German Landesbank Helaba and SFHT Group Banks Affirmed at 'A/A-1' on Acquisition of Westlb's Assets; Outlook Stable

Research Update: German Landesbank Helaba And SFHT Group Banks Affirmed At 'A/A-1' On Acquisition Of WestLB's Assets; Outlook Stable

Primary Credit Analyst: Harm Semder, Frankfurt (49) 69-33-999-158; [email protected]

Secondary Contact: Stefan Best, Frankfurt (49) 69-33-999-154; [email protected]

Table Of Contents

Overview

Rating Action

Rationale

Outlook

Ratings Score Snapshot

Related Criteria And Research

Ratings List

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986283 | 300025082 Research Update: German Landesbank Helaba And SFHT Group Banks Affirmed At 'A/A-1' On Acquisition Of WestLB's Assets; Outlook Stable

Overview

• German Landesbank Hessen-Thueringen Girozentrale (Helaba) has taken over WestLB's business with savings banks and parts of its business with public-sector and midsize corporate clients. • In our view, this transaction has no immediate impact on the SFHT group's credit profile. • We are affirming our 'A/A-1' ratings on the core member banks of the Sparkassen-Finanzgruppe Hessen-Thueringen (SFHT) including their central bank, Helaba. • The stable outlook reflects our assessment that the financial profiles of SFHT and Helaba will stay relatively resilient under increasingly difficult market conditions, and are less likely to change over the next one to two years.

Rating Action

On July 10, 2012, Standard & Poor's Ratings Services affirmed its 'A' long-term and 'A-1' short-term counterparty credit ratings on the core member banks of Germany-based Sparkassen-Finanzgruppe Hessen-Thueringen (SFHT), including the regional savings banks and their central bank Landesbank Hessen-Thueringen Girozentrale (Helaba). The outlook is stable.

Rationale

The affirmation follows the Helaba's acquisition of about €40 billion of WestLB AG's business with savings banks and parts of its business with public-sector and midsize corporate clients, which will retroactively become effective on July 1, 2012. Helaba acquired the assets for €1 billion below book value in a noncash deal. As a result, Helaba will be 19% owned on aggregate by the two national savings bank associations in North Rhine-Westphalia (Rheinischer Sparkassen- und Giroverband and, Sparkassenverband Westfalen-Lippe) and the nationwide German Savings Banks Association.

In our view, this transaction has no immediate impact on our view of SFHT's group credit profile, which remains 'a', reflecting our view of the member banks' aggregate creditworthiness and expected solidarity support under stress. We continue to base our ratings on the banks in the SFHT group on the

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986283 | 300025082 Research Update: German Landesbank Helaba And SFHT Group Banks Affirmed At 'A/A-1' On Acquisition Of WestLB's Assets; Outlook Stable group's aggregate "adequate" business position, "strong" capital and earnings, "adequate" risk position, "average" funding, and "adequate" liquidity, as our criteria define these terms.

We believe this transaction could expand Helaba's role as central bank for the savings banks in the German states of North Rhine-Westphalia (AA-/Stable/A-1+) and Brandenburg (not rated) and its importance to the nationwide savings banks sector. Whether this could add stability or diversity to Helaba's business profile or improve its access to stable funding from the savings banks remains to be seen. Our ratings assume that Helaba's governance and strategy will not be adversely affected by the new ownership structure

The transaction does not undermine our assessment of the SFHT group's earnings and capital as "strong" and its risk position as "adequate". We base this on our unchanged expectation that the SFHT group's aggregate risk-adjusted capital (RAC) ratio, before the diversification benefit, will continue to improve to somewhat higher than 10% by year-end 2012. We estimate that our RAC ratio should slightly improve, because Helaba will assume generally lower-risk assets.

Outlook

The stable outlook reflects our assessment that the financial profiles of SFHT and Helaba will stay relatively resilient under increasingly difficult market conditions and are less likely to change over the next one to two years. It also reflects our opinion that the solidarity support within the SFHT group remains unchanged and that the group's capitalization will gradually strengthen. We also consider underlying risk from the acquisition of parts of WestLB to be manageable.

We could take negative rating actions if we saw a risk that the SFHT group's cohesiveness, risk culture, aggregate creditworthiness, and solidarity support were weakening, due to the increased businesses and diluted ownership structure. This could occur if, for example, a materially weaker capital generation capacity did not allow the group to achieve higher capital targets, if unexpected asset-quality problems led us to revise our view on the risk position, or if the savings banks' margins and business position were to significantly erode.

We consider an upgrade unlikely at present, given Helaba's sizable business and wholesale concentrations within the SFHT.

Ratings Score Snapshot

Issuer Credit Rating A/Stable/A-1 Group Credit Profile a

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986283 | 300025082 Research Update: German Landesbank Helaba And SFHT Group Banks Affirmed At 'A/A-1' On Acquisition Of WestLB's Assets; Outlook Stable

Anchor a- Business Position Adequate (0) Capital and Earnings Strong (+1) Risk Position Adequate (0) Funding and Liquidity Average and Adequate (0)

Support 0 GRE Support 0 Group Support 0 Sovereign Support 0

Additional Factors 0

Related Criteria And Research

All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.

Related research • German State of North Rhine-Westphalia Affirmed At 'AA-/A-1+' On Transfer Of WestLB's Remaining Assets; Outlook Stable, July 10, 2012 • Germany-Based Erste Abwicklungsanstalt 'AA-/A-1+' Ratings Affirmed On Asset Transfer; Outlook Stable, July 10, 2012 • German Landesbank WestLB Unsolicited 'BBB/A-2' Ratings Withdrawn On Planned Transfer Of Remaining Assets, July 10, 2012 • Outlook On German Mortgage Lender Westdeutsche ImmobilienBank To Stable On Transfer To EAA; 'BBB-/A-3' Ratings Affirmed, July 10, 2012

Related criteria • Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010 • Principles Of Credit Ratings, Feb. 16, 2011 • Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011 • Banks: Rating Methodology And Assumptions, Nov. 9, 2011 • Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 • Group Rating Methodology And Assumptions, Nov. 9, 2011

Ratings List

Ratings Affirmed

Landesbank Hessen-Thueringen Girozentrale Counterparty Credit Rating A/Stable/A-1 Senior Unsecured A Commercial Paper A-1 Certificate Of Deposit A/A-1

Helaba Dublin Landesbank Hessen-Thueringen International Counterparty Credit Rating A/Stable/A-1

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986283 | 300025082 Research Update: German Landesbank Helaba And SFHT Group Banks Affirmed At 'A/A-1' On Acquisition Of WestLB's Assets; Outlook Stable

Certificate Of Deposit A/A-1

Kasseler Sparkasse Wartburg-Sparkasse Taunus-Sparkasse Staedtische Sparkasse Offenbach am Main Stadtsparkasse Grebenstein Stadtsparkasse Felsberg Stadt- und Kreis-Sparkasse Darmstadt Sparkasse Werra-Meissner Sparkasse Waldeck-Frankenberg Sparkasse Unstrut-Hainich Sparkasse Starkenburg Sparkasse Sonneberg Sparkasse Mittelthueringen Sparkasse Marburg-Biedenkopf Sparkasse Jena-Saale-Holzland Sparkasse Hanau Sparkasse Gruenberg Sparkasse Gera-Greiz Sparkasse Fulda Sparkasse Dillenburg Sparkasse Dieburg Sparkasse Bensheim Sparkasse Battenberg Sparkasse Altenburger Land Nassauische Sparkasse Naspa Dublin Kreissparkasse Weilburg Kreissparkasse Schwalm-Eder Kreissparkasse Schluechtern Kreissparkasse Saalfeld-Rudolstadt Kreissparkasse Saale-Orla Kreissparkasse Nordhausen Kreissparkasse Limburg Kreissparkasse Gelnhausen Kreissparkasse Eichsfeld Stadtsparkasse Schwalmstadt Stadtsparkasse Borken Sparkasse Wetzlar Sparkasse Rhoen-Rennsteig Sparkasse Odenwaldkreis Sparkasse Oberhessen Sparkasse Laubach-Hungen Sparkasse Langen-Seligenstadt Sparkasse Giessen Sparkasse Bad Hersfeld-Rotenburg Sparkasse Arnstadt-Ilmenau Kyffhaeusersparkasse Kreissparkasse Hildburghausen

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986283 | 300025082 Research Update: German Landesbank Helaba And SFHT Group Banks Affirmed At 'A/A-1' On Acquisition Of WestLB's Assets; Outlook Stable

Kreissparkasse Gross-Gerau Kreissparkasse Gotha Frankfurter Sparkasse Counterparty Credit Rating A/Stable/A-1 Certificate Of Deposit A/A-1

Additional Contact: Financial Institutions Ratings Europe; [email protected]

Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.

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