Bay Hypobk Raised Off S&PWatch; Bay Vereinsbk; Rtgs Afmd.

LONDON--(BUSINESS WIRE)--Standard & Poor's CreditWire 5/8/98-- Standard & Poor's today raised its counterparty ratings of Bayerische Hypotheken- und Wechsel-Bank AG and related entities (see list below) to double-'A'-minus/'A-1'-plus from single-'A'-plus/'A-1' and removes them from CreditWatch, where they were placed with positive implications on July 21, 1997 following the announcement of the proposed merger of Bayerische Hypotheken- und Wechsel-Bank AG (Hypobank) and Bayerische Vereinsbank AG (BV) to form Bayerische Hypo- und Vereinsbank AG. The outlook is stable.

At the same time, Standard & Poor's affirmed its 'A-1'-plus short-term counterparty rating for Bayerische Vereinsbank AG (BV) and its triple-'A' rating for its public-sector Pfandbriefe (oeffentliche Pfandbriefe).

The rating actions reflect Standard & Poor's belief that the merger process is irreversible. Consequently, the ratings of Hypobank were raised reflecting Standard & Poor's view of the new entity, Bayerische Hypo- und Vereinsbank AG. Standard & Poor's expects that the new entity will assume the debt of Hypobank once the merger will be technically and legally completed in September 1998.

The ratings are based on the new bank's overall sound asset quality, conservative provisioning policies, and its improved market position particularly in domestic mortgage banking. This is partly offset by BV's and Hypobank's low, although stable profitability, modest capital levels, and the lack of significant diversification of its revenue streams.

The merger will create the second-largest banking group in Germany with total assets of about DM812 billion (US$451 billion) at year-end 1997. Bayerische Hypo- und Vereinsbank AG will operate as a mixed mortgage bank combining commercial banking business with mortgage and public-sector lending.

Bayerische Hypo- und Vereinsbank AG aims to become a super-regional bank focusing on five business areas where it aims to expand:

-- Real estate lending and services;

-- Retail and Private Banking,

-- Corporate Banking and Structured finance

-- Asset management

-- International Markets (Treasury)

While asset quality in general is good, the two banks have demonstrated a different risk appetite in the past, which had been reflected in Standard & Poor's ratings. In the meantime existing and potential problems in the mortgage and commercial loan portfolios seem to be covered adequately. In addition, both banks have been affected by rising corporate insolvencies and the sluggish performance of the domestic economy. Consequently, provisioning needs have remained high, and are not expected to decrease rapidly.

Profitability has been relatively stable but continues to compare unfavorably by international standards, which can be explained by the high portion of low-margin mortgage and public-sector lending. While increasing competition will continue to push margins down, Standard & Poor's expects strict cost control and the realization of the announced cost savings potential to be one of the cornerstones of success of the new entity's strategy.

Capital levels will remain only modest compared with its international peers, as Bayerische Hypo- und Vereinsbank AG does not aim to raise further equity through rights issues in the medium term, but to meet its future capital needs by earnings retention only. --CreditWire -0-

RATINGS CHANGED & REMOVED FROM CREDITWATCH

                            TO           FROM
Bayerische Hypotheken- und Wechsel-Bank AG
  Counterparty credit rtgs  AA-/A-1+     A+/Watch Pos/A-1
  Sr unsecd debt            AA-          A+/Watch Pos
  Sub debt                  A+           A/ Watch Pos
  Certificates of deposit   AA-/A-1+     A+/Watch Pos/A-1
  CP prog                   A-1+         --/Watch Pos/A-1
Hypo Finance (Ireland))
  Counterparty credit rtg   --/A-1+      --/Watch Pos/A-1
  Euro CP prog              --/A-1+      --/Watch Pos/A-1
Bayernhypo Finance N.V.
(Gtd: Bayerische Hypotheken- und Wechselbank AG)
  Sr unsecd debt            AA-          A+/Watch Pos
  Sub debt                  A+           A/Watch Pos
Westfaelische Hypothekenbank AG
  Counterparty credit rtgs  AA-/A-1+     A+/Watch Pos/A-1
  Sr unsecd debt            AA-          A+/Watch Pos
  Sub debt                  A+           A/Watch Pos
Westhyp Finance B.V.
  Sr unsecd debt            AA-          A+/Watch Pos
(Gtd: Westfaelische Hypothekenbank AG)
  Sub debt                  A+           A/Watch Pos
(Gtd: Westfaelische Hypothekenbank AG)
RATINGS AFFIRMED
Bayerische Vereinsbank AG
  Sr secd Oeffentliche Pfandbriefe       AAA
  Short-term counterparty rating         --/A-1+
  Short-term certificates of deposit     --/A-1+
  CP prog                                   A-1+
Westfaelische Hypothekenbank AG
  Sr secd Oeffentliche Pfandbriefe       AAA

CONTACT: Stefan Best, Frankfurt (49) 69-138709-16

Michael Zlotnik, Frankfurt (49) 69-138709-18

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