Issuer Profile - Hypo Landesbank Vorarlberg
With a balance sheet total of around EUR 14 bn., Hypo Landesbank Vorarlberg is the largest single credit institution in its province. The business focus of the universal bank is on its home region as well as designated core markets (in selected Austrian regions, as well as in Southern German, Eastern Switzerland and Northern Italy (leasing)). Of the four defined business segments, the corporate customers business contributes the major share to its pre-tax earnings (a long term average of 40%). The province of Vorarlberg (through Vorarlberger Landesbank-Holding) is the majority shareholder representing 76% of the voting rights.
Hypo Landesbank Vorarlberg has weathered the industry-wide pressures caused by the approach to the Heta wind-down comparatively well. In the 2014 financial year it posted after-tax earnings of EUR 41.3 m., in 2015 even EUR 93.0 m. The company expects operating earnings in 2016 to be lower than in 2015 due to declining revenues and higher expenses. The agreement with creditors in the Heta case should have a significant positive effect in the current financial year though. In terms of its CIR, the company continues to distinguish itself by high efficiency.
Moody's has assigned a rating to Hypo Landesbank Vorarlberg for several years already. Currently it stands at 'Baa1/stable'. The makeover of the bank's funding structure continues to weigh on the agency's rating. Since October 2015 the bank also has a rating by S&P again. With 'A-'/'stable' it is stronger than the Moody's rating and is particularly benefiting from the bank's status as a government-related entity. S&P considers all components of the stand-alone credit assessment to be adequate. Only regional concentration risks are lowering the rating by one notch.
In the context of the phase-out of deficiency guarantees, many legacy bonds with guarantees are maturing 2017. Given this backdrop, Hypo Landesbank Vorarlberg is forced to adjust its funding strategy. Apart from an established public sector covered bond program, there has been a focus on building up and making use of a mortgage cover pool in recent years. Both types of programs are rated 'Aa1' by Moody's. The institution is deliberately foregoing an 'Aaa' rating based on economic considerations. Both pools are strongly focused on Austria. In our opinion foreign currency exposure is the main factor weighing on Moody's risk scores.