Germany's Dresdner Bank Ratings Upgraded To 'A+/A-1' On Improved Risk Profile; Outlook Stable
FRANKFURT (Standard & Poor's) April 20, 2006--Standard & Poor's Ratings
Services said today it upgraded the long-term counterparty credit ratings on
Germany-based Dresdner Bank AG (Dresdner) to 'A+' from 'A'. In addition, the
'A-1' short-term counterparty credit rating was affirmed. The outlook is
stable.
At the same time, Standard & Poor's revised its outlook on Germany-based
insurer Allianz AG (Alianz), Dresdner's 100%-owner, to positive from stable
(see separate Research Update entitled "Allianz AG Outlook To Positive;
'AA-/A-1+' Ratings Affirmed; Dresdner Ratings Raised To 'A+'", published on
April 20, 2006, on RatingsDirect, Standard & Poor's Web-based credit analysis
system). Furthermore, the long- and short-term 'AA-/A-1+' counterparty credit
ratings on Allianz were affirmed.
"The rating upgrade reflects Standard & Poor's expectation that the
progress of Dresdner's de-risking efforts, as demonstrated for example in the
substantial decline of nonperforming and potential problem loans by about 60%
in 2005, will prove sustainable due to significant improvements in the bank's
asset quality and risk management," said Standard & Poor's credit analyst
Volker von Kruechten. Furthermore, after years of extensive restructuring,
Dresdner has stabilized its retail-banking franchise, which is expected to
gradually benefit further from the collaboration with Allianz.
"The ratings continue to be based on Dresdner's strategic importance to
Allianz, which remains primarily driven by Dresdner's retail-banking business,
underpinned by the current reorganization of the bank's business units," said
Mr. von Kruechten. "Dresdner Bank's unsatisfactory profitability levels
combined with its significant reliance on improvements in the structurally
difficult German banking market and a favorable capital market environment
remain the primary negative rating factors."
The new structure with two main divisions--Private and Business Clients
and Corporate and Investment Banking--should help to gradually improve
Dresdner's weak cost-to-income ratio of about 90% in 2005. Standard & Poor's
central scenario for 2006 expects modest earnings improvements, as growth in
commission and trading income will be partially offset by an expected increase
in loan loss provisions following the unusual net release of loan loss
reserves in 2005, whereas cost-cutting initiatives will be leveling out.
While the bankassurance/assurbanking business is making progress--albeit
from low levels with limited impact on bottom-line earnings--the closer
integration of corporate and investment banking is lagging behind that of
competitors. Dresdner's strategy to focus predominantly on revenue growth in
the competitive investment-banking business exposes the bank to a
comparatively higher level of business risk than many of its domestic peers,
which have more closely aligned investment-banking operations to the needs of
their clients. While the currently favorable capital markets benefit this
strategy, it bears the risk of a recurrence of setbacks if the current benign
environment were to deteriorate.
Capitalization is considered as moderate, considering the low
profitability and the business risks to which the bank is exposed. Capital is
not expected to improve significantly, as Allianz is likely to employ capital
at more profitable group divisions.
The stable outlook reflects the expectation that Dresdner's
retail-banking operations should gradually benefit from intensified
cooperation within the Allianz group. In addition, the clarified strategic
role and closer integration of Dresdner's wholesale operations, which account
for the major part of the bank's business, should help to stabilize the
operating performance of the investment-banking business, which remains
reliant on a favorable capital market environment, however. To consolidate the
bank's position as an integral part of the Allianz group, a significantly
higher and sustainable level of profitability will be needed.
The outlook could be revised to positive if the bank's reorganization
were to allow Dresdner to build up considerable revenue momentum and narrow
the significant earnings gap to major peers. Conversely, if the bank failed to
tackle its weak cost efficiency, the ratings on Dresdner might be adversely
affected. If contrary to expectations, Allianz were to reconsider its
commitment to Dresdner's wholesale business, rating implications would also be
negative.
Ratings information is available to subscribers of RatingsDirect,
Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com.
It can also be found on Standard & Poor's public Web site at
www.standardandpoors.com; under Credit Ratings in the left navigation bar,
select Find a Rating, then Credit Ratings Search. Alternatively, call one of
the following Standard & Poor's numbers: Client Support Europe (44)
20-7176-7176; London Press Office Hotline (44) 20-7176-3605; Paris (33)
1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or
Moscow (7) 495-783-4017. Members of the media may also contact the European
Press Office via e-mail on: media_europe@standardandpoors.com.
| Primary Credit Analyst: | Volker von Kruechten, Frankfurt (49) 69-33-999-164; volker_vonkruechten@standardandpoors.com |
| Secondary Credit Analyst: | Bernd Ackermann, Frankfurt (49) 69-33-999-153; bernd_ackermann@standardandpoors.com |
| Additional Contact: | Financial Institutions Ratings Europe; FIG_Europe@standardandpoors.com |
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