The ratings on Bayerische Hypo- und Vereinsbank AG (HVB) are based on the group's market position and sizable customer base in Germany, Austria, and neighboring Eastern European countries; its stable and diversified funding sources; its financial flexibility; and its overall satisfactory asset quality. These factors are partly offset by modest profitability and capital levels, and still limited diversification of revenues. The ratings also reflect Standard&Poor's expectations that the integration of Bank Austria AG (BA; AA+/Negative/A-1+) will continue as planned and that existing problems of HVB's and BA's loan portfolios have been adequately provisioned. The bank's provisioning needs declined, but continue to compare unfavorably with its peers. Furthermore, HVB's comparatively high exposures to real estate markets and BA's comparatively
