Moody's cuts German, Austrian banks on euro risks

Wed Jun 6, 2012 7:43am EDT
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By Luciana Lopez

(Reuters) - Moody's Investors Service cut the credit ratings of six German banking groups and Austria's three largest banks on Wednesday, underscoring that even the euro zone's strongest economies face risks if the region's debt crisis deepens.

The downgrades to Commerzbank AG (CBKG.DE: Quote), Germany's second-largest lender, and several smaller German banks are part of a broad review of financial institutions in the euro bloc that has had investors on edge, but were mild compared with cuts for banks in weaker economies such as Spain and Italy.

Moody's said German lenders face risks to the quality of their assets if the euro zone crisis worsens or the global economy slows more, while also noting the relative strength of the German and Austrian economies.

Adding to fears of an escalation in the crisis, Spain said on Tuesday it was losing access to credit markets and appealed to its European partners to help revive its banks, a move likely to intensify global pressure on Europe to move quickly to the aid of its fourth-largest economy.

"We wanted to identify vulnerabilities from further potential shocks from the euro area debt crisis and how this would affect investor confidence in institutions across Europe," said Moody's Managing Director for banking, Carola Schuler.

The ratings agency was particularly concerned about a potential slip in the value of banks' portfolios of international commercial real estate, global ship financing, euro zone periphery sovereign bond and private sector assets, as well as a backlog of structured credit products, she said.

"German banks have limited capacity to absorb losses out of earnings and that raises the potential that capital could diminish in a stress scenario," Schuler added.

Commerzbank saw its long-term rating cut by one notch to A3 from A2 and assigned a negative outlook, with Moody's noting it had sizeable exposures to borrowers in Europe's periphery.   Continued...