S&P lowers Hypo Real Estate

Standard & Poor's said it lowered its long- and short-term counterparty credit ratings on three members of the Hypo Real Estate group by one notch, following a review of the group's profitability prospects.

Hypo Real Estate Bank International AG, Hypo Real Estate Bank AG and public finance lender Depfa Deutsche Pfandbriefbank AG were downgraded to A-/A-2 from A/A-1, the agency noted.

S&P said it also lowered the long-term counterparty credit rating on Depfa Bank plc, Depfa ACS, Hypo Public Finance Bank and Luxembourg-based Hypo Pfandbrief Bank International SA to A from A+ to maintain the one-notch rating differential between them and the two commercial mortgage lenders.

The A-1 short-term rating on these entities was affirmed, the agency added, while the AAA senior secured ratings on all issued covered bonds remain unchanged.

The outlook on all seven is stable.

S&P noted that these rating actions reflect its expectation that sizable impairment losses and markdowns in Hypo Real Estate's structured-credit portfolio, in conjunction with potentially longer-lasting difficult conditions in most of the group's core businesses, will continue to weigh on capital and profitability and reduce the bank's financial flexibility to meet its earnings targets.

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