From Moody's:

Moody's Investors Service has today placed Greece's Ba1 local and foreign currency government bond ratings on review for possible downgrade. Greece's country ceilings for bonds and bank deposits are unaffected by the review and remain at Aaa (in line with the Eurozone's rating).

Moody's decision to initiate this review was prompted, despite significant progress in implementing a very large fiscal consolidation effort, by the increased uncertainty over (1) Greece's ability to reduce its debt to sustainable levels given the recent substantial upward revision in debt levels; (2) the substantial revenue shortfall that we have observed in 2010; and (3) the level and conditions of ongoing support that would be available to Greece in the event that its market access remains cut off. Therefore, Moody's review will focus on the factors, namely nominal growth and fiscal consolidation, that will drive the country's debt dynamics over the next few years. It will also consider implementation risk, which appears to be particularly high in 2011 for both political and administrative reasons.

Moody's says that a multi-notch downgrade would be possible if it concludes that there is an increased risk that Greece's debt-to-GDP ratio will fail to stabilize in the next three to five years, or that there is a greater risk that EU support will turn out to be less strong after 2013 than the rating agency had previously assumed.

RATIONALE FOR REVIEW

"Greece has made significant progress in implementing a very large fiscal consolidation effort. However, the challenge of reducing debt to sustainable levels has also become greater due to both domestic and regional developments," says Sarah Carlson, Vice President-Senior Analyst at Moody's Investors Service and lead sovereign analyst for Greece.

These developments include:

1.) Substantial upward revision in debt levels: Greek debt was already at a high level before Eurostat's recent revision of Greece's 2009 debt statistics to 126.8% of GDP. This 11.7 percentage point revision is almost twice the level that Moody's had anticipated and amplifies the risks stemming from the country's uncertain growth and interest rate outlook over the coming years.

2.) Weak revenue growth: Greece has fallen well short of its revenue growth targets in 2009, a factor that contributed to the upward revision in its deficit projections for 2010. Although there are signs that VAT collections are improving in spite of the weak macroeconomic climate, the vigorous implementation of reforms to fight tax evasion will be critical to a sustainable improvement in public finances.

3.) Uncertainty surrounding ongoing support: The level and conditions of ongoing support on offer to Greece is no longer certain. The IMF and European authorities have expressed very strong support for Greece, as long as Greece follows through with its economic programme. However, the authorities' willingness and ability to provide Greece with additional assistance is not assured and particularly depends on programme implementation. Moreover, the precise nature and conditions of support that will be forthcoming after 2013 -- and the implications that this will have for bondholders -- is unclear.

Moody's recognises the impressive progress that the government has made in implementing the fiscal consolidation programme so far. The reduction of the fiscal deficit by around 6 percentage points and the passage of landmark pension and labour-market reform are noteworthy achievements.

"However, the substantial upward revision of debt levels, weak revenue growth and lack of certainty surrounding long-term support, if required, are negative factors that outweigh the many positive developments that Moody's has observed in Greece since it accepted the Eurozone/IMF assistance package in May 2010," says Ms. Carlson.

FACTORS TO BE CONSIDERED IN THE REVIEW

Firstly, Moody's rating review will focus on Greece's ability to reduce debt to sustainable levels in a challenging economic and political environment. This will be affected by two variables: nominal growth and fiscal consolidation. Therefore, a key element of this review is Greece's 2012-2014 plan for fiscal consolidation and economic reform. The Eurozone/IMF programme that was adopted in May 2010 encourages the implementation of a credible, feasible and incentive-compatible set of structural reforms. However, the programme has relatively few details about the policy agenda for 2012-2014. The revision of debt statistics has raised the bar for what these future reforms need to accomplish. "In order for Greece to achieve large primary surpluses over a sustained period of time, further structural fiscal adjustments will be required," says Ms. Carlson.

Moreover, the Greek government's ability to speed up the implementation of the fiscal and structural reform programme will also be a factor in Moody's review. "The government is clearly very determined to push the adjustment process forward, but it is facing significant political and administrative headwinds," says Ms. Carlson. Implementation risk is particularly high in 2011, and during the review Moody's will be looking at how those risks are being addressed.

The external environment in which Greece has been operating has clearly deteriorated, which has had an adverse impact on its creditworthiness. Although support from the Eurozone has been very strong up until now, Moody's believes that changing market conditions imply that there are realistic limitations to any such support. Moreover, the nature of this support after the European Financial Stability Facility (EFSF, rated Aaa) winds down in June 2013 is unclear. "Uncertainty surrounding plans for burden-sharing with investors in the event of a crisis are likely to negatively affect market access and funding costs for Greece," says Ms. Carlson.

PREVIOUS RATING ACTIONS AND METHODOLOGIES

Moody's last rating action affecting Greece was implemented on 14 June 2010, when the rating agency downgraded Greece's government bond ratings to Ba1 and assigned a stable outlook. Prior to that, Moody's last rating action on Greece was taken on 22 April 2010, when the rating agency downgraded Greece's government bond ratings to A3 and placed the rating on review for further possible downgrade.

The principal methodology used in rating the Government of Greece is "Moody's Sovereign Bond Methodology" published in September 2008, which can be found at www.moodys.com. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

And Germany is on the hook too:

Moody's Investors Service has today placed on review for possible downgrade the ratings of 246 subordinated debt securities together with the subordinated tranches of the relevant debt programs issued or guaranteed by 24 banks in Germany (including one Irish subsidiary of a German bank). This follows the German parliament's approval of the German Bank Restructuring Act, which will become legally effective as of 1 January 2011.

RATINGS RATIONALE

The Bank Restructuring Act -- and related amendments to the German Banking Act (KWG) -- will establish a framework for dealing with banks in distress, allowing the regulator to trigger losses outside of liquidation on senior debt as well as on subordinated bank debt that is typically classified as Lower Tier 2 for regulatory capital purposes. While Moody's believes that, for the time being, regulators are unlikely to impose losses on senior debt due to the need to preserve systemic stability in the current fragile market conditions, this change of law implies significantly higher risk for subordinated bank debt. In Moody's view it materially reduces the likelihood of systemic support for Lower Tier 2 debt in the context of bank bail-outs and may lead to multi-notch rating downgrades for this category of debt.

A detailed list of the affected ratings is available on Moody's website, which may be accessed by clicking here http://v3.moodys.com/viewresearchdoc.aspx?docid=PBC_129542. The ratings of grandfathered debt qualifying for "Gewaehrtraegerhaftung" (a guarantee obligation) by regional governments are not affected and hence, are excluded from the list.

Moody's review for possible downgrade will focus on the implied higher risk for subordinated debt under the newly established bank resolution regime. For the first time in Germany, it will be possible to separate subordinated from senior claims under a reorganisation procedure. This would be achieved through either (i) imposing losses on subordinated debt of a going-concern entity under a reorganisation plan; or (ii) separating classes of debt into 'going concern' and 'gone concern' legal entities, de facto changing the pari passu status of subordinated debt outside of liquidation.

"The law allows losses to be selectively imposed on subordinated debt. In a post-crisis scenario, we believe that its provisions could be used without having a material adverse impact on the stability of the financial markets", says Carola Schuler, Managing Director for Banking at Moody's in Frankfurt. "Going forward, the regulators may take advantage of such wider resolution options on a case-by-case basis."

Even though the regulatory tools provided by the Bank Restructuring Act and the German Banking Act are broad enough to allow the imposition of losses on senior unsecured bondholders as well, Moody's is not considering rating actions in respect of senior debt for the time being. Haircuts on senior unsecured debt would be likely to severely disrupt financial markets and, hence, Moody's expects the regulator to tread very carefully and in accordance with market conditions. Moody's will, however, continue to monitor the funding situation of German banks and will reassess the relevance of systemic support and financial stability accordingly on an ongoing basis.

Please see "Assessment of Post-Crisis Support for German Banks" published in April 2010, for an earlier comment by Moody's on the rising risk of losses imposed on subordinated debt issued by German banks.

FUTURE RATINGS OF SUBORDINATED DEBT LIKELY TO EXCLUDE SYSTEMIC SUPPORT, BUT MAY STILL BENEFIT FROM REGIONAL GOVERNMENT SUPPORT

As a consequence of the increased probability that losses may be imposed on subordinated debt, Moody's will consider removing the systemic support which currently accounts, on average, for three notches of uplift for this class of bank debt in Germany. Upon the conclusion of the review and in line with "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt", Moody's may position the ratings one notch below its Adjusted Baseline Credit Assessment (Adjusted BCA) which reflects the bank's stand-alone financial strength including parental and cooperative support.

Currently, the rating of subordinated debt of German banks is positioned one notch below the Bank Deposit Rating and thus incorporates uplift for all types of external support, including systemic as well as regional and local government support. The Adjusted BCA adds parental and cooperative support to the intrinsic financial strength of a bank, but excludes regional and local government and systemic support on a regular basis. In the process of this review, Moody's may, on a case-by-case basis, consider adding some degree of regional and local government support to the Adjusted BCA for this particular class of debt, mainly limited to the Landesbanken. The review will therefore focus on potential support scenarios for public sector banks under the new law where regional and local governments effectively take a first-loss position and are able and willing to provide support in the future.

Moody's expects to conclude its review within a few weeks of the new law becoming effective.

For the ratings of junior subordinated and hybrid debt in Germany, the Adjusted BCA will continue to exclude both systemic and regional and local government support and is not affected by this review.

LIST OF BANKS AFFECTED AND THEIR CURRENT ADJUSTED BCAS

Please see below for a full list of the affected banks and their current Adjusted BCA excluding systemic and regional and local government (RLG) support. All outstanding deposit and debt ratings are available on www.moodys.com. For the banks indicated by RLG and as discussed above, Moody's may decide to include some degree of RLG support in the Adjusted BCA for the purpose of rating subordinated debt as part of its review.

Bayerische Landesbank: Adjusted BCA equivalent to Baa3 (RLG);

Bremer Landesbank Kreditanstalt Oldenburg GZ: Adjusted BCA equivalent to A2 (RLG);

Commerzbank AG: Adjusted BCA equivalent to Baa1;

DekaBank: Adjusted BCA equivalent to A2;

DEPFA Bank plc (Ireland): Adjusted BCA equivalent to B2;

Deutsche Apotheker- und Aerztebank eG: Adjusted BCA equivalent to Baa1;

Deutsche Bank: Adjusted BCA equivalent to A2;

Deutsche Hypothekenbank AG: Adjusted BCA equivalent to A3;

Deutsche Pfandbriefbank AG: Adjusted BCA equivalent to B1;

Deutsche Postbank: Adjusted BCA equivalent to Baa1;

DVB Bank S.E.: Adjusted BCA equivalent to A2;

DZ BANK AG Deutsche Zentral-Genossenschaftsbank: Adjusted BCA equivalent to A2;

Eurohypo AG: Adjusted BCA equivalent to Ba1;

HSH Nordbank AG: Adjusted BCA equivalent to Ba2 (RLG);

IKB Deutsche Industriebank AG: Adjusted BCA equivalent to Caa1;

Landesbank Baden-Wuerttemberg: Adjusted BCA equivalent to A3 (RLG);

Landesbank Berlin AG: Adjusted BCA equivalent to Baa1;

Landesbank Hessen-Thueringen GZ: Adjusted BCA equivalent to A3 (RLG);

Muenchener Hypothekenbank eG: Adjusted BCA equivalent to A2;

Norddeutsche Landesbank GZ: Adjusted BCA equivalent to A2 (RLG);

Sparkasse KoelnBonn: Adjusted BCA equivalent to Baa3 (RLG);

UniCredit Bank AG: Adjusted BCA equivalent to A3;

Volkswagen Bank GmbH: Adjusted BCA equivalent to A3;

WestLB AG: Adjusted BCA equivalent to Ba3 (RLG).