Fitch Places VB-Verbund's Viability Rating on RWN; Affirms VB-Verbund's & OeVAG's L-T IDRs at 'A'

LONDON--()--Fitch Ratings has placed Volksbanken-Verbund's (VB-Verbund) Viability Rating (VR) of 'bb+' on Rating Watch Negative (RWN). At the same time, VB-Verbund's and Oesterreichische Volksbanken-Aktiengeselleschaft's (OeVAG) Long-term Issuer Default Rating (IDR) of 'A' with Stable Outlook, Short-term IDR of 'F1', Support Rating of '1' and Support Rating Floor of 'A' have been affirmed. A full list of rating actions is at the end of this comment.

The rating actions follow the announcement on 13 October 2011 that OeVAG will report a significant loss for FY2011 primarily as a result of write-downs of the book values of its subsidiaries Investkredit Bank AG and Volksbank Romania S.A. At the same time, OeVAG has stated that it will not repay the first tranche (EUR300m) of the government participation capital received in 2009 and that it will postpone the planned demerger of the banking business of OeVAG to Investkredit until further notice.

In addition, and as part of its capital strengthening measures in preparation for Basel III implementation, VB-Verbund and OeVAG announced that they have decided to reorganise the structure of the group similar to Rabobank Group's ('AA+'/RWN), a development which Fitch views positively as it is likely to strengthen corporate governance, risk management control and consolidated supervision.

The RWN on VB-Verbund's VR predominately reflects Fitch's view that VB-Verbund's central institution, OeVAG, continues to face material challenges in relation to its capital position, risk profile and business model, despite considerable deleveraging efforts since 2008. As Fitch does not assign a Viability Rating to OeVAG, the rating action is taken at VB-Verbund level.

In its latest rating action commentary dated 19 July 2011, Fitch stated that should OeVAG's core capital not be strengthened as a result of the capital strengthening measures, VB-Verbund's VR would come under pressure. OeVAG represents a considerable proportion of VB-Verbund and for FY2011, net profit generated by the steadily performing VB-Verbund's primary banks will likely not be sufficient to offset OeVAG's expected sizeable loss (around EUR500m under IFRS on a consolidated level as publicly stated by management).

With the exception of the VBI sale, which is likely to increase the regulatory core Tier 1 capital ratio at end-2011, capital raising measures announced earlier this year are being postponed, which is of concern as capital raising measures are being delayed at a time when European banks are faced with increasing capital requirements.

Fitch expects to resolve the RWN in the near term once it has assessed the impact of the planned measures on the group's capital position, financial strength and business model. Depending on the outcome of Fitch's assessment, VB-Verbund's VR could be downgraded by more than one notch.

VB-Verbund's and OeVAG's IDRs are solely based on the agency's view of sovereign support by the Republic of Austria ('AAA'/Stable). In Fitch's view, VB-Verbund's sizeable domestic market share should improve as the result of the announced reorganisation and will therefore continue to be systemically important for the Austrian economy. However, should the Austrian government's propensity to support the bank weaken or become constrained by legislative changes, then this would result in a downgrade of VB-Verbund's and OeVAG's IDRs.

VB-Verbund, which is not a legal entity itself but a cooperative grouping of member banks, is Austria's fourth-largest banking group. OeVAG is the central institution of VB-Verbund, Austria's second-largest cooperative banking group. As such, Fitch has assigned OeVAG "group" ratings under Fitch's rating criteria for banking structures backed by mutual support mechanisms. Fitch does not assign OeVAG a Viability Rating.

The rating actions are as follows:

VB-Verbund

Long-term IDR: affirmed at 'A'; Stable Outlook

Short-term IDR: affirmed at 'F1'

Viability Rating: 'bb+'; placed on RWN

Individual Rating: 'C/D'; placed on RWN

Support Rating affirmed at '1'

Support Rating Floor: affirmed at 'A'

OeVAG

Long-term IDR: affirmed at 'A'; Stable Outlook

Short-term IDR: affirmed at 'F1'

Support Rating affirmed at '1'

Support Rating Floor: affirmed at 'A'

Government guaranteed bonds affirmed at 'AAA'

Market Linked Securities: affirmed at 'Aemr'

Senior Unsecured Notes: affirmed at 'A'

The ratings of the other VB-Verbund member banks have been affirmed at Long-term IDR 'A' with Stable Outlook and Short-term IDR 'F1'. The full list of VB-Verbund member banks (in addition to OeVAG) is as follows:

Bank fuer Aerzte und freie Berufe AG

Volksbank Weinviertel e.Gen.

VOLKSBANK OBERES WALDVIERTEL rGmbH

Gaertnerbank, rGmbH

Volksbank Tullnerfeld eG

Volksbank Bad Goisern eingetragene Genossenschaft

Volksbank Osttirol rGmbH

Volksbank Oetscherland eG

Volksbank Fels am Wagram e.Gen.

Volksbank Krems-Zwettl AG

Volksbank Laa eGen

Volksbank Marchfeld e.Gen.

Volksbank, Gewerbe- und Handelsbank Kaernten AG

VOLKSBANK fuer den Bezirk Weiz rGmbH

Volksbank Tirol Innsbruck-Schwaz AG

Volksbank Altheim-Braunau rGmbH

Volksbank Feldkirchen, rGmbH

Volksbank Schaerding eG

Volksbank Steirisches Salzkammergut, rGmbH

VOLKSBANK BADEN e.Gen.

VOLKSBANK OBERKAERNTEN rGmbH

VOLKSBANK VOECKLABRUCK-GMUNDEN e.Gen.

Volksbank Wien AG

Volksbank Enns- und Paltental rGmbH

Volksbank Bad Hall e.Gen.

Volksbank Linz-Wels-Muehlviertel AG

Volksbank Gmuend eingetragene Genossenschaft

Allgemeine Bausparkasse rGmbH

Volksbank Alpenvorland e.Gen.

Waldviertler Volksbank Horn rGmbH

Volksbank Ost rGmbH

Volksbank Kufstein eG

Volksbank Ried im Innkreis eG

Volksbank Enns-St. Valentin eG

Volksbank Friedburg rGmbH

Oesterreichische Apothekerbank eG

Volksbank Voecklamarkt-Mondsee rGmbH

Volksbank Gailtal eG

Volksbank Niederoesterreich Sued eG

Volksbank Oberndorf rGmbH

Volksbank Obersdorf-Wolkersdorf-Deutsch-Wagram e.Gen.

VOLKSBANK GRAZ-BRUCK e.Gen.

Volksbank Muerztal-Leoben e.Gen

Volksbank Eferding-Grieskirchen rGmbH

Volksbank fuer die Sued- und Weststeiermark rGmbH

Volksbank Donau-Weinland rGmbH

Wiener Spar- und Kreditinstitut rGmbH

Volksbank Salzburg eG

Volksbank Almtal e.Gen.

VOLKSBANK VORARLBERG e.Gen.

VOLKSBANK LANDECK eG

Volksbank Aichfeld-Murboden rGmbH

SPARDA-BANK VILLACH/INNSBRUCK rGmbH

Volksbank Kaernten Sued e.Gen.

IMMO-BANK AG

Volksbank Niederoesterreich-Mitte e.G.

Volksbank Sued-Oststeiermark e.Gen.

Volksbank Suedburgenland rGmbH

SPARDA-BANK LINZ rGmbH

VB Factoring Bank AG

Volksbank-Quadrat Bank AG

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 16 August 2011 and 'Rating Criteria for Banking Structures backed by Mutual Support Mechanisms', dated 11 April 2011 are available at www.fitchratings.com.

Related Research:

Volksbanken Verbund Full Rating Report (January 2011)

Oesterreichische Volksbanken AG Update (January 2011)

Fitch Affirms Volksbanken Verbund and OeVAG on Announced VBI Sale (July 2011)

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

Rating Criteria for Banking Structures Backed by Mutual Support Mechanisms

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=591785

Volksbanken Verbund

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595627

Volksbanken Verbund

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=539483

Oesterreichische Volksbanken Aktiengesellschaft

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=539484

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Contacts

Fitch Ratings
Primary Analyst
Anna Deineko ACCA
Analyst
+44 20 3530 1538
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
or
Secondary Analyst
Christian Kuendig
Director
+44 20 3530 1399
or
Committee Chairperson
Maria Jose Lockerbie
Managing Director
+ 44 20 3530 1083
or
Media Relations
Michelle James, London, +44 0203 530 1574
Michelle.James@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Anna Deineko ACCA
Analyst
+44 20 3530 1538
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
or
Secondary Analyst
Christian Kuendig
Director
+44 20 3530 1399
or
Committee Chairperson
Maria Jose Lockerbie
Managing Director
+ 44 20 3530 1083
or
Media Relations
Michelle James, London, +44 0203 530 1574
Michelle.James@fitchratings.com