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Banks
www.fitchratings.com 31 January 2013
Germany
Genossenschaftliche FinanzGruppe Full Rating Report
Key Rating Drivers
Strong Retail-Focused Group: The ratings of Germany‟s cooperative banking group
(Genossenschaftliche FinanzGruppe, GFG) reflect its strong franchise as the second-largest
domestic retail banking group, resilient performance, sound asset quality, and strong funding
and capitalisation. They also reflect the broad diversification of GFG‟s risk and earnings. The
IDRs apply to all 1,118 members of the group‟s institutional protection scheme.
Decentralised but Highly Cohesive: GFG‟s members form a homogeneous risk group. GFG
shares a strong cultural identity and common strategic goals despite the highly decentralised
organisation and resulting autonomy of the numerous small local cooperative banks. Its
consolidated accounts attest to GFG‟s commitment to position itself as a cohesive group.
Strong, Tested Mutual Support: BVR, the National Association of German Cooperative
Banks, manages GFG‟s risk-monitoring system, institutional support scheme and support fund,
which are designed to protect the viability of all member banks in their entirety, ie, not only their
deposits. This leads to particularly strong institutional (mutual) support. Fitch Ratings considers
that GFG‟s large-scale provision of essential banking services to the domestic economy would
result in an extremely high probability of support from the German authorities if ever needed.
Solid Risk/Return Profile: GFG derives its resilient performance from its dominant focus on
low-risk businesses. Germany‟s robust economy currently creates a favourable operating
environment compared with most of GFG‟s European peers. This strongly mitigates the low
interest rates (and, to a lesser extent, rising LICs) that should gradually burden interest income,
GFG‟s dominant source of revenues, from 2013. Its retail focus is likely to make adaptation to
the new regulatory and market environment less challenging for GFG than for most of its peers.
Resilient Asset Quality: The local banks‟ moderate credit risk mitigates the exposures of
GFG‟s two large central banks to wholesale markets and vulnerable asset classes (commercial
real estate (CRE), shipping, securitisation investments and GIIPS sovereigns), which are
manageable at the group level. Thus far, the financial crisis has triggered no material intragroup
bailout. Outstanding mutual support measures are limited to a small group of local banks.
Strong Funding and Capital: Vast, stable, domestic, retail-focused deposits and a large,
diversified covered bond franchise underpin GFG‟s strong funding. Its excess of deposits over
loans greatly limits liquidity risk. The local banks‟ strong capital (in absolute and risk-adjusted
terms) is sufficient to address the material pressure from Basel III on some central institutions‟
modest capitalisation. When addressing its weaker members‟ shortcomings ahead of Basel III,
GFG can use tested ways to mitigate the restricted fungibility of its liquidity and capital.
What Could Trigger a Rating Action
External Events Likeliest Triggers: A downgrade of GFG‟s IDRs would require a combined
downgrade of its VR and SRF, notably if Germany‟s IDRs were downgraded. GFG‟s domestic
focus creates a material correlation between the two events. An EU-wide “banking union” could
simultaneously weaken state support availability and the effectiveness of GFG‟s mutual support
scheme. But Fitch believes the German authorities are committed to protecting the latter.
In light of the now structurally challenging banking environment, an upgrade would require
material de-risking and refocusing of GFG‟s wholesale operations and efficiency gains. Barring
worst-case eurozone developments, the risk that GFG may rely on state support is remote.
Ratings
Foreign Currency
Long-Term IDR (Group Rating) A+ Short-Term IDR (Group Rating) F1+ Viability Rating (VR) a+ Support Rating 1 Support Rating Floor (SRF) A+
Sovereign Risk Long-Term Foreign-Currency IDR AAA Long-Term Local-Currency IDR AAA
Outlooks
Long-Term Foreign-Currency IDR Stable Sovereign Long-Term Foreign-Currency IDR
Stable
Sovereign Long-Term Local-Currency IDR
Stable
Financial Data
Genossenschaftliche FinanzGruppe
2011 2010
Total assets (USDbn) 1,369 1,363 Total assets (EURbn) 1,058 1,020 Total equity (EURbn) 64.9 61.7 Operating profit (EURbn) 5.7 8.1 Published net income (EURbn) 4.5 6.1 Operating ROAA (%) 0.55 0.80 Operating ROAE (%) 9.0 13.6 Fitch core capital/RWA (%) 12.0 12.0 Regulatory tier 1 ratio (%) 9.1 8.9 Tangible equity/tangible assets (%) 6.0 6.0 Cost/income ratio (%) 71.2 63.2 Client loans/client deposits (%) 93.8 94.1 Client deposits/total funding excluding derivatives (%)
74.5 73.1
Related Research
List of Rated Members of Genossenschaftliche FinanzGruppe at End-June 2012 (July 2012)
2013 Outlook: German Banks (December 2012)
No Signs of Real-Estate Bubble in Germany (August 2012)
European Banks and Market Turmoil (January 2012)
Rating Banks in a Changing World (October 2011)
Fitch Comments on Support for Euro Banks; Takes Various Support-Driven Rating Actions (October 2011)
Analysts
Patrick Rioual +49 69 76 80 76 123 [email protected] Michael Dawson-Kropf +49 69 76 80 76 113 [email protected]
A full credit analysis on DZ BANK, to be published on www.fitchratings.com, will complete this report. Therefore, the present report contains only limited information on DZ BANK.
Banks
Genossenschaftliche FinanzGruppe
January 2013 2
Profile
Figure 1 GFG Features Generally Low-Risk Characteristics Risk drivers Characteristics
Profitability Solid and broadly stable Earnings cyclicality and volatility Relatively low Reliance on capital markets Moderate and stable Exposure to foreign markets Low and decreasing Vulnerable asset classes Significant but manageable and decreasing Complexity of group structure Significant, with low short-term streamlining prospects Granularity of assets and liabilities High Main funding sources Retail and SME deposits Capitalisation Strong and gradually improving Ownership structure Highly granular, stable and broadening Strategic orientation Highly stable locally; increasingly coherent at group level Crisis-driven restructuring needs Limited State support ever needed or expected? No Overall risk profile Fairly low risk
Source: Fitch
Leading, Integrated, Cohesive, Decentralised, Resilient, Increasingly Focused
DZ Bank AG Deutsche Zentral-Genossenschaftsbank (DZ BANK; „A+‟/Stable/„F1+‟) and WGZ
Bank AG Westdeutsche Genossenschafts-Zentralbank (WGZ BANK; „A+‟/Stable/„F1+‟), GFG‟s
two central banks, together account for about 40% of the group‟s total assets and a dominant
share of the most vulnerable asset classes to which the group is exposed. The local banks‟
generally low-risk retail business dominates profit generation. To avoid confusion, the term
“central institutions” (“Verbundinstitute”) used in this report includes several specialist group
entities in addition to the two central banks.
The group‟s reliance on the profitability of its retail operations became particularly visible amid
the challenging market conditions in H211, when DZ BANK and WGZ BANK made a
cumulative pre-tax IFRS loss of EUR1bn, driven by spread widening of GIIPS exposures.
GFG controls about 25% of German domestic household deposits and loans, and 15%-20% of
the overall corporate market, with a strong focus on small SMEs. Its vast retail franchise
includes 30 million clients, more than half of which (17 million; +300,000 in 2011) are also
cooperative members, which enhances the stability of its client base. Fitch estimates that the
group controls approximately 20% of the fairly fragmented German banking market overall
(including retail and SME loans and deposits as well as large corporates).
GFG‟s market shares are gradually increasing in all retail segments. Its market positions are
particularly strong in the very small SME, self-employed and household segments. In the
stagnating German market, this means that material growth is conceivable if GFG raises cross-
selling – which can only be very gradual – or moderately gains market share in the larger SME
Figure 2 Figure 3 Figure 4
13 21 2014
20 30
7359 50
0%
20%
40%
60%
80%
100%
Total assets Equity Operating profit
Rest of system SFG GFG
Key Pillar of Banking System2011 contributions to German systema
ª Excl. state-owned development bank, FMS Wertmanagement, Erste Abwicklungsanstaltb German savings banksSource: Fitch
b
0 10 20 30 40 50
TARGOBANKUniCredit
SCBING-Diba
CommerzbankDBª
GFGSFG
Leading Domestic PlayerMillion clients at end-2011
a Deutsche Bank and Deutsche Postbankb Santander Consumer Bankc Unicredit Bank AGSource: Company data
b
c
0 20 40 60 80
CRE lending
Corporate lending
Residential mortgages
Consumer lending
Corporate deposits
Savings retail deposits
Sight retail deposits
GFG SFG
Leading Market SharesDomestic market shares 2011
CRE: Commercial real estateSource: Bundesbank, Fitch
(%)
Related Criteria
Global Financial Institutions Rating Criteria (August 2012)
Rating Criteria for Banking Structures Backed by Mutual Support Mechanisms (December 2012)
Evaluating Corporate Governance (December 2012)
Profits and capital are concentrated at
the retail-focused local banks.
Major risks are concentrated at the
central banks.
All references to WGZ BANK, Deutsche
Apotheker- und Aerztebank (Apobank)
and Muenchener Hypothekenbank
(Muenchener Hyp) in this report are
based on the banks‟ public disclosure.
Domestic franchise is strong.
Successfully defends its market
positions.
Banks
Genossenschaftliche FinanzGruppe
January 2013 3
segment, which is more attainable in light of ongoing initiatives to intensify DZ BANK and WGZ
BANK‟s cooperation with the local banks.
GFG‟s local banks benefit from a high level of independence compared with most European
cooperative banking groups. Most peers (see peer group in Appendix 2, Figure 25) have
delegated a large share of decision-making processes to central wholesale institutions, some of
which even own large stakes in the local banks. Similar dilution of the original cooperative
principle of decentralised management is unlikely to happen at GFG, unless imposed by
regulation. Thus, DZ BANK and WGZ BANK will remain bound to the strategic orientations
defined by the representatives of their owners, the local banks.
GFG‟s performance during the financial crisis supports Fitch‟s view that, while limiting its ability
to anticipate or quickly coordinate reactions to external shocks, this strict decentralisation has,
on balance, positive risk management implications. It generally limits risk correlations and
promotes local management‟s cautious risk culture and fairly effective checks and balances.
The main downside of this decentralised structure is the low priority put on streamlining group
structures and optimising costs. This in turn considerably hinders consolidation, as evidenced
by: the persisting huge number of local banks (1,103), each of which has a full management
team and largely autonomous operating structures; the two large central banks; the three large
CRE and public finance lenders, which partly compete against one another while increasingly
focusing on the German market; and material duplication of back-office processes.
More positively, this relative inefficiency provides GFG with considerable potential to enhance –
albeit only very gradually – its cost structure in case of structural, enduring earnings pressure.
With only 14 entities with total assets exceeding EUR5bn each, the modest average size of
GFG‟s local banks mitigates the consequences of individual failures. In 2009, the group had to
provide Apobank with capital support to absorb its impaired investments in securitised products.
With EUR39bn of total assets, Apobank is GFG‟s largest local bank by a wide margin.
Apobank‟s case serves as a reminder that despite their normally low-risk business model, the
local banks are not immune to risks in their large securities portfolios and, more generally, ill-
advised strategic decisions. However, this only modestly affected GFG‟s performance.
Institutional Protection Scheme: Backbone of GFG‟s High Cohesiveness
Similar to other European cooperative banking groups, the group‟s institutional protection
scheme (“Institutsschutz”) protects the viability of all member banks, ensuring that GFG‟s
troubled members meet their obligations to all counterparties, not only depositors. It is
extremely likely that all members will continue to benefit from intragroup support in light of
GFG‟s high incentive to protect its credibility with clients, investors and regulators, in line with
its long history of support (Appendix 1 describes the monitoring and support mechanism).
The significant amount already been paid into the trust accounts of the mutual support fund
(“Sicherungseinrichtung”) from the members‟ annual contributions can be made available for
support measures within days. Large bailout needs exceeding the committed amount would
require further ad hoc measures.
The fund‟s endowment has gradually increased in recent years as very few material bailout
cases have arisen. Improved monitoring has resulted in a continuous decline – even during the
financial crisis – of the number of outstanding restructuring cases among local banks. The
benign domestic economic environment will continue to relieve the fund‟s resources until the
next cyclical downturn gradually increases LICs, and therefore the likelihood that new support
might be needed. GFG‟s members contribute to the fund following a risk-adjusted pattern.
Figure 5 Granular Local Banks
Total number of local banks 1,103 Average total assets (EURbn) 0.7 In % of the local banks‟ total assets - Average local bank 0.10 - Largest local bank 5.4 - 100 largest local banks 46
End-2011; excluding central institutions Source: BVR, Fitch
Corporate governance record is mixed.
Decentralised structure enhances risk
management…
… but neglects cost efficiency.
High granularity spreads risks.
Institutional support is very strong.
Cash endowment is significant.
Bailout cases are declining.
Banks
Genossenschaftliche FinanzGruppe
January 2013 4
The fact that the local banks are unlikely to adopt the IRB approach in the foreseeable future –
and therefore will continue to assess RWAs conservatively – mitigates Fitch‟s broader
scepticism about the ability of regulatory risk weights to consistently and accurately reflect
economic risk.
The institutional protection scheme is combined with a monitoring system including stress-tests
to detect deterioration at member banks. A regular member of GFG, BAG
Bankaktiengesellschaft (BAG, about EUR2.4bn of total assets), is specialised in taking over
and restructuring or winding down non-performing portfolios. This smooth process limits the
negative publicity that may damage client relationships and GFG‟s reputation. BAG does not
only intervene in cases of bailout. It also provides sound members with portfolio optimisation.
GFG‟s ratings are based on Fitch‟s understanding that the European Commission (EC) seems
increasingly likely eventually to confirm the existing regulatory forbearance for decentralised
banking groups‟ institutional protection schemes in their current form. This would allow GFG to
maintain its comprehensive protection scheme. The initial draft (July 2010) of the EU directive
aimed to impose harmonisation and simplification of deposit insurance, which would limit
protection to the widespread EUR100,000 per non-bank depositor.
Similarly, Fitch does not expect the regulators to challenge in the foreseeable future the 0%
regulatory risk-weighting from which all members of GFG‟s institutional protection scheme
benefit for intragroup exposures. This regulatory forbearance is a key element of the group‟s
cohesiveness as it improves funding fungibility and facilitates risk transfer from stronger to
weaker members.
Fitch believes that the creation of a “banking union”, as proposed by the EC in 2012, could
create considerable contingent risk for GFG, with potentially far-reaching, adverse implications
for the group‟s structure. This would be the case if GFG‟s members became subject to the risk
collectivisation of common, EU-wide deposit insurance and resolution schemes. This could
strongly dilute the effectiveness of its institutional protection scheme.
Fitch‟s base case does not yet include these risks, especially as the agency believes that the
German authorities are strongly committed to preserving the effectiveness of GFG‟s support
scheme and limiting the contingent liabilities that a “banking union” could entail for the group.
The direction taken as of mid-December 2012 by negotiations at the EU level seems to confirm
the ability of the German authorities to impose their views. Notably, it appears increasingly
likely that GFG‟s local banks will remain under the remit of the German national supervisor,
which is generally supportive of their decentralised structure.
Performance
Figure 6 Figure 7
0%
20%
40%
60%
80%
100%
120%
-2
0
2
4
6
8
10
2009 2010 2011
Other/consolidation (LHS)CRE/Public finance (LHS)Insurance (LHS)Bankª (LHS)Retail (households/SMEs) (LHS)Retail/total operating income (RHS)
a eg central bank functions, corporate and investment banking, institutional clientsSource: BVR
Retail-Driven PerformanceGFG's consolidated operating profit breakdown
(EURbn)
0 5 10 15
Top 100
Landesbanken
Large private
SFG
GFGª
Standard Deviation of RoEAverage 2000-2009
a Local banks only
b Large German private banks
c 100 largest European banks
Source: Bankscope, IMF
b
c
Fitch‟s base scenario assumes that the
“banking union” will not entail any
features that will seriously affect GFG.
This view could evolve if political
negotiations take a negative turn.
Monitoring and restructuring are well
tested.
EU regulatory process appears
increasingly likely to respect GFG‟s
defining characteristics, in Fitch‟s view,
but uncertainty remains high.
European “banking union” could create
considerable contingent risk.
Resilient retail-driven performance.
Banks
Genossenschaftliche FinanzGruppe
January 2013 5
GFG‟s local banks have achieved a more stable performance than most European banks
(except their closest competitor, the German savings bank group, Sparkassen-Finanzgruppe
(SFG), „A+‟/Stable/„F1+‟/„a+‟) during the current credit cycle. Fitch expects the local banks‟
focus on plain-vanilla German retail banking to result in a repeat of this superior performance in
2012 and 2013.
This retail focus has led to low loan impairments during the current cycle: the local banks‟ LICs
peaked at 33bp of total client loans in 2009 and, at an unsustainably low 7bp, probably
bottomed out in 2011. The currently robust German economy enhances the local banks‟
resulting strong post-impairment performance relative to their peers.
Importantly, however, this performance also reflects the structural improvements of the local
banks‟ common risk monitoring and management system since the last major economic
downturn in 2002-2003. This progress helped GFG to stay profitable during the financial crisis
despite combined pre-tax losses of EUR1.9bn at DZ BANK and WGZ BANK in 2008.
The high stability of their depositors enables GFG‟s local banks to offer below-average yields
on deposits. This is particularly possible as the more volatile – young, urban, flexible, bargain-
hunting, tech-savvy – individuals tend to use large private or online banks rather than GFG.
Fitch expects the local banks‟ strong pricing and recurring earning power to remain a structural
feature thanks to their strong franchise. This position of strength should persist despite the
inevitable erosion that will arise from regulatory-driven, rising competition (notably from
specialist direct banks and large network banks) for retail deposits. Competitive pressure is
being increasingly compounded by the generous deposit guarantee scheme of German private
banks (see Fitch‟s comment Unlimited German Deposit Insurance Is Inefficient, February 2012).
This distorts competition by keeping afloat banks with questionable business models, enabling
them to collect significant and increasing retail and institutional deposit volumes.
Figure 8 GFG Local Banks’ Performancea (EURm) 2011 2010 2009 2008
Net interest income 15,919 15,880 14,709 12,874 Net fee income 4,173 4,182 3,956 4,103 Administrative costs -13,209 -12,928 -12,705 -12,178 Loan loss provisions -289 -543 -1,289 -665 Loss (-)/gains (+) on securities -960 -528 413 -2,338 Trading income 176 93 215 188 Other income 184 13 22 448 Pre-tax profit 5,994 6,169 5,321 2,432 Tax expense -1,708 -1,506 -1,443 -485 Net income 4,286 4,663 3,878 1,947
ª Consolidated IFRS accounts of the local banks only, ie GFG excluding DZ BANK, WGZ BANK and Muenchener Hyp Source: BVR
Competitive pressure will also rise in lending as major domestic competitors will gradually
resume normal new business volumes following years of heavy restructuring and capital
constraints. Yet GFG‟s local banks will continue to benefit from robust demand for residential
mortgage loans, driven by excessively low interest rates in light of the current strength of the
German economy, affordable (albeit rising) housing prices and households‟ satisfactory liquidity.
GFG‟s specialist CRE lenders (DG HYP, WL BANK and Muenchener Hyp, with combined
assets of EUR135bn) and WGZ BANK are likely to continue to exploit competitors‟ capital and
funding constraints to gain market share. While they account for only 10% of outstanding
domestic CRE loans, Fitch expect their share of new business to remain close to 20% in 2013.
The local banks‟ total loans rose by 4.1% in 2011 to EUR425bn – of which EUR226bn
household clients (mostly residential mortgage and, to a lesser extent, consumer lending) and
Margin pressure is manageable, but
rising.
Market share gains in domestic CRE.
Sustainable growth will continue.
Banks
Genossenschaftliche FinanzGruppe
January 2013 6
EUR197bn SME – significantly exceeding overall German market growth (2.4%). Fitch expects
growth to have been robust in 2012 and to slow down in 2013, broadly equally driven by small
SME and residential mortgage clients. The growth in mortgage loans reflects the re-emergence
of the domestic construction sector from years of subdued growth. It also results from the
resurgence of households‟ interest in property investments, guided by a flight to quality and the
scarcity of satisfactory risk/return investment opportunities in the capital market.
Despite this growth, Fitch expects the local banks‟ net interest income to drop below EUR15bn
in 2013 from EUR15.9bn in 2011 as the eurozone crisis triggers exceptionally low interest rates.
The current conditions are exceptionally challenging for retail banks, with six-month Euribor
heading toward 30bp, Eonia hovering close to zero, and a differential of about 50bp between
six-month Euribor and five-year swaps since Q312.
The impairment of the Greek sovereign exposures and spread widening of GIIPS sovereign
exposures of all group members represented a high share of GFG‟s pre-impairment profit in
2011. However, this writedown amounted to only a few percent of its Fitch Core Capital (FCC).
Fitch expects the growing focus of GFG‟s central banks and specialist lenders on the local
banks‟ clients (eg, DZ BANK‟s “Verbund First” initiative) and robust growth (eg, with savings
and residential mortgage loans (“Bauspar”)) to maintain the local banks‟ stable fee income in
2012 and beyond. Their fee income is significantly driven by the distribution of retail products of
GFG‟s specialist suppliers, notably Bauspar (Bausparkasse Schwäbisch-Hall), insurance (R+V
Versicherung), asset management (Union Investment) and consumer loans (Teambank).
The increasing cooperation of the wholesale specialist lenders (notably public-sector and CRE
lenders DG HYP and WL BANK) with local banks (eg, internal syndication) is likely to make
them gradually price risk better. This also provides the local banks with ways to invest their
excess liquidity in assets whose quality GFG is collectively better able to assess and control.
This could contribute to better match funding needs and available liquidity within the group.
GFG‟s efficiency is broadly in line with its peers‟ and adequate for a retail-focused group with a
dense branch network. The outlying cost/income ratio in 2011 reflects the GIIPS-related losses
at DZ BANK and WGZ BANK. Generally, GFG‟s performance will remain exposed to material,
but manageable, volatility unless DZ BANK‟s wholesale business is significantly scaled down.
Figure 9
Peer Comparison – Efficiency
Pre-tax income/employee (EUR 000) Cost/income ratio (%)
VR 2011 2010 2009 2011 2010 2009
GFG „a+‟ 30 43 35 71 63 63 SFG „a+‟ 33 35 30 61 64 67 Rabobank „aa‟ 51 56 41 65 67 63 CA „a‟ 25 41 29 63 61 62 CM11-CIC
a „a+‟ 54 65 41 62 58 59
BPCE „a−‟ 40 46 3 68 69 84 Intesa „a−‟ -92 32 33 63 63 61 Swedbank „a+‟ 106 64 -48 55 58 59 Median 37 45 32 63 63 63
ª Relates to the whole Crédit Mutuel group Source: Annual reports, Fitch
The local banks slowly but constantly reduced their staff number to 158,000 in 2011 from a
peak of 176,000 in 1995 despite a 57% increase in their total assets in the same period.
Where sensible (ie, mostly to eliminate duplication), merging members could generate
considerable recurring long-term savings. Such consolidation could include: 1) a significant
reduction in the number of local banks; 2) a merger of DZ BANK and WGZ BANK; 3) a merger
and subsequent material shrinkage of the three specialist CRE and public finance lenders; 4) a
merger of the two data processing centres; and 5) a concentration of the regional cooperative
Rising pressure from low interest rates.
Large GIIPS writedowns in 2010-2011.
Fee income from specialist product
providers supports earnings resilience.
Efficiency is comparable with that of
peers.
Mergers offer largest savings potential.
Banks
Genossenschaftliche FinanzGruppe
January 2013 7
audit associations (“Prüfungsverbände”).
Fitch remains confident that most of these measures will be implemented in the long term. But
this is unlikely to happen rapidly as regular but failed attempts show that resistance within the
group remains high, and that vested, diverging interests are likely to persist.
Over half of GFG‟s clients are also its cooperative owners. This very favourable ratio compared
with peers enhances client loyalty, product penetration and cross-selling. This in turn makes
the local banks‟ clients fairly difficult for competitors to target, thus limiting market share erosion.
In addition, GFG‟s long track record of solid internal profit generation results in a ratio of paid-in
capital/total equity of only 15%. This enables the group to offer a stable – and, in the current
low interest rate environment, attractive – dividend yield of c.5% (of paid-in capital) per year to
its cooperative owners. This has the double advantage of preserving their owners‟ loyalty and
maintaining a payout ratio of less than 10% of pre-tax profit across the cycle.
As in 2008, WGZ BANK‟s performance proved particularly vulnerable to market volatility in
2011, resulting in cumulative consolidated pre-tax income of close to zero in the five years to
2011. The large GIIPS assets of its dominant subsidiary, public-sector and CRE lender WL
BANK, was largely responsible for its IFRS loss in 2011.
The fair-value accounting of a material share of WGZ BANK‟s assets amplifies its P&L‟s
sensitivity. Following a positive development in H112, material pull-to-par revaluation of the
bank‟s public-sector assets is likely. However, while we understand that WL BANK is
committed to reduce its GIIPs exposure, this will remain large in the foreseeable future.
Figure 11 WGZ BANK’s Volatile but Recovering Performance (EURm) H112 2011 2010 2009 2008
Net interest income 237 429 406 433 500 Net commission income 31 63 79 69 81 Personnel costs -69 -133 -136 -132 -120 Other admin. expenses -67 -134 -129 -148 -130 Other operating income 10 21 6 2 27 Loan loss provisions 7 -9 -28 -127 -93 Gains/losses on trading and derivatives 65 -678 -50 272 -548 Equity-accounted profit/loss 7 10 9 0 0 Gains/losses on other securities -26 -2 7 -11 -47 Pre-tax profit 195 -433 164 358 -330
Consolidated IFRS accounts Source: WGZ BANK
This recurring volatility illustrates WGZ BANK‟s and DZ BANK‟s considerable benefit from their
integration within GFG. Market pressure to improve its risk/return profile would be much more
intense if they were perceived as standalone entities. GFG‟s protection is of course a key
positive risk characteristic. But this rather comfortable situation and WL BANK‟s large relative
size (about 50% of WGZ BANK‟s total assets) will maintain the pressure on WGZ BANK‟s
risk/return profile in the Basel III environment.
Risk Management
Interest Rate Risk Dominates the Local Banks‟ Market Risk
Maturity mismatches account for about 20% of GFG‟s consolidated earnings. This creates
some vulnerability to the current, unusually challenging low interest rate environment. Fitch
expects these difficult market conditions to continue over the next few quarters and potentially
in the medium term. The effects of this should become gradually visible in GFG‟s P&L from
2013.
Figure 10 Cooperative Ownership
End-2011 (m)
1. Clients
2. Coop-erative owners
Ratio 2./1. (%)
GFG 30 17.0 57 Rabobank 8 1.8 23 CA 54 6.1 11 CM11-CIC
a 29 7.2 25
BPCE 36 8.0 22
ª Relates to the whole Crédit Mutuel group Source: Banks‟ disclosure
Sight deposits amplify maturity
mismatches.
Ownership structure fosters client
loyalty and internal capital generation.
WGZ BANK is vulnerable to market
volatility.
Pressure to reform is limited.
Banks
Genossenschaftliche FinanzGruppe
January 2013 8
Figure 12
0
1
2
3
4
5
6
Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013
5-year swap rate 6-month Euribor ECB main refinancing rate
(%)
Figure 12
Low Interest Rates Will Pressure Retail Banking Margins in 2013
Source: ECB, Bloomberg
About 20% of the local banks‟ net interest income in 2011 (ie, roughly half of their IFRS pre-tax
profit of EUR6bn) was derived from maturity transformation, which gives rise to significant
structural interest rate risk. Fitch estimates that the combination of a flattening of the yield curve
to the extreme seen in the run-up to the financial crisis and the current low interest rates could
cut GFG‟s operating income by up to EUR3bn within three years. This would be a significant,
albeit clearly manageable, deterioration. Basel III‟s restrictions may add some pressure to
lower revenues from structural maturity mismatches.
Figure 13
15
16
17
18
19
20
FYE07 FYE08 FYE09 FYE10 FYE11 FYE12
0.0
0.5
1.0
1.5
2.0
2.5
GFG's consolidated net interest income (LHS) Differential swap rate 7yr vs. 1yrª (RHS)
Interest Income Likely to Initiate Downward Trend
(EURbn)
a Av. of differential rate at the end of n and at the end of n+1 used as proxy to reflect the time lag between rate changes and
P&L implicationsb
FYE12: Forecast net interest income based on Fitch's expectation
Source: Fitch
(%)
b
Very few local banks are registered as trading institutions. Their trading portfolios are negligible.
Credit Risk Benefits From Focus on Low-Risk Assets and Robust Economy
Figure 14 Figure 15
20,000
25,000
30,000
35,000
40,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
H112ª
0
1
2
3
4
New corporate insolvencies in Germany (LHS)GFG's local banks' LICs (RHS)Standard risk costs (RHS) (EURbn)
Unsustainable LICs to Bottom
Out in 2012
a Annualised semi-annual statistics
Source: GFG, German federal statistical office,
Creditreform
Peer Comparison – Asset Quality
LIC/average gross loans
VR 2011 2010 2009
GFG „a+‟ 0.12 0.15 0.39 SFG „a+‟ 0.09 0.24 0.36 Rabobank „aa‟ 0.35 0.27 0.45 CA „a‟ 0.67 0.62 0.82 CM11-CIC „a+‟ 0.37 0.56 0.78 BPCE „a−‟ 0.26 0.29 0.57 Intesa „a−‟ 1.18 0.81 0.95 Swedbank „a+‟ -0.10 0.22 1. 9 Median 0.36 0.43 0.80
Source: Annual reports, Fitch
The local banks‟ NPLs (Basel II definition; ie, impaired or 90 days overdue) that are neither
covered by collateral nor by loan loss reserves have remained stable in recent years at about
EUR1bn, or a low 0.3% of total loans. Fitch expects the local banks‟ ratio of LICs/total loans to
only moderately rise in 2012 and 2013 from the unsustainably low 7bp achieved in 2011. The
local banks‟ NPL ratio (4.8% at end-2011) is mostly driven by small SMEs. The unsecured
share of these NPLs is nearly entirely provisioned and their watch list volume is manageable.
Interest rate risk is manageable.
Minimal trading activities at local banks.
Resilient economy mitigates risk.
Banks
Genossenschaftliche FinanzGruppe
January 2013 9
Based on Fitch‟s base-case scenario for the German economy, the local banks‟ LICs/total
loans should remain reasonably distant from the peak of 33bp achieved in 2009. The peak-to-
trough LIC differential during the 2002-2010 credit cycle amounted to EUR2bn and realised
losses in residential mortgage lending are likely to have been negligible in 2012.
Loans of less than EUR0.5m (EUR0.25m) account for about 70% (over half) of the local banks‟
client loan portfolios, which are almost entirely focused on Germany. Self-occupied residential
mortgage lending to private individuals is the main segment. Together with loans to
municipalities and Bauspar loans, it accounts for about half of GFG‟s consolidated loan book.
The other half is dominated by SME loans and, to a lesser extent, consumer loans.
The local banks‟ relatively strong focus on self-employed clients and micro-SMEs annual sales
(independent workers, farmers, shopkeepers) normally exposes GFG to deteriorating economic
conditions to which these clients are particularly vulnerable.
However, the public authorities‟ flexible crisis management in 2008-2009, Germany‟s steep V-
shaped recovery in 2010 and its subsequent stabilisation suggest that corporate insolvencies
peaked at a moderate level in 2009. They will stay close to their historical low in 2012, and
Fitch expects them to bottom out softly in 2013, further supporting GFG‟s sound credit quality.
The German SMEs generally built up material capital and liquidity buffers during the economic
recovery in 2010 and 2011 and are likely to maintain their focus on balance sheet consolidation
in the next few quarters, driven by cautious investment policies. Thus, we consider that they
are significantly better prepared than in 2002-2003 to face the next cyclical downturn. However,
despite marked improvement, GFG‟s core micro-SME clients remain more vulnerable by nature.
Figure 16 Figure 17
0
10
20
30
40
2001 2003 2005 2007 2009 2011
1 to 10 10 to 50 50 or more(%)
Strengthened SME Balance Sheets...Equity/adjusted total assets ratio of German
SMEs
Source: BVR-Mittelstandsspiegel October 2012
SMEs' turnover in EURm p.a.
10
15
20
25
30
2001 2003 2005 2007 2009 2011
1 to 10 10 to 50 50 or more(%)
And Resilient Performance Return on Equity of German SMEs
Source: BVR-Mittelstandsspiegel October 2012
SMEs' turnover in EURm p.a.
GFG and its central banks intend to increase their market share among SMEs with annual
sales of EUR50m-500m. The group has been under-represented in this segment where it
viewed clients as too large for the local banks but too small for the central banks, and
intragroup cooperation was sub-standard. This move should have limited but positive credit
quality implications.
The German household savings rate is likely to have remained close to 11% in 2012,
contrasting with a slight decline at the European level. According to leading German credit
bureau Creditreform, a stable and manageable 9% of German households had excessive
indebtedness at end-2011. This helps GFG‟s local banks to contain risk, together with their
focus on secured financing.
Fitch only has access to limited risk data on the local banks‟ residential RE exposure. However,
the agency stated in a special comment in August 2012 (No Signs of Real-Estate Bubble in
Germany) that the current rise in German residential real estate (RE) prices (+5.5% in 2011,
according to Deutsche Bundesbank) is no grounds for concern yet. Moreover, GFG‟s
nationwide presence should be sufficient to mitigate overheating at the local level.
Loan book is granular and German-
focused.
Corporate insolvencies are moderate.
Household financial conditions are
stable.
Residential RE prices are no grounds
for concern yet but risk may increase.
SME landscape has strengthened.
Banks
Genossenschaftliche FinanzGruppe
January 2013 10
The limited details available to Fitch on the local banks‟ EUR192bn securities investments hint
at a reasonably conservative profile. The portfolio (the vast majority of which is unsecured) is
dominated by exposures to GFG‟s central institutions and mostly highly rated third-party banks.
The majority of these third-party banks are based in Germany, while the rest mainly consists of
Dutch, French, Swiss and Scandinavian banks. Italian and Spanish banks account for a low
percentage. The fairly modest non-bank exposures appear to mostly consist of „AAA‟-rated
supranational issuers, German Länder and German blue-chip corporates. Single-name
concentration seems acceptable, and subordinated, FX, equity and emerging-market risks
appear moderate. The portfolio contains only minor exposures rated „BBB+‟ or below.
The total book value of GFG‟s public-sector GIIPS exposures was equivalent to 19% of the
group‟s FCC at end-2011, and appears to reflect market values quite accurately. While German
GAAP generally does not require marking non-impaired exposures to market, the local banks
book most of their securities in the German GAAP “liquidity reserve”, where securities valuation
must reflect market price volatility. This conservative approach, alongside transfers to the §340f
reserves, is in line with the local banks‟ policy of maximising their valuation reserves.
Fitch estimates the remaining book value of GFG‟s exposure to the Greek public and banking
sectors to be equivalent to a low percentage of its 2011 operating profit. Exposure to the Greek
private sector is dominated by DVB Bank‟s (DZ BANK‟s specialist transportation lender)
secured ship financing, which is largely insulated from sovereign and country risk.
Fitch understands that GFG‟s members have agreed to seize potential market opportunities to
accelerate the reduction of their GIIPS exposures. But the vast majority are likely to wait for the
assets‟ relatively rapid natural attrition. Fire sales are unlikely to be necessary.
Funding and Liquidity
Fitch believes that rising competition for funding will be manageable for the local banks in light
of their strong franchise (their EUR524bn client deposits represent about 17% of the German
market, while GFG overall slightly exceeds 20%). The banks rarely use teaser offers or
segregating pricing grids to attract new depositors. This traditionally less price-driven approach
to deposit collection enhances funding stability and leaves substantial room for manoeuvre.
Figure 19 Peer Comparison – Funding Profile
Customer deposit s/total funding Customer loans/customer deposits
(%) VR 2011 2010 2009 2011 2010 2009
GFG „a+‟ 75 73 69 94 94 95 SFG „a+‟ 70 71 63 97 96 105 Rabobank „aa‟ 55 54 52 143 153 153 CA „a‟ 55 53 51 130 132 134 CM11-CIC „a+‟ 56 51 46 136 145 152 BPCE „a−‟ 44 44 43 148 150 151 Intesa „a−‟ 43 46 46 204 186 187 Swedbank „a+‟ 37 38 34 211 226 261 Median 55 52 49 140 148 152
Source: Annual reports, Fitch
GFG‟s balance sheet structure compares favourably with its highly rated peers‟ and reflects the
local banks‟ retail and SME focus. Their stable EUR100bn excess of client liabilities over client
loans results in a strong client loans/deposits ratio of 81% at the local banks. A large portion of
this excess funding is made available to DZ BANK and WGZ BANK. GFG‟s consolidated
loans/deposits ratio is a strong and stable 94% (including some Pfandbriefe placed with clients).
Figure 18 GFG’s Public-Sector GIIPS Exposures (EURbn) Book values (end-2011)
Spain 4.4 Italy 4.9 Ireland 0.7 Portugal 0.9 Greece 0.5 Total 11.4
Source: BVR
Securities portfolio is reasonably
conservative but subject to volatility.
GIIPS exposure is large but
manageable.
The group faces rising competition from
a position of strength.
Funding mix is deposit driven and
diversified.
Banks
Genossenschaftliche FinanzGruppe
January 2013 11
Figure 20 Figure 21
0
200
400
600
800
1,000
1,200
Client loans
Loans to banks
Securities
Derivatives
Insurance
Other assets
GFG's Asset StructureAt end-2011(EURbn)
Source: GFG
0
200
400
600
800
1,000
1,200
Client deposits
Bank deposits
Pfandbriefe
Senior debt
Insurance
Derivatives
Other liabilities
Equity
GFG's Liability StructureAt end-2011
(EURbn)
Source: GFG
The local banks‟ loans/deposits ratio should remain stable at end-2012 and in 2013. Fitch
views a moderate increase by up to 500bp as possible in the medium term at some banks with
structurally high excess deposits, notably in structurally weaker regions offering low lending
opportunities. The agency expects four concurrent trends broadly to neutralise each other:
1) Resilient German households‟ savings rate; 2) Foreign deposit inflow driven by Germany‟s
safe haven status amid the eurozone crisis (even though the local banks‟ foreign deposits have,
thus far, not materially increased due to the crisis); 3) Funding and capital restrictions eroding
some large private banks‟ and Landesbanken‟s market shares in long-term lending (eg, CRE)
in favour of cooperative and savings banks; 4) Cooperative and savings banks‟ relative pricing
discipline on deposits, which is likely to slightly erode their deposit market shares as
competition from German and foreign private banks for retail deposits increases, driven by
Basel III and challenging wholesale markets.
At almost half of total retail deposits, GFG‟s share of sight deposits has risen more rapidly than
its competitors‟ since 2009. This compounds the risk of deposit withdrawal. In combination with
rising pressure from domestic competitors eager to reduce their reliance on market funding,
this may oblige the local banks to undertake measures to limit their deposit outflows.
Offering standardised pricing for internet deposits at an attractive level for retail depositors
could provide a powerful defensive response to rising competition, in Fitch‟s view. GFG‟s online
strategy encourages the harmonisation of its members‟ internet presence via a shared platform
promoting their common branding. However, the local banks have clearly rejected the idea of
developing standardised pricing, as most management teams view it as incompatible with their
independence and decentralised culture, making it unlikely to happen in the foreseeable future.
Empirical evidence is as yet too scarce for us to express an opinion on the ability of the group‟s
qualitative approach to defend its retail deposit franchise in an increasingly internet-savvy
market.
Over EUR120bn of the local banks‟ securities portfolio is ECB-eligible and almost entirely
unencumbered.
GFG should collectively remain one of the largest European covered bond issuers. With a
consolidated outstanding volume of EUR89bn at end-2011, the group benefits from the high
resilience of the Pfandbrief market, which offers some of the most attractive funding conditions
of all wholesale funding instruments in Europe, and moderate diversification of its geographical
investor base by occasionally accessing foreign investors.
Stable loans/deposits ratio.
Sight deposits drive growth.
There is no harmonised deposit pricing.
The group has a large ECB-eligible
securities portfolio.
Large covered bond franchise
diversifies funding.
Banks
Genossenschaftliche FinanzGruppe
January 2013 12
The refocusing of DG HYP on German CRE should partly compensate for the shrinkage of the
public-sector cover pools of all of GFG‟s Pfandbrief issuers, in line with the other German
covered bond issuers. At about12% of GFG‟s total funding, covered bonds diversify the group‟s
funding profile without generating a reliance on unsecured capital market funding.
Resulting structural subordination is moderate at group level. Due to their vulnerable stand-
alone profiles, subordination would be a concern for each of GFG‟s three specialist Pfandbrief
issuers taken individually. Yet in practice, this is barely relevant as the group‟s mutual support
makes their insolvency highly unlikely. And in light of its comfortable funding situation, GFG
faces no pressure to reduce the structural subordination at the individual issuer level.
As a group, GFG is subject to extremely low capital market scrutiny. This is despite its size as
the third-largest German banking group and DZ BANK‟s position as one of the country‟s largest
frequent debt issuers. In the current environment, this low market pressure is a key competitive
advantage, particularly for DZ BANK and WGZ BANK given their largely wholesale nature.
Fitch understands that the local banks‟ participation in the ECB‟s LTROs in late 2011 and early
2012 was low and predominantly opportunistic.
In Fitch‟s opinion, Basel III may create an unintended challenge for the local banks‟ vast
liquidity deposited at DZ BANK and WGZ BANK. This intragroup liquidity is not certain to
receive full recognition as liquid assets in the liquidity coverage ratio (LCR) calculation, even
though the regulators are envisaging preferred treatments for cohesive decentralised banking
groups. GFG is therefore discussing various options to mitigate its LCR requirements.
Should no mitigation or preferential treatment be eventually achieved, there is, in Fitch‟s view, a
risk that some of the sizeable minority of local banks with stretched LCRs may react by cutting
their unsecured exposure to GFG‟s central institutions. This may trigger reinvestment in assets
with more favourable regulatory treatment but potentially higher economic risk (although the
loosened LCR definition published by the Basel Committee in early 2013 will ease the
pressure). This may somewhat reduce the benefits of GFG‟s intragroup liquidity management.
Fitch believes that potential responses such as reinvestment in covered bonds issued by DZ
BANK and WL BANK should make this manageable at the group level. It may in turn oblige the
central institutions to reserve an increasing portion of their covered bond issuance capacity to
the local banks, reducing the volume that they can issue on the market. While GFG‟s funding
diversification may marginally decrease as a result, it would also lower its reliance on market
funding. This could also reduce the group‟s excess funding and, consequently, the challenging
search for adequate liquidity investment targets in the current low interest rate environment.
Capital
Figure 22 Equity Reconciliation – Local Banks Only (EURbn) 2011 2010 2009
Cooperative capital (German GAAP) 40.0 38.1 35.9 + §340f and §340g German GAAP reserves 22.1 19.9 17.7 = Cooperative capital (IFRS) 62.1 58.0 53.6 For comparison: Cooperative capital (IFRS) GFG consolidated 65.4 62.2 57.6
Source: BVR
Steady internal capital generation increased the local banks‟ Basel II core Tier 1 ratio to 11.2%
at end-2011 from 9% at end-2006. Yet this German GAAP regulatory view understates
economic capitalisation. Adding their §340f reserves – which IFRS would treat as core equity
as they are fully loss-absorbing on a going-concern basis and can be converted to retained
earnings at management‟s discretion – would boost their end-2011 core Tier 1 ratio to 14.6%.
Covered bond encumbrance is
moderate.
Market pressure is very low.
LTRO usage is modest and
opportunistic.
Basel III seems manageable but lack of
regulatory clarity remains.
Local banks drive strong economic
capitalisation.
Local banks drive strong economic
capitalisation.
Banks
Genossenschaftliche FinanzGruppe
January 2013 13
At GFG‟s consolidated level, including the §340f reserves would raise the end-2011 core Tier 1
ratio to 12.1% from the 9.1% reported. This is a solid ratio in light of GFG‟s sound risk profile
and internal capital generation, which is likely to remain strong even in the Basel III
environment.
The restrictive definition of the local banks‟ regulatory capital excluding the §340f reserves is
compounded by conservative RWAs. This mostly results from their use of the Basel II standard
approach for all credit portfolios, with no intention to adopt the IRB approach. To a lesser extent,
it also reflects the fact that many local banks disregard large volumes of the charges on
properties from their residential mortgage clients, therefore overstating their RWAs. As a result,
and despite their generally low-risk profile, the local banks‟ RWAs/assets ratio of 53%
materially exceeds the peer average. Despite the use of IRB by DZ BANK (for half of its credit
exposure) and WGZ BANK, GFG‟s consolidated RWAs/assets ratio of 47% is only moderately
lower.
Fitch believes that reducing the average credit risk RWA of GFG‟s local banks from 53% to
31% of total assets (ie, to a level comparable with that of GFG‟s closest peers, Rabobank,
Crédit Agricole and BPCE, which use the IRB approach for 75% of their assets on average)
and including the §340f reserves in their core capital would boost their core Tier 1 ratio to 25%.
This level significantly exceeds those of all peers including Rabobank. At GFG‟s consolidated
level, these adjustments would almost double the end-2011 Tier 1 ratio to 17% from the
reported 9.1%, and the FCC ratio to 17%, putting GFG comfortably at the top of the peer group
in terms of economic capitalisation.
This conservative capital assessment reflects the low importance given to capital optimisation
by the local banks. This results from their low capital pressure and the absence of shareholder
value maximisation principle. Fitch expects these adjusted ratios to gain over 30bp at GFG‟s
consolidated level in 2012 due to: 1) the local banks‟ slightly declining but still strong earnings;
and 2) the still modest but recovering performance of the central banks, which remain subject
to spread widening and exceptional writedowns.
Fitch believes that the local banks‟ strong economic capital is sufficient to address the potential
need of DZ BANK for capital support to implement Basel III. Moreover, the local banks‟
conservative RWA calculation more than compensates for their substandard market risk
disclosure, which focuses on their immaterial currency risk, while largely ignoring the material
interest rate risk from maturity transformation.
Fitch understands that practically all the local banks already comply with the Basel III “fully
loaded” capital requirements known at end-2012. Basel III should have a modest impact on the
local banks‟ common equity Tier 1 (CET1) ratios as their business model triggers no large
Figure 23 Peer Comparison – Capitalisation
RWA/total
assetsb
Basel II credit risk
Fitch Core Capital ratio
Tier 1 capital ratio
Tangible equity/ tangible assets
(%) VR 2011 approach 2011 2010 2009 2011 2010 2009 2011 2010 2009
GFGª „a+‟ 47 Over 70% standard 12.0 (17.2)c 12.0 11.1 9.1 8.9 8.3 6.0 6.0 5.5
SFG „a+‟ 53 100% standard 10.9 10.0 9.7 10.5 9.9 9.7 5.5 5.3 5.1 Rabobank „aa‟ 31 100% adv. IRB 12.5 11.3 8.6 17.0 15.7 13.8 4.5 4.7 4.5 CA „a‟ 31 70% IRB 6.9 6.9 6.3 10.5 10.3 9.7 2.8 3.0 2.8 CM11-CIC „a+‟ 42 60% adv. IRB 8.4 7.8 7.1 11.0 10.8 10.0 4.6 4.4 3.9 BPCE „a−‟ 33 41% standard 7.6 7.2 4.9 10.6 10.1 9.1 3.5 3.7 2.3 Intesa „a−‟ 51 55% IRB (partly adv. IRB) 8.8 7.5 6.9 11.5 9.4 8.4 5.2 4.4 4.6 Swedbank „a+‟ 41 Mostly IRB 10.5 10.0 8.8 11.2 11.0 10.4 4.5 4.6 4.0 Median 41 About 40% standard 9.7 8.9 7.9 10.8 10.2 9.7 4.6 4.5 4.3
ª 53% RWA/total assets at the local banks (excluding the central institutions); the local banks use the standard approach for 100% of their exposures b Percentages reflect asset split
c Fitch‟s pro forma, RWA- and §340f-adjusted ratio is shown in brackets as a rough indication for comparison purposes only
Sources: Annual reports, Fitch
Local banks do not focus on capital
optimisation.
Basel III pressure is manageable.
RWA assessment is conservative.
Adjusted capital ratios are strong.
Banks
Genossenschaftliche FinanzGruppe
January 2013 14
RWA surcharges or capital deductions (see below). The possibility to convert their large §340f
reserves to CET1 at any time should alleviate the pressure potentially affecting tightly
capitalised members. The banks started to convert these reserves in 2011 at a modest rate,
with more likely to follow in the medium term.
Ad hoc solutions already practised in the past, eg, intra-group guarantees, could also help
overcome the restricted capital fungibility arising from GFG‟s decentralised structure. The
attractive yields offered would also probably enable the local banks to issue cooperative capital
for a few billion euros if necessary, even under adverse capital market conditions.
Fitch views it as likely that the final version of the CRD IV will modify the original draft from
December 2010 and confirm the decentralised groups‟ existing regulatory forbearance on the
following topics: the recognition of non-stock cooperative capital (“Genossenschaftsanteile”);
and the recognition of group-level liquidity when determining liquidity requirements (LCR and
net stable funding ratio). If eventually enacted, the lowering by up to 30% of regulatory risk
weights for SME loans currently discussed by the EU authorities to neutralise the effects of the
higher capital requirements under Basel III on SME lending volumes would create substantial
relief for the local banks. It would also be economically justified, in Fitch‟s view, in light of the
local banks‟ generally conservative RWA treatment.
In addition, the European authorities could decide to allow under the CRD IV the non-deduction
of the local banks‟ direct capital stakes in group members (especially DZ BANK and WGZ
BANK) from GFG‟s consolidated capital. The resulting significant enhancement of GFG‟s CET1
ratio would mitigate the pressure on DZ BANK and WGZ BANK‟s capitalisation. However, Fitch
views this potential regulatory forbearance as politically sensitive, and therefore highly
uncertain.
Such a positive outcome for CRD IV would not only reward the decentralised groups‟ hard
lobbying. It would also evidence the European regulators‟ recognition of the cooperative
structures‟ generally positive contribution to the stability of banking systems during the crisis.
GFG has also proved accommodating, as most of the 1,103 local banks modified in 2011 their
statutes to state more explicitly that the cooperative owners cannot be entitled to profit
distribution under any circumstances, thus strengthening the equity character of their
cooperative capital.
Hybrid capital (mostly issued by DZ BANK) accounts for only a few percent of GFG‟s equity.
By strengthening its consolidated IFRS equity by EUR12bn from retained earnings from end-
2008 to end-2011, GFG demonstrated its ability to generate considerable internal capital amid
a highly challenging environment. Fitch expects the group to confirm in the next few years its
commitment to earnings retention, with average annual dividends close to 1% of total equity.
GFG‟s 90% net profit retention rate in 2009-2011 also evidences the quasi-absence of owner
pressure to raise profit distribution, even in particularly profitable years. The group‟s highly
granular ownership structure will represent an increasing competitive advantage in a Basel III
environment that is likely to make many listed competitors struggle to meet their shareholders‟
risk/return expectations, potentially structurally impeding their ability to attract external capital.
Local banks mitigate DZ BANK‟s
modest capitalisation.
Capitalisation is high quality.
Strong earnings retention will continue.
Current state of CRD IV negotiations
appears accommodating, but significant
uncertainty remains.
Non-deduction of stakes in DZ BANK
and WGZ BANK potentially significantly
capital-enhancing but highly uncertain.
Banks
Genossenschaftliche FinanzGruppe
January 2013 15
Appendix 1: GFG’s Institutional Protection Scheme
BVR-Run Mutual Support Fund (“Sicherungseinrichtung”)
The legally segregated trust is governed by specific statutes and BVR‟s by-laws. As a non-
member of the fund, BVR itself does not benefit directly from GFG‟s group ratings. In theory,
GFG‟s members are allowed to exit BVR and the scheme and BVR can exclude any bank that
fails to monitor risks sufficiently.
Beyond all members‟ non-bank deposits, the fund protects the viability of all members, and
thus of all their obligations (“Institutsschutz”; institutional protection). All members, including
major banks, have always received sufficient support when needed. Consequently, no creditor
has suffered losses or late repayments in the fund‟s over 75-year history.
All deposit-taking members of GFG are affiliated to the fund and make mandatory annual cash
contributions (“Garantiefonds”) based on RWAs and adjusted for their individual risk profile as
determined by BVR‟s classification model. Interest income earned on the accumulated cash
contributions is retained by the fund. If the funds accumulated in the Garantiefonds prove
insufficient, BVR is entitled to call guarantees (“Garantieverbund”, based on irrevocable letters
of credit from the members) from the members based on their individual risk profile.
The uncertain timeliness of payment could become an issue if the combination of
Garantiefonds and Garantieverbund proved insufficient to cover the failure of a large member,
and thus needed replenishment. Yet in practice, Fitch would expect the fund to borrow against
its future cash flow to ensure timely payment or arrange timely support from another source (eg,
members might provide the troubled entity with subordinated debt directly).
The regulator supervises the scheme and exempts members from mandatory membership of
the legal deposit insurance scheme.
Figure 24
Structure Diagram
a At end-2012
b Include most notably the following subsidiaries of DZ BANK and WGZ BANK: Bausparkasse Schwäbisch Hall AG (mortgage lending), WL BANK (CRE and public finance
lending), TeamBank AG (consumer finance), DZ Privatbank S.A. (private banking), DG HYP (CRE and public finance lending), DVB Bank (transportation finance) and
subsidiaries of Union Investment (asset management)
Source: Transaction documents
7 Regional Cooperative Audit Associations
1,103 Local Cooperative Banks (Volksbanken and Raiffeisenbanken)
Muenchener Hyp
DZ Bank
WGZBank
12 Further Central
Institutionsb
17 million Cooperative Owners
Genossenschaftliche FinanzGruppea
Year-End Audit
Collectively Own
Supply with Specialised Products and ServicesCollectively Own
Membership
Mutual support fund (“Sicherungseinrichtung”)
Segregated trust; officially recognised deposit insurance scheme
Mutual support mechanism (“Institutsschutz”) protects members‟ viability
Produces GFG‟s consolidated accounts and manages group ratings
BVR GFG„s umbrella organisation and strategic centre of competence
Coordinates the interests of GFG„s members and represents them externally
Operates
Regular Contacts
Risk-adjusted contributions
Additional guarantees
Internal rating-based early detection of individual members„ negative trends
Preventive and restructuring management
Extensive members‟ obligations.
Comprehensive protection.
Risk-based contributions.
Regulatory benefit.
Uncertain timeliness of payment.
(Simplified Overview)
Banks
Genossenschaftliche FinanzGruppe
January 2013 16
Monitoring Tools
Several capital, profitability and asset-quality ratios are calculated annually for each local bank
based on their annual reports. A resulting internal classification managed by BVR determines
preventive measures and, if needed, turnaround management of distressed banks. The local
banks‟ accounts are audited by GFG‟s regional audit associations (not by external auditors,
except a few members).
This classification is validated by regular back-testing. Extended reporting requirements apply
to banks presenting increased risks. Banks in these categories may also be subject to special
audits or recommendations from BVR on actions needed. They could also have to present a
turnaround plan, which, if accepted, will be closely monitored by GFG‟s auditors and BVR.
GFG‟s members use a Basel II-compliant internal credit rating system (“VR Rating System”)
designed by BVR, DZ BANK and WGZ BANK. The SME module has been in place since 2004,
while the retail module was rolled out during 2004-2009.
A present value-based risk management system used by many (but not all) members, VR
Control, contains a series of controlling instruments. Its primary objective is to manage income,
costs and risks by business sector to optimise the portfolio‟s risk/return.
DZ BANK and WGZ BANK manage several tools that offer the local banks access to synthetic
risk diversification and standardised deficiency guarantees without affecting their client
relationships.
Fitch believes that some elements of ex-ante centralised portfolio management could help
better diversify GFG‟s exposures and manage risk correlations. However, the agency
understands that this is not commensurate with the group‟s principles of decentralised
management. Fitch agrees with BVR‟s view that the granularity and natural regional
diversification of most of GFG‟s businesses limit undue risk concentration.
Financial data monitoring.
Early warning system.
Internal client rating system.
VR Control.
Risk transfer instruments.
Banks
Genossenschaftliche FinanzGruppe
January 2013 17
Appendix 2: Profile
Figure 25 Peer Group: Large European Retail-Focused Groups Ratings Key 2011 data
(EURbn) Country LT IDR VR Operating profit Total assets
GFG Germany „A+‟/Stable „a+‟ 5.7 1,058 Sparkassen-Finanzgruppe (SFG) Germany „A+‟/Stable „a+‟ 8.3 1,098 Rabobank Group (Rabobank) Netherlands „AA‟/Stable „aa‟ 3.1 732 Crédit Agricole (CA) France „A+‟/Negative „a‟ 6.1 1,880 CM11-CIC
a France „A+‟/Stable „a+‟ 3.3 434
Groupe BPCE (BPCE) France „A+‟/Negative „a−‟ 4.7 1,138 Swedbank AB (Swedbank) Sweden „A+‟/Stable „a+‟ 1.7 208 Intesa Sanpaolo SpA (Intesa) Italy „A−‟/Negative „a−‟ 2.0 639
LT IDR: Long-Term Issuer Default Rating; VR: Viability Rating ª CM11-CIC is a sub-group of the broader Crédit Mutuel group Source: Fitch
Banks
Genossenschaftliche FinanzGruppe
January 2013 18
Appendix 3: Performance
Figure 26 Peer Comparison – Profitability
Pre-impairment operating profit/RWA
Net interest margin post loan impairment charges
Operating RoAA
Operating RoAE
(%) VR 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009
GFG „a+‟ 1.3 1.9 1.8 1.9 1.9 1.6 0.55 0.80 0.65 9.0 13.6 12.1 SFG „a+‟ 1.7 1.8 1.6 2.2 2.1 2.0 0.76 0.81 0.70 14.1 15.5 13.7 Rabobank „aa‟ 2.1 2.0 2.2 1.2 1.2 1.1 0.45 0.49 0.32 8.7 9.4 6.4 CA „a‟ 2.2 2.4 2.2 1.2 1.1 1.0 0.34 0.46 0.31 8.0 11.0 7.7 CM11-CIC „a+‟ 2.2 2.5 2.4 1.3 1.2 1.0 0.58 0.74 0.51 10.3 14.2 11.2 BPCE „a−‟ 1.8 1.8 0.7 1.2 1.1 1.0 0.44 0.53 -0.10 10.0 13.2 -3.2 Intesa „a−‟ 1.9 1.9 2.1 1.3 1.4 1.5 0.11 0.50 0.55 1.3 6.1 6.7 Swedbank „a+‟ 2.0 1.8 1.9 1.2 0.8 -0.2 0.84 0.54 -0.55 15.8 10.7 -12.6 Median 2.0 1.9 2.0 1.3 1.2 1.1 0.50 0.54 0.42 9.5 12.1 7.2
Source: Annual reports, Fitch
Banks
Genossenschaftliche FinanzGruppe
January 2013 19
Genossenschaftliche FinanzGruppe (BVR)Income StatementEURm 31 Dec 2011 31 Dec 2010 31 Dec 2009 31 Dec 2008 31 Dec 2007
1. Interest Income on Loans 35,554 35,094 37,989 41,499 39,133
2. Other Interest Income n.a. n.a. n.a. n.a. n.a.
3. Dividend Income n.a. n.a. n.a. n.a. n.a.
4. Gross Interest and Dividend Income 35,554 35,094 37,989 41,499 39,133
5. Interest Expense on Customer Deposits n.a. n.a. n.a. n.a. n.a.
6. Other Interest Expense 16,123 16,127 20,614 25,553 23,245
7. Total Interest Expense 16,123 16,127 20,614 25,553 23,245
8. Net Interest Income 19,431 18,967 17,375 15,946 15,888
9. Net Gains (Losses) on Trading and Derivatives 665 1,279 1,692 -1,366 62
10. Net Gains (Losses) on Other Securities -1,496 -1,149 -107 -3,143 -1,376
11. Net Gains (Losses) on Assets at FV through Income Statement -1,761 -308 -48 -738 -50
12. Net Insurance Income 616 619 498 425 672
13. Net Fees and Commissions 4,788 5,015 4,574 4,708 4,931
14. Other Operating Income 78 33 72 526 575
15. Total Non-Interest Operating Income 2,890 5,489 6,681 412 4,814
16. Personnel Expenses 9,486 9,367 9,196 8,668 8,952
17. Other Operating Expenses 6,409 6,097 6,035 6,103 6,169
18. Total Non-Interest Expenses 15,895 15,464 15,231 14,771 15,121
19. Equity-accounted Profit/ Loss - Operating n.a. n.a. n.a. n.a. n.a.
20. Pre-Impairment Operating Profit 6,426 8,992 8,825 1,587 5,581
21. Loan Impairment Charge 738 879 2,176 1,589 1,251
22. Securities and Other Credit Impairment Charges n.a. n.a. n.a. n.a. n.a.
23. Operating Profit 5,688 8,113 6,649 -2 4,330
24. Equity-accounted Profit/ Loss - Non-operating n.a. n.a. n.a. n.a. n.a.
25. Non-recurring Income n.a. n.a. n.a. n.a. n.a.
26. Non-recurring Expense n.a. n.a. n.a. n.a. n.a.
27. Change in Fair Value of Own Debt n.a. n.a. n.a. n.a. n.a.
28. Other Non-operating Income and Expenses n.a. n.a. n.a. n.a. n.a.
29. Pre-tax Profit 5,688 8,113 6,649 -2 4,330
30. Tax expense 1,226 2,024 2,011 -77 1,280
31. Profit/Loss from Discontinued Operations n.a. n.a. n.a. n.a. n.a.
32. Net Income 4,462 6,089 4,638 75 3,050
33. Change in Value of AFS Investments -726 -768 1,083 -1,649 -879
34. Revaluation of Fixed Assets n.a. n.a. n.a. 920 273
35. Currency Translation Differences -10 9 -17 n.a. n.a.
36. Remaining OCI Gains/(losses) 217 30 -531 n.a. n.a.
37. Fitch Comprehensive Income 3,943 5,360 5,173 -654 2,444
38. Memo: Profit Allocation to Non-controlling Interests 86 109 97 -57 n.a.
39. Memo: Net Income after Allocation to Non-controlling Interests 4,376 5,980 4,541 132 3,050
40. Memo: Common Dividends Relating to the Period 569 540 613 640 609
41. Memo: Preferred Dividends Related to the Period n.a. n.a. n.a. n.a. n.a.
Banks
Genossenschaftliche FinanzGruppe
January 2013 20
Genossenschaftliche FinanzGruppe (BVR)Balance SheetEURm 31 Dec 2011 31 Dec 2010 31 Dec 2009 31 Dec 2008 31 Dec 2007
AssetsA. Loans
1. Residential Mortgage Loans 237,970 234,103 222,748 214,360 201,163
2. Other Mortgage Loans n.a. n.a. n.a. n.a. n.a.
3. Other Consumer/ Retail Loans n.a. n.a. n.a. n.a. n.a.
4. Corporate & Commercial Loans n.a. n.a. n.a. n.a. n.a.
5. Other Loans 368,850 349,223 337,685 333,522 323,400
6. Less: Reserves for Impaired Loans/ NPLs 9,648 10,709 12,475 12,124 13,298
7. Net Loans 597,172 572,617 547,958 535,758 511,265
8. Gross Loans 606,820 583,326 560,433 547,882 524,563
9. Memo: Impaired Loans included above 0 0 0 0 0
10. Memo: Loans at Fair Value included above n.a. n.a. n.a. n.a. n.a.
B. Other Earning Assets
1. Loans and Advances to Banks 44,589 40,136 40,411 55,694 54,283
2. Reverse Repos and Cash Collateral n.a. n.a. n.a. n.a. n.a.
3. Trading Securities and at FV through Income 38,379 44,888 67,702 86,697 120,880
4. Derivatives 37,481 27,787 27,760 32,512 18,639
5. Available for Sale Securities n.a. n.a. n.a. n.a. n.a.
6. Held to Maturity Securities n.a. n.a. n.a. n.a. n.a.
7. At-equity Investments in Associates 2,566 2,553 2,664 2,899 2,756
8. Other Securities 232,700 234,490 238,183 219,586 218,448
9. Total Securities 311,126 309,718 336,309 341,694 360,723
10. Memo: Government Securities included Above n.a. n.a. n.a. n.a. n.a.
11. Memo: Total Securities Pledged n.a. n.a. n.a. n.a. n.a.
12. Investments in Property n.a. n.a. n.a. n.a. n.a.
13. Insurance Assets 56,934 55,338 50,088 48,116 46,474
14. Other Earning Assets n.a. n.a. n.a. n.a. n.a.
15. Total Earning Assets 1,009,821 977,809 974,766 981,262 972,745
C. Non-Earning Assets
1. Cash and Due From Banks 17,958 16,315 15,602 16,948 15,622
2. Memo: Mandatory Reserves included above n.a. n.a. n.a. n.a. n.a.
3. Foreclosed Real Estate n.a. n.a. n.a. n.a. n.a.
4. Fixed Assets 10,668 10,388 10,075 10,378 10,278
5. Goodwill 189 187 185 124 38
6. Other Intangibles 312 309 278 276 241
7. Current Tax Assets 3,269 3,432 3,549 4,548 5,676
8. Deferred Tax Assets 3,503 2,893 2,516 2,612 445
9. Discontinued Operations n.a. n.a. n.a. n.a. n.a.
10. Other Assets 12,759 8,980 9,542 8,641 7,218
11. Total Assets 1,058,479 1,020,313 1,016,513 1,024,789 1,012,263
Liabilities and EquityD. Interest-Bearing Liabilities
1. Customer Deposits - Current 248,622 233,169 211,376 167,178 157,015
2. Customer Deposits - Savings 226,104 222,463 206,650 180,658 195,737
3. Customer Deposits - Term 172,034 164,353 170,007 219,851 189,349
4. Total Customer Deposits 646,760 619,985 588,033 567,687 542,101
5. Deposits from Banks 103,257 109,658 107,170 101,736 87,512
6. Repos and Cash Collateral n.a. n.a. n.a. n.a. n.a.
7. Other Deposits and Short-term Borrowings n.a. n.a. n.a. n.a. n.a.
8. Total Deposits, Money Market and Short-term Funding 750,017 729,643 695,203 669,423 629,613
9. Senior Debt Maturing after 1 Year n.a. n.a. n.a. n.a. n.a.
10. Subordinated Borrowing 4,639 5,005 5,164 4,830 4,600
11. Other Funding 87,539 93,260 107,462 121,902 129,254
12. Total Long Term Funding 92,178 98,265 112,626 126,732 133,854
13. Derivatives 46,642 32,669 31,995 39,842 21,051
14. Trading Liabilities 25,727 20,010 45,560 67,402 106,746
15. Total Funding 914,564 880,587 885,384 903,399 891,264
E. Non-Interest Bearing Liabilities
1. Fair Value Portion of Debt n.a. n.a. n.a. n.a. n.a.
2. Credit impairment reserves 534 492 366 288 492
3. Reserves for Pensions and Other 5,402 5,374 5,028 4,689 5,732
4. Current Tax Liabilities 843 988 1,080 604 674
5. Deferred Tax Liabilities 786 1,106 1,070 815 774
6. Other Deferred Liabilities 3,999 3,728 3,514 3,016 3,189
7. Discontinued Operations n.a. n.a. n.a. n.a. n.a.
8. Insurance Liabilities 57,437 56,216 52,351 48,205 45,324
9. Other Liabilities 7,802 7,602 7,878 7,698 7,291
10. Total Liabilities 991,367 956,093 956,671 968,714 954,740
F. Hybrid Capital
1. Pref. Shares and Hybrid Capital accounted for as Debt 1,683 1,979 2,264 3,117 3,168
2. Pref. Shares and Hybrid Capital accounted for as Equity 538 518 317 298 303
G. Equity
1. Common Equity 63,272 59,418 54,527 50,672 50,563
2. Non-controlling Interest 2,770 2,983 2,961 2,924 3,186
3. Securities Revaluation Reserves (1,131) (674) (183) (901) 296
4. Foreign Exchange Revaluation Reserves 5 15 (20) (3) (1)
5. Fixed Asset Revaluations and Other Accumulated OCI (25) (19) (24) (32) 8
6. Total Equity 64,891 61,723 57,261 52,660 54,052
7. Total Liabilities and Equity 1,058,479 1,020,313 1,016,513 1,024,789 1,012,263
8. Memo: Fitch Core Capital 60,353 57,625 52,918 48,083 49,813
Banks
Genossenschaftliche FinanzGruppe
January 2013 21
Genossenschaftliche FinanzGruppe (BVR)
Summary AnalyticsEURm 31 Dec 2011 31 Dec 2010 31 Dec 2009 31 Dec 2008 31 Dec 2007
A. Interest Ratios
1. Interest Income on Loans/ Average Gross Loans 6.0 6.1 6.9 7.7 n.a.
2. Interest Expense on Customer Deposits/ Average Customer Deposits n.a. n.a. n.a. n.a. n.a.
3. Interest Income/ Average Earning Assets 3.6 3.6 3.9 4.3 n.a.
4. Interest Expense/ Average Interest-bearing Liabilities 1.8 1.8 2.3 2.9 n.a.
5. Net Interest Income/ Average Earning Assets 2.0 1.9 1.8 1.6 n.a.
6. Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets 1.9 1.9 1.6 1.5 n.a.
7. Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets 2.0 1.9 1.8 1.6 n.a.
B. Other Operating Profitability Ratios
1. Non-Interest Income/ Gross Revenues 13.0 22.4 27.8 2.5 23.3
2. Non-Interest Expense/ Gross Revenues 71.2 63.2 63.3 90.3 73.0
3. Non-Interest Expense/ Average Assets 1.5 1.5 1.5 1.5 n.a.
4. Pre-impairment Op. Profit/ Average Equity 10.2 15.1 16.1 3.0 n.a.
5. Pre-impairment Op. Profit/ Average Total Assets 0.62 0.88 0.86 0.16 n.a.
6. Loans and securities impairment charges/ Pre-impairment Op. Profit 11.5 9.8 24.7 100.1 22.4
7. Operating Profit/ Average Equity 9.0 13.6 12.1 0.0 n.a.
8. Operating Profit/ Average Total Assets 0.55 0.80 0.65 0.00 n.a.
9. Taxes/ Pre-tax Profit 21.6 25.0 30.3 3,850.0 29.6
10. Pre-Impairment Operating Profit / Risk Weighted Assets 1.28 1.87 1.84 0.32 1.18
11. Operating Profit / Risk Weighted Assets 1.14 1.69 1.39 0.00 0.91
C. Other Profitability Ratios
1. Net Income/ Average Total Equity 7.1 10.2 8.4 0.1 n.a.
2. Net Income/ Average Total Assets 0.43 0.60 0.45 0.01 n.a.
3. Fitch Comprehensive Income/ Average Total Equity 6.2 9.0 9.4 (1.2) n.a.
4. Fitch Comprehensive Income/ Average Total Assets 0.38 0.53 0.51 (0.06) n.a.
5. Net Income/ Av. Total Assets plus Av. Managed Securitized Assets n.a. n.a. n.a. n.a. n.a.
6. Net Income/ Risk Weighted Assets 0.89 1.27 0.97 0.02 0.64
7. Fitch Comprehensive Income/ Risk Weighted Assets 0.79 1.12 1.08 (0.13) 0.52
D. Capitalization
1. Fitch Core Capital/Weighted Risks 12.0 12.0 11.1 9.8 10.5
3. Tangible Common Equity/ Tangible Assets 6.0 6.0 5.5 5.0 5.3
4. Tier 1 Regulatory Capital Ratio 9.1 8.9 8.3 7.8 7.9
5. Total Regulatory Capital Ratio 14.0 13.7 13.0 12.3 12.8
6. Core Tier 1 Regulatory Capital Ratio n.a. n.a. n.a. n.a. n.a.
7. Equity/ Total Assets 6.1 6.1 5.6 5.1 5.3
8. Cash Dividends Paid & Declared/ Net Income 12.8 8.9 13.2 853.3 20.0
9. Cash Dividend Paid & Declared/ Fitch Comprehensive Income 14.4 10.1 11.9 (97.9) 24.9
10. Cash Dividends & Share Repurchase/Net Income n.a. n.a. n.a. n.a. n.a.
11. Net Income - Cash Dividends/ Total Equity 6.0 9.0 7.0 (1.1) 4.5
E. Loan Quality
1. Growth of Total Assets 3.7 0.4 (0.8) 1.2 n.a.
2. Growth of Gross Loans 4.0 4.1 2.3 4.5 n.a.
3. Impaired Loans(NPLs)/ Gross Loans n.a. n.a. n.a. n.a. n.a.
4. Reserves for Impaired Loans/ Gross loans 1.6 1.8 2.2 2.2 2.5
5. Reserves for Impaired Loans/ Impaired Loans n.a. n.a. n.a. n.a. n.a.
6. Impaired Loans less Reserves for Imp Loans/ Equity n.a. n.a. n.a. n.a. n.a.
7. Loan Impairment Charges/ Average Gross Loans 0.12 0.15 0.39 0.30 n.a.
8. Net Charge-offs/ Average Gross Loans 0.27 0.43 0.31 0.54 n.a.
9. Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Assets n.a. n.a. n.a. n.a. n.a.
F. Funding
1. Loans/ Customer Deposits 93.8 94.1 95.3 96.5 96.8
2. Interbank Assets/ Interbank Liabilities 43.2 36.6 37.7 54.7 62.0
3. Customer Deposits/ Total Funding excl Derivatives 74.5 73.1 68.9 65.7 62.3
Note:
While not included in the German GAAP-based regulatory capital, the §340f German GAAP reserves are fully loss-absorbing on a going-concern basis.
Therefore, Fitch (in line with IFRS accounting) views them as a key part of GFG‟s economic capital and includes them in the group‟s Fitch Core Capital.
Banks
Genossenschaftliche FinanzGruppe
January 2013 22
Genossenschaftliche FinanzGruppe (BVR)Reference DataEURm 31 Dec 2011 31 Dec 2010 31 Dec 2009 31 Dec 2008 31 Dec 2007
A. Off-Balance Sheet Items
1. Managed Securitized Assets Reported Off-Balance Sheet n.a. n.a. n.a. n.a. n.a.
2. Other off-balance sheet exposure to securitizations n.a. n.a. n.a. n.a. n.a.
3. Guarantees n.a. n.a. n.a. n.a. n.a.
4. Acceptances and documentary credits reported off-balance sheet n.a. n.a. n.a. n.a. n.a.
5. Committed Credit Lines n.a. n.a. n.a. n.a. n.a.
6. Other Contingent Liabilities n.a. n.a. n.a. n.a. n.a.
7. Total Business Volume 1,058,479 1,020,313 1,016,513 1,024,789 1,012,263
8. Memo: Total Weighted Risks 502,500 480,172 479,048 492,846 474,494
9. Fitch Adjustments to Weighted Risks. n.a. n.a. n.a. n.a. n.a.
10. Fitch Adjusted Weighted Risks 502,500 480,172 479,048 492,846 474,494
B. Average Balance Sheet
Average Loans 595,073 571,880 554,158 536,223 n.a.
Average Earning Assets 993,815 976,288 978,014 977,004 n.a.
Average Assets 1,039,396 1,018,413 1,020,651 1,018,526 n.a.
Average Managed Securitized Assets (OBS) n.a. n.a. n.a. n.a. n.a.
Average Interest-Bearing Liabilities 897,576 882,986 894,392 897,332 n.a.
Average Common equity 61,345 56,973 52,600 50,618 n.a.
Average Equity 63,307 59,492 54,961 53,356 n.a.
Average Customer Deposits 633,373 604,009 577,860 554,894 n.a.
C. Maturities
Asset Maturities:
Loans & Advances < 3 months n.a. n.a. n.a. n.a. n.a.
Loans & Advances 3 - 12 Months n.a. n.a. n.a. n.a. n.a.
Loans and Advances 1 - 5 Years n.a. n.a. n.a. n.a. n.a.
Loans & Advances > 5 years n.a. n.a. n.a. n.a. n.a.
Debt Securities < 3 Months n.a. n.a. n.a. n.a. n.a.
Debt Securities 3 - 12 Months n.a. n.a. n.a. n.a. n.a.
Debt Securities 1 - 5 Years n.a. n.a. n.a. n.a. n.a.
Debt Securities > 5 Years n.a. n.a. n.a. n.a. n.a.
Interbank < 3 Months n.a. n.a. n.a. n.a. n.a.
Interbank 3 - 12 Months n.a. n.a. n.a. n.a. n.a.
Interbank 1 - 5 Years n.a. n.a. n.a. n.a. n.a.
Interbank > 5 Years n.a. n.a. n.a. n.a. n.a.
Liability Maturities:
Retail Deposits < 3 months n.a. n.a. n.a. n.a. n.a.
Retail Deposits 3 - 12 Months n.a. n.a. n.a. n.a. n.a.
Retail Deposits 1 - 5 Years n.a. n.a. n.a. n.a. n.a.
Retail Deposits > 5 Years n.a. n.a. n.a. n.a. n.a.
Other Deposits < 3 Months n.a. n.a. n.a. n.a. n.a.
Other Deposits 3 - 12 Months n.a. n.a. n.a. n.a. n.a.
Other Deposits 1 - 5 Years n.a. n.a. n.a. n.a. n.a.
Other Deposits > 5 Years n.a. n.a. n.a. n.a. n.a.
Interbank < 3 Months n.a. n.a. n.a. n.a. n.a.
Interbank 3 - 12 Months n.a. n.a. n.a. n.a. n.a.
Interbank 1 - 5 Years n.a. n.a. n.a. n.a. n.a.
Interbank > 5 Years n.a. n.a. n.a. n.a. n.a.
Senior Debt Maturing < 3 months n.a. n.a. n.a. n.a. n.a.
Senior Debt Maturing 3-12 Months n.a. n.a. n.a. n.a. n.a.
Senior Debt Maturing 1- 5 Years n.a. n.a. n.a. n.a. n.a.
Senior Debt Maturing > 5 Years n.a. n.a. n.a. n.a. n.a.
Total Senior Debt on Balance Sheet n.a. n.a. n.a. n.a. n.a.
Fair Value Portion of Senior Debt n.a. n.a. n.a. n.a. n.a.
Covered Bonds 89,300 96,538 100,916 106,533 115,253
Subordinated Debt Maturing < 3 months n.a. n.a. n.a. n.a. n.a.
Subordinated Debt Maturing 3-12 Months n.a. n.a. n.a. n.a. n.a.
Subordinated Debt Maturing 1- 5 Year n.a. n.a. n.a. n.a. n.a.
Subordinated Debt Maturing > 5 Years n.a. n.a. n.a. n.a. n.a.
Total Subordinated Debt on Balance Sheet 4,639 5,005 5,164 4,830 4,600
Fair Value Portion of Subordinated Debt n.a. n.a. n.a. n.a. n.a.
D. Equity Reconciliation
1. Equity 64,891 61,723 57,261 52,660 54,052
2. Add: Pref. Shares and Hybrid Capital accounted for as Equity 538 518 317 298 303
3. Add: Other Adjustments n.a. n.a. n.a. n.a. n.a.
4. Published Equity 65,429 62,241 57,578 52,958 n.a.
E. Fitch Eligible Capital Reconciliation
1. Total Equity as reported (including non-controlling interests) 64,891 61,723 57,261 52,660 54,052
2. Fair value effect incl in own debt/borrowings at fv on the B/S- CC only 0 0 0 0 0
3. Non-loss-absorbing non-controlling interests 0 0 0 0 0
4. Goodwill 189 187 185 124 38
5. Other intangibles 312 309 278 276 241
6. Deferred tax assets deduction 709 211 677 1,382 445
7. Net asset value of insurance subsidiaries 3,328 3,391 3,144 2,700 3,420
8. First loss tranches of off-balance sheet securitizations 0 0 59 95 95
9. Fitch Core Capital 60,353 57,625 52,918 48,083 49,813
Banks
Genossenschaftliche FinanzGruppe
January 2013 23
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ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
