DZ BANK AG Deutsche Zentral-Genossenschaftsbank
Total Page：16
File Type：pdf, Size：1020Kb
DZ BANK AG Deutsche Zentral-Genossenschaftsbank Primary Credit Analyst: Harm Semder, Frankfurt (49) 69-33-999-158; [email protected] Secondary Contact: Markus W Schmaus, Frankfurt (49) 69-33-999-155; [email protected] Table Of Contents Major Rating Factors Outlook Rationale Related Criteria And Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 14, 2012 1 1034748 | 300025082 DZ BANK AG Deutsche Zentral-Genossenschaftsbank Additional SACP aa- Support 0 0 + + Factors Anchor a- Issuer Credit Rating Business GRE Support 0 Strong Position +1 Capital and Strong Earnings +1 Group Support 0 Risk Position Adequate 0 AA-/Stable/A-1+ Above Funding Average +1 Sovereign Support 0 Liquidity Strong Major Rating Factors Strengths: Weaknesses: • Group credit profile based on solidarity support and • High cost base of the local cooperative banks. a comprehensive protection scheme. • Continued margin pressure in traditional core • No. 2 market position in German retail banking. products. • Stable deposits and sizable surplus liquidity from • Limited strategic leadership and execution. local cooperative banks. • Strong capitalization from high earnings retention. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 14, 2012 2 1034748 | 300025082 DZ BANK AG Deutsche Zentral-Genossenschaftsbank Outlook: Stable Standard & Poor's Ratings Services' outlook on core group members of Germany's cooperative banking sector (Genossenschaftliche FinanzGruppe), including its main central bank DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ BANK), is stable, reflecting our expectation that the ratings on Germany's cooperative banking sector are unlikely to change over the next one to two years. It also reflects our opinion that the solidarity support within the sector will remain unchanged. Although we currently anticipate a weakening of economic and financial market conditions globally, we believe that the sector's key credit metrics should remain more resilient than and superior to the average for the German banking industry. We consider positive or negative rating actions unlikely at present, as these would require more fundamental changes to the sector's strengths or weaknesses or to the economic and industry risk in Germany. A heightening of economic risk in Germany, gradual erosion of the sector's market position, a deterioration of its risk-adjusted capital (RAC) ratio to less than 10%, or strategic shifts into higher-risk areas could have negative rating implications. Conversely, the successful execution of a holistic strategy to address the sector's traditional weaknesses--such as cost efficiency and its below-average market position in corporate and private banking--could have positive rating implications. Rationale The starting point for our ratings on core group members of Germany's cooperative banking sector is its 'a-' anchor, which is based on our view of the banking system in Germany. We believe Germany's cooperative banking sector, on aggregate, has a "strong" business position, as our criteria define this term, reflecting the sector's leading retail position in German markets. We assess the sector's aggregate capital and earnings as "strong", because we anticipate that good earnings will improve the sector's RAC ratio to mildly above 11.0% by 2013. The sector's aggregate risk position is "adequate", in our view, balancing its granular loan portfolios in German markets against a higher risk of managing larger members' exposures. The cooperative banking sector's "above-average" funding position and "strong" liquidity are based on the sizable surplus liquidity of the majority of local cooperative banks. We assess the group credit profile (GCP) at 'aa-', because we regard the sector as a cohesive economic group and expect to see solidarity support among member banks in a crisis. We do not factor in additional uplift for potential extraordinary government support. Anchor: Reflects Germany's diverse and resilient economy Under our bank criteria, we use our Banking Industry Country Risk Assessment economic risk and industry risk scores to determine a bank's anchor, the starting point in assigning an issuer credit rating (ICR). Our anchor for a commercial bank operating only in Germany is 'a-', based on an economic risk score of '1' and an industry risk score of '3'. Our economic risk assessment reflects Germany's highly diverse and competitive economy and a lack of major economic imbalances. An export-led economy, Germany remains vulnerable to swings in global economies, trade flows, and capital market trends, however. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 14, 2012 3 1034748 | 300025082 DZ BANK AG Deutsche Zentral-Genossenschaftsbank Industry risk benefits from Germany's extensive funding market and banks' domestic funding surpluses from low domestic credit growth and high savings rates. However, the sector's competitive dynamics result in relatively low profitability, which is fueled by significant disparities in the commercial targets and business and risk profiles of market players. Table 1 Cooperative Banking Sector Germany--Key Figures --Fiscal year ended Dec. 31-- (Mil. €) 2011 2010 2009 2008 2007 Adjusted assets 1,001,044 964,479 965,575 975,882 945,516 Customer loans (gross) 606,820 583,326 560,433 547,882 526,985 Adjusted common equity 62,820 59,592 54,254 49,347 38,648 Operating revenues 23,337 25,594 24,849 17,184 25,361 Noninterest expenses 16,911 16,602 16,024 15,518 18,447 Core earnings 4,462 6,089 4,638 186 5,400 Business position: "Strong," due to a leading retail position in German markets We expect the sector to maintain its "strong" business position as the second-largest financial services group in Germany. This is because we view the sector as somewhat less vulnerable than the industry risk score of '3' indicates. The sector comprises more than 1,100 local cooperative banks that service more than 30 million domestic customers, and reported total assets of more than €1 trillion as of year-end 2011. Its business is predominantly focused on the domestic market, with select niche activities abroad through its central banks and specialized product providers. The local mutual banks have impressive market shares in traditional retail banking, which provide, in our view, superior business stability. They are legally independent and cater to retail and small and midsize enterprises (SMEs) in their restricted regions and business areas. Their combined market shares in traditional banking products are generally 10%-30%. Higher-margin services, however, suffer from generally below-average market penetration for larger and affluent SME customers and individuals in bigger cities. The banks also have strong market positions in nonbank financial services through specialized sector entities. DZ BANK, the sector's main central bank, consolidates the specialized product providers, allowing the sector to offer a complete range of financial services, such as insurance, building-savings contracts, mutual funds, and leasing. However, in our view, limited strategic leadership and execution is a relative weakness for the sector with regard to some mutual banking groups. We believe this weakens the sector's financial performance and its ability to respond to challenges (such as intense margin pressure and banks' high cost bases) or to strengthen its below-average position in domestic corporate banking. Table 2 Cooperative Banking Sector Germany--Business Position --Fiscal year ended Dec. 31-- (Mil. €) 2011 2010 2009 2008 2007 Total revenues from business line (currency in millions) 23,337 N/A N/A N/A N/A Commercial banking/total revenues from business line 8.63 N.M. N.M. N.M. N.M. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 14, 2012 4 1034748 | 300025082 DZ BANK AG Deutsche Zentral-Genossenschaftsbank Table 2 Cooperative Banking Sector Germany--Business Position (cont.) Retail banking/total revenues from business line 88.13 N.M. N.M. N.M. N.M. Insurance activities/total revenues from business line 1.31 N.M. N.M. N.M. N.M. Other revenues/total revenues from business line 1.93 N.M. N.M. N.M. N.M. Return on equity 7.24 10.58 8.71 0.53 5.27 N/A--Not applicable. N.M.--Not meaningful. Capital and earnings: "Strong", on good earnings to further increase high RAC ratios Our assessment of the sector's capital and earnings as "strong" reflects our expectation that the aggregate RAC ratio (before diversification adjustments) will continue to improve. We anticipate that the aggregate RAC ratio could increase to mildly above 11.0% by 2013 from about 10.1% at year-end 2011. We base this on the cooperative banks' good-quality earnings, moderate growth potential, and ownership structures that support high earnings retention into capital. We also consider its capital position vis-à-vis its diverse domestic retail business risk profile. The quality of capital is strong, in our view. The local cooperative banks hold only a marginal amount of hybrid capital instruments. Distributing capital resources across the sector to support growth remains a challenge. For example, although the cooperative banks enjoy particularly strong capitalization, the RAC ratio for DZ BANK will likely remain moderate at less than 6%. Table 3 Cooperative Banking Sector Germany--Capital And Earnings --Fiscal year ended Dec. 31-- (%) 2011 2010 2009 2008 2007 Tier 1 capital ratio 12.10 11.70 10.80 7.76 7.62 S&P RAC ratio before diversification 10.07 10.78 N.M. N.M. N.M. S&P RAC ratio after diversification 12.20 12.64 N.M. N.M. N.M. Adjusted common equity/total adjusted capital 97.70 97.58 97.35 97.09 96.46 Net interest income/operating revenues 82.23 73.19 70.09 90.92 62.58 Fee income/operating revenues 20.52 19.59 18.41 27.40 21.24 Market-sensitive income/operating revenues (11.11) (0.70) 6.19 (30.07) (1.63) Noninterest expenses/operating revenues 72.46 64.87 64.49 90.30 72.74 Preprovision operating income/average assets 0.62 0.88 0.86 0.16 0.71 Core earnings/average managed assets 0.43 0.60 0.45 0.02 0.55 N.M.--Not meaningful.