Commerzbank AG (CBK), Germany’s second- largest bank, had its credit rating cut one level as Europe’s deepening debt crisis prompted Moody’s Investors Service to downgrade seven lenders in the nation and three in Austria.
The Group of Seven nations yesterday agreed to coordinate their response to Europe’s turmoil, which has tipped at least eight of the 17 euro-area economies into recession and damped demand for foreign goods. Policy makers at the European Central Bank meeting today face increasing pressure to lower rates and introduce more liquidity support for banks.
Moody’s decision is “a bit harsh” given the resilience of the German banking system and economy, said Sandy Mehta, chief executive officer of Value Investment Principals Ltd., a Hong Kong-based investment advisory company. “But given the events in Europe, unless the authorities and the powers that be are more decisive and take firmer action, then you do have the risk that the economic problems will engulf Germany as well.”
Commerzbank shares rose 0.7 percent to 1.33 euros at 12:15 p.m. in Frankfurt trading, valuing the lender at 7.45 billion euros ($9.3 billion). The stock has gained 2.1 percent this year, while Deutsche Bank declined 5.3 percent.
The rating actions were driven by “the increased risk of further shocks emanating from the euro area debt crisis, in combination with the banks’ limited loss-absorption capacity,” Moody’s said. In addition to Commerzbank, five other German banking groups were reduced, as was the local subsidiary of UniCredit SpA (UCG), Italy’s biggest lender.
Commerzbank, DekaBank Deutsche Girozentrale, NordLB, DZ Bank AG and LBBW declined to comment on the downgrades. Landesbank Hessen-Thueringen, known as Helaba, wasn’t immediately available for comment.
In Austria, UniCredit Bank Austria AG and Raiffeisen Bank International AG (RBI), Eastern Europe’s third-biggest lender, were lowered one level to A3 and A2 respectively, Moody’s said in a separate statement. Erste Group Bank AG (EBS), the region’s second- biggest lender after UniCredit’s Milan-based parent, was cut two grades to A3.
The downgrades “reflect their vulnerability to the adverse operating conditions in some of their core markets” in eastern Europe, Moody’s said, commenting on the Austrian lenders. They also face “increased risk of further shocks from the ongoing euro area debt crisis,” it said.
The rating cut has “limited impact on Erste, since we benefit from a robust liquidity situation underpinned by very large and resilient deposit base, committed long-term funding from institutional and private investors, as well as proven access to short term refinancing and capital markets for issuance of unsecured and secured bonds even in challenging times,” Michael Mauritz, a spokesman for Erste, said by e-mail. Erste has already covered its full funding needs for 2012, he said.
Raiffeisen also doesn’t “expect a significant impact on funding costs,” spokesman Michael Palzer said by phone. Bank Austria declined to comment, citing company policy.
The downgrade won’t affect Commerzbank’s business in China, where it plans to increase revenue by as much as 30 percent this year, Asian regional board member Michael Kotzbauer said at a news briefing in Beijing today. He didn’t comment on business elsewhere.
Figures today may show the euro area’s gross domestic product stagnated in the latest quarter after dropping 0.3 percent in the previous period, according to a Bloomberg survey. In Germany, industrial output probably declined 1 percent in April from a month earlier, when it climbed 2.8 percent, a separate survey showed.
The rating company said many of the German lenders were downgraded less than European rivals because of factors including the country’s below-average unemployment and low household and corporate debt.
German banks’ resilience contrasts with those in Spain, where the Bankia (BKIA) group was nationalized last month. The Spanish government is pushing for Europe to channel funds directly to banks as concern mounts over the country’s ability to support lenders facing mounting costs of cleaning up souring assets. Germany opposes Spain’s request for Europe’s bailout fund to be able to provide money directly to banks.
Yesterday’s G-7 conference call centered on helping Greece and Spain place their public finances on a sustainable footing, Japanese Finance Minister Jun Azumi said. European officials “said they will speed up their efforts to resolve those problems, which was encouraging to us,” Azumi told reporters.
Moody’s said in February that it was putting 114 European banks and an additional eight non-European firms with large capital-markets businesses under review to assess the impact of the region’s debt crisis. Last month, it downgraded 16 Spanish banks, including Banco Santander SA (SAN) and 26 Italian lenders including UniCredit.
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