German banks hit by Moody’s downgrades

MOODY’S downgraded seven German banks yesterday, including the country’s second-biggest lender Commerzbank, saying that they are holding risky assets equal to three times their capital base.

The agency slashed credit ratings mostly for regional banks due to low earnings combined with large holdings of “vulnerable” assets. It highlighted exposure to global shipping, commercial real estate, structured products put together during the property bubble and struggling southern European countries as risks.

Moody’s estimates that altogether, the downgraded banks had “combined exposures of approximately three times their tier one capital in higher-risk asset classes at year-end 2011 after hedges and estimated write-downs”.

But the downgrades were mitigated, it said, by the banks’ relatively low wholesale funding needs and the “benign domestic environment” in Germany.

Deutsche, the country’s biggest bank, has avoided being hit for now because Moody’s review of global banks is not yet complete.

Meanwhile, the Bank of Cyprus has applied to the FSA to admit its UK subsidiary into the Financial Services Compensation Scheme (FSCS) so that its depositors are covered by industry insurance.