OREANDA-NEWS. Fitch Ratings has maintained Ireland-based DEPFA BANK plc's (DEPFA) and its subsidiary Depfa ACS Bank's Long-term Issuer Default Ratings (IDRs) on Rating Watch Negative (RWN) and subsequently withdrawn the ratings.

Fitch is withdrawing the ratings as DEPFA has chosen to stop participating in the rating process. Therefore, Fitch will no longer have sufficient information to maintain the ratings. Accordingly, Fitch will no longer provide ratings or analytical coverage for DEPFA. A full list of rating actions is available at the end of this rating action commentary.

KEY RATING DRIVERS - IDRs, SUPPORT RATING, SUPPORT RATING FLOOR AND SENIOR DEBT
DEPFA's ratings reflect Fitch's view of a high probability that FMS Wertmanagement (FMS WM, AAA/Stable), for as long as it remains DEPFA's owner, and ultimately Germany, would provide additional extraordinary support to DEPFA, if required, to ensure that the bank's capital and funding needs are met in the course of its orderly wind-down.

FMS WM, a wind-down institution, is controlled by Germany (AAA/Stable) through the Financial Market Stabilisation Fund (SoFFin). It took over DEPFA in December 2014 following the German government's decision in May 2014 to stop the privatisation and to continue DEPFA's wind-down with FMS WM as the new shareholder. DEPFA has not originated any new business and has been effectively in wind-down since 2009.

Fitch's assessment of the high likelihood of state support for DEPFA is mainly driven by its ultimate ownership by Germany and the European Commission's (EC) state aid approval contingent on a sale or, failing that, a wind-down of DEPFA. We also consider Germany's limited financial incentive to force losses on senior creditors due to DEPFA's small volume of senior unsecured debt.

DEPFA's ratings also reflect Fitch's view that Germany's propensity to support in all circumstances is marginally weakened by the bank's location in Ireland rather than Germany and its immaterial relevance for the German economy and financial system.

Although DEPFA is subject to the EU's Bank Recovery and Resolution Directive (BRRD), Fitch believes that it will not be applied to DEPFA as long as its orderly wind-down progresses in line with plans approved by the EC. However, should state aid be required further to what has been approved by the EC, the bank may be required to take resolution measures including some bail-in of senior creditors. DEPFA's Short-term IDR of 'F2' is at the higher of two possible levels that map to a 'BBB' Long-term IDR on Fitch's rating scale. This reflects the fairly well-matched maturities of the bank's assets and liabilities. It also reflects our view that Germany's incentive for a bail-in of DEPFA's senior unsecured creditors is especially low in the short-term.

The RWN reflects uncertainty about the next steps FMS WM will take with DEPFA, in particular whether a detailed wind-down plan exists that outlines the strategy and timing of the remaining run-down of DEPFA's balance sheet and details the entity's liquidation at the end of its wind-down process. We view a well-articulated wind-down plan under FMS WM's stewardship as particularly important as DEPFA's recurring operating losses triggered by its run-down could entail significant bail-in risk for its senior creditors. A liquidation including the transfer of assets and liabilities to external third parties could create risks for senior creditors.

The RWN also reflects the risk of new wind-down plans or any need for recapitalisation prior to completion of the wind-down requiring new state aid approval from the EC, which could escalate the pace of wind-down and potentially cause losses that would require burden-sharing by senior creditors under SRM.

Fitch does not assign a Viability Rating because DEPFA's business model focused on wind-down would not be viable without external support.

The alignment of DEPFA ACS Bank's ratings with those of its parent reflects its high level of integration and our expectation that FMS WM's support would flow through DEPFA to DEPFA ACS Bank. It also reflects the reputational risk to Germany of allowing DEPFA's subsidiary to fail. DEPFA ACS Bank benefits from a declaration of backing from its parent, expressing DEPFA's commitment to fulfil DEPFA ACS Bank's contractual obligations in case of need. We understand from FMS WM that DEPFA ACS Bank will remain fully owned by DEPFA and continue to be wound down in a similar way to DEPFA.

KEY RATING DRIVERS - SUBORDINATED DEBT AND HYBRID SECURITIES
The 'B+' rating of XS0229524128, a performing lower Tier 2 debt security issued by DEPFA, reflects material credit risk if state support is excluded and lack of financial flexibility for subordinated instruments. The material short-term credit risk is driven by potential bail-in of the bank's subordinated debt that would be triggered by any additional state aid considerations that may arise when FMS WM details its plans to wind down DEPFA. The security matures in December 2015 and is the only performing subordinated security rated by Fitch.

DEPFA's non-performing hybrid securities (DEPFA Funding II, III and IV LP) are rated 'C' to reflect the non-payment of coupons. FMS WM repurchased these securities from third-party holders at prices between about 57% and 60% of their nominal values in May 2015. FMS WM has yet to communicate its intentions with regard to the notes, in particular whether (and under which conditions) it intends to transfer them to DEPFA at the repurchase prices to be redeemed to strengthen DEPFA's capitalisation. As long as the securities remain outstanding, their coupons payments are highly unlikely to be resumed given that DEPFA is in wind-down.

RATING SENSITIVITIES
Not applicable

The rating actions are as follows:

DEPFA BANK plc
Long-term IDR: 'BBB'/ Rating Watch Negative; withdrawn
Short-term IDR: 'F2'/Rating Watch Negative; withdrawn
Support Rating: '2'/ Rating Watch Negative; withdrawn
Support Rating Floor: 'BBB'/ Rating Watch Negative; withdrawn
Debt issuance programme: 'BBB' and 'F2'/Rating Watch Negative; withdrawn
Senior unsecured debt: 'BBB'/Rating Watch Negative; withdrawn
Market-linked securities: 'BBBemr'/Rating Watch Negative; withdrawn
Subordinated notes (lower Tier 2, XS0229524128): 'B+/Rating Watch Negative; withdrawn

DEPFA ACS Bank
Long-term IDR: 'BBB'/Rating Watch Negative; withdrawn
Short-term IDR: 'F2'/Rating Watch Negative; withdrawn
Support Rating: '2'/ Rating Watch Negative; withdrawn
Debt issuance programme: 'BBB' and 'F2'/Rating Watch Negative; withdrawn

DEPFA Funding II LP hybrid capital instruments (XS0178243332): affirmed at 'C' and withdrawn
DEPFA Funding III LP hybrid capital instruments (DE000A0E5U85): affirmed at 'C' and withdrawn
DEPFA Funding IV LP hybrid capital instruments (XS0291655727): affirmed at 'C' and withdrawn