Germany

Commerzbank is turning to German stabilisation fund SoFFin for a support package that includes the provision of up to Eu15bn of guarantees for funding, and HSH Nordbank is seeking up to Eu30bn of guarantees. The announcement of Commerzbank’s news was accompanied by the first details on fees for the guarantees.

Hypo Real Estate group is understood to have boosted the level of overcollateralisation for the mortgage cover pool of HRE Bank AG enough to avert a multi-notch downgrade by Fitch of the corresponding Pfandbriefe.

Fitch today (Thursday) affirmed the long term individual default ratings of several German Landesbanks and of Deutsche Postbank, citing the high potential of support from the banks’ owners in the event of need. However, some are already turning to the central government as well as local owners to shore up their capital and funding.

Hypo Real Estate yesterday (Tuesday) applied to the German Financial Markets Stabilisation Fund (SoFFin) for a guarantee for a planned Eu15bn liquidity facility from the Bundesbank to cover the group’s short term liquidity requirements. In addition, HRE today (Wednesday) announced that it will seek additional support from the Stabilisation Fund, which may involve capitalisation measures.

Fitch has held off taking action on Hypo Real Estate Bank AG’s Pfandbriefe to give the bank more time to address the rating agency’s concerns. The bank yesterday (Thursday) afternoon said that it was maintaining its rating watch negative on the covered bonds since it had said two weeks ago that it would be taking action as a result of its review this week.

After the outcry over Moody’s two covered bond downgrades on Tuesday, The Cover spoke to the rating agency to find out the thinking behind them. But rather than focus on its much-discussed timely payment indicator, Moody’s instead offered a refresher course on other elements of its methodology.

Not for the first time this month, analysts have been trying to get to grips with Moody’s rating actions, this time the downgrade of Depfa ACS Bank’s public sector covered bonds and Hypo Real Estate Bank International’s mortgage Pfandbriefe yesterday (Tuesday). Affecting more than Eu50bn of outstanding covered bonds, the downgrades are the most significant in the market since the crisis struck in summer 2007, but one analyst even called them irresponsible.

The German government committed to safeguarding the functioning of the Pfandbrief market should this become necessary when announcing its rescue package for German banks yesterday (Monday).

In brief: As The Cover was going to press, Moody’s was announcing downgrades to two classes of covered bonds of Hypo Real Estate group, including Depfa. It cut Depfa ACS Bank’s public sector asset covered securities from Aaa to Aa1 and HRE Bank International’s mortgage Pfandbriefe from Aa2 to Aa3.

The level of support banks can expect from their owners or governments was key to rating actions made by Fitch and Standard & Poor’s in the past 24 hours, as rating actions continued on covered bond-issuing members of groups that have been at the centre of the past fortnight’s emergency rescue packages.

Moody’s, Standard & Poor’s and Fitch yesterday (Tuesday) took rating actions on the covered bonds issued by Hypo Real Estate group entities following its bailout with a Eu35bn credit facility from the German government and banking industry on Monday. [Updated to correct existing Moody's ratings.]

Dexia today (Tuesday) received a Eu6.4bn equity injection from governments and other shareholders after the group’s shares fell almost 30% yesterday (Monday). After a trading suspension was lifted this morning the stock rallied around 20%.