Moody's Lowers Ratings on 6 German Banks

Moody's Investors Service lowered its investment-grade ratings on six German banks by one notch, pointing to increased risk of further shocks from the euro-zone sovereign debt crisis as well as the banks' limited loss-absorption capacity.

Commerzbank AG (CRZBY, CBK.XE) and Unicredit Bank AG's ratings were lowered to A3, and both banks have negative outlooks. DekaBank Deutsche Girozentrale and DZ BANK AG Deutsche Zentral-Genossenschaftsb's ratings were lowered to A1, and both have stable outlooks. Landesbank Baden-Wuerttemberg and Norddeutsche Landesbank GZ ratings were lowered to A3, with stable outlooks.

Moody's also downgraded the long-term ratings for several subsidiaries of these banks by up to three notches and lowered the ratings of a German subsidiary of a foreign group.

Moody's noted that these banks are exposed to asset classes that are likely to be affected by a worsening operating environment in Europe. Asset vulnerabilities include exposure to the global shipping sector, international commercial real-estate markets, legacy holdings of structured credit products and securities to stressed euro-zone countries, the firm said. Additionally, Moody's said these banks have limited loss-absorption capacity, given their comparatively small equity cushions relative to total assets and low preprovision earnings.

Moody's noted that German banks' ratings have declined less than other European banks due to the comparatively benign operating environment in the German home market, supported by below-average unemployment, low debt levels and the German economy's general resilience, as well as modest funding risk.

On Tuesday, Moody's also affirmed WGZ BANK AG Westdeutsche Genos.-Zentralb's ratings at A1 with a negative outlook.