Moody's Investors Service said it may cut German lender Commerzbank's senior debt and deposit rating of A2, citing its exposure to troubled real estate lender Eurohypo.
"The deteriorating euro area sovereign debt markets imply that Eurohypo will likely require support for an extended period," Moody's said today.
The European Commission has told Commerzbank to sell Eurohypo in exchange for getting approval for a previous bailout of the bank. A source told Reuters yesterday the lender now planned to integrate the unit.
Moody's said Eurohypo's franchise was fragile, considering possible further credit losses related to Greece, reliance on parent Commerzbank for funding, and the impact of regulatory changes.
"Given its inadequate economic capital and lack of market access for unsecured long-term funds, Moody's believes that Eurohypo - as a standalone bank - could not weather a further weakening of the yet-unresolved euro area debt crisis," it said.
Moody's also downgraded the standalone bank financial strength ratings of Commerzbank and Eurohypo to D+ from C- and to E+ from D-, respectively, and said it might cut those new ratings.
