothing and has nothing.

[Pope Clement]

edit

[papaswamp]

Wait...Moody's isn't trying to be a real ratings agency is it?....I mean...that would require...dare I say it...honesty, hard work and honor. I just don't see it.....but I'll keep hoping (as my father in law puts it..."hope isn't a plan").

[DCon]

DEPFA Bank plc (Ireland)

Now there's a fun bank

The Munich mortgage lender, together with the Irish subsidiary Depfa that it acquired in 2007, had burned massive amounts of money through risky US real estate securities and other reckless business dealings. The company also appears to have covered up the scope of its misdealings. That, at least, is the assumption of public prosecutors who are now investigating HRE executives. According to the search warrant issued, prosecutors are investigating alleged "false statements," "market manipulation," and "breach of trust" by current and former members of HRE's board. In a six-page paper, prosecutors take a tough stance on managers. They claim they made "deliberately false statements" about the company's dramatic situation and that they were guilty of "deliberately concealing" important information and that they had violated their obligation to safeguard company assets.

HRE's holiding company, HRE Holding, was only partially regulated under Germany's Banking Act. The country's banking regulator, BaFin, was in charge of supervising HRE's domestic subsidiaries in Germany and, together with its Irish colleagues, HRE's Depfa unit in Dublin. But it appears that nobody had a complete picture of what was happening at HRE. That led to a disastrous lapse in banking supervision. "So far, we have not been able to comprehensively oversee financial holding companies," a BaFin spokeswoman confirmed.

German lawmakers are now moving to change existing legislation. According to the latest amendment to German securities law, firms can voluntarily subject themselves to the rules and implement systems to reduce their risks. But experts are calling for tougher rules.

"HRE is to Germans what insurance company AIG is to the Americans," said one prominent banker. Both firms were long considered trouble-free, slumbering giants, but in the end, they have emerged as black holes in the industry in which billions in bailout money are rapidly disappearing. The casual approach that had been taken by management should have served as a warning signal long before. As early as May 2007, Michael Thiemann, the manager of HRE subsidiary Collineo, admitted, "You don't have the time to take a close look at each borrower." Shortly afterward, Collineo and Citigroup sold a massive package of highly complex property loan investments, of which almost half were US subprime mortgages.

Recklessness, bravado and greed were the hallmarks of the troop of executives surrounding Gerhard Bruckermann, who ran Depfa -- a company registered under Irish law for the financing of government projects -- before selling it to HRE in the summer of 2007.

http://www.spiegel.de/international/business/0,1518,598499,00.html