Downgrade of standalone ratings in line with Moody's global rating guidance; supported ratings affected
Sao Paulo, June 27, 2012 -- Moody's Investors Service has today downgraded the standalone bank
financial strength ratings (BFSR) or lowered the standalone baseline credit
assessments (BCA) of eight Brazilian financial institutions by one to
three notches. The long-term global local currency (GLC)
deposit ratings or issuer ratings of 11 financial institutions were downgraded
by one to two notches, while the deposit rating of one bank was
confirmed. In addition, the short-term deposit ratings
of six banks were downgraded by one notch. These rating actions
conclude the reviews initiated on 24 February and 15 March, 2012.
The revised standalone ratings of three banks carry a positive outlook.
A positive outlook has also been assigned to the supported local currency
ratings of twelve issuers, while the outlook on the deposit rating
of one bank is negative.
Today's rating actions took place in the context of Moody's
ongoing global review of all banks whose standalone assessments are higher
than the rating of the country in which they are domiciled as discussed
in the rating implementation guidance "How Sovereign Credit Quality
May Affect Other Ratings" published on 13 February 2012, and
further detailed in the special comment "Banks and Sovereigns:
Risk Correlations Constrain Standalone Bank Credit Assessments"
published on 30 April 2012. The repositioning of the ratings also
incorporates Moody's recent rating actions taken on the affected
banks' parent banking groups, as discussed in the press release
entitled "Moody's downgrades firms with global capital markets
operations" dated 21 June 2012.
Moody's ratings assigned to other 39 banks in Brazil were unaffected
by this global review because their standalone assessments are at or below
the rating of the sovereign.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_143528
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
For additional information on bank ratings, please refer to the
webpage containing Moody's related announcements http://www.moodys.com/bankratings2012
RATINGS RATIONALE
DOWNGRADE OF STANDALONE RATINGS
The downward revision of the eight affected banks' standalone ratings
takes into account (i) the extent to which their business depend on the
domestic macroeconomic and financial environment; (ii) the degree
of reliance on market-based, and therefore more confidence-sensitive,
funding; and (iii) their direct or indirect exposures to domestic
sovereign debt, compared with their capital bases.
The standalone credit assessments of four of the eight banks were lowered
to the Baa2 level of the Brazilian government debt rating, reflecting
Moody's view that their creditworthiness ultimately cannot be completely
de-linked from the credit strength of the government. The
key drivers for these actions were (i) the high level of balance sheet
exposure to domestic sovereign debt, compared to their capital buffers;
(ii) their primarily domestic banking operations, with macroeconomic
exposures similar to those of the sovereign government, and (iii)
low level of cross-border diversification of their operations.
Our review indicated that there are little, if any, reasons
to believe that these banks would be insulated from a government debt
crisis. More particularly, we note their significant direct
exposure to the Brazilian government securities, equivalent to 167%
of tier 1 capital on average based on latest publicly available consolidated
data (March 2012).
The following Brazilian banks' standalone ratings and credit assessments
were downgraded to the level of the sovereign debt rating:
Banco do Brasil S.A. (BB)-- to C-/baa2 from
C+/a2
Banco Safra S.A. (Safra) -- to C-/baa2 from
C-/baa1
Banco Santander (Brasil) (Santander Brazil) -- to C-/baa2
from C/a3
HSBC Bank Brasil -- Banco Multiplo S.A. (HSBC Brazil)
-- to C-/baa2 from C/a3
The standalone credit assessments of three of the eight banks were lowered,
albeit to levels still higher than the debt ratings of the Brazilian government.
Their BCAs now exceed the sovereign rating by one notch. Moody's
says that these exceptions reflect factors that help mitigate the risk
correlations with the respective domestic government's creditworthiness,
including moderate levels of cross border diversification and high levels
of business and earnings diversification, despite these banks'
overall high levels of sovereign debt holdings.
The following Brazilian banks' standalone ratings and credit assessments
were downgraded to one notch above the level of the sovereign debt rating:
Banco Bradesco S.A. - to C-/baa1 from B-/
a1
Banco Itau Unibanco S.A. to C-/baa1 from B-/
a1
Banco Itau BBA S.A. to C-/baa1 from B-/ a1
The standalone rating and credit assessment of Banco Votorantim S.A.
was downgraded to one notch below the level of the sovereign debt rating
to reflect the bank's poor financial performance, including
weak asset quality and profitability, and the prospects of ongoing
challenges to its financial strength.
GLOBAL LOCAL CURRENCY DEPOSIT AND ISSUER RATINGS
The local currency deposit or issuer ratings of 11 financial institutions
declined by one to two notches to reflect the combination of the lowering
of their standalone assessments and /or the lower ratings of their parent
banks. The deposit rating of one bank was confirmed.
The issuer ratings of six firms were downgraded by two notches,
although the rating of one firm remains two notches above the level of
the sovereign debt ratings.
The short-term ratings of six banks were downgraded to Prime 2,
from Prime 1, in line with the lowering of their long term deposit
ratings.
Moody's deposit ratings incorporate assumptions about potential
external support from a parent institution, or regional or national
government. These assumptions reflect both the capacity and the
willingness of such a third party to support a bank in the event of stress,
and can lead to a subsidiary's deposit and debt ratings being lifted
above its standalone credit assessment. The degree of uplift from
such support assumptions depends on a bank's systemic importance
as a deposit-taker and lender, as well as its relevance to
the parent banking group, among other considerations.
Moody's assessment of parental support to the Brazilian subsidiaries
of international banks incorporates a bank's strategic fit within
its parent group, and the strategic and operational interdependence
with its parent. The analysis also looks into the effects of reduced
credit strength and sustained decline in the capacity of parent groups
to support their cross border subsidiaries, and the positioning
of each bank's standalone credit assessment relative to its parent's
standalone profile.
The deposit ratings of three of the four banks whose standalone profiles
are now positioned at the same level as the sovereign rating continue
to benefit from one to two notches of uplift due to government and parental
support assumptions. One bank benefits from four notches of uplift
due to our assumptions of parental support by a higher-rated parent
bank. The deposit ratings of other three banks also benefit from
one notch of uplift, in this case due to assumptions of government
support, because of their systemic importance.
DOWNGRADE OF DEBT RATINGS
The long-term senior , subordinated, or junior debt
ratings of seven financial institutions have been downgraded by one to
two notches, in line with the lowering of their deposit and issuer
ratings. Their debt ratings follow Moody's guidelines for
rating bank hybrid securities and subordinated debt, and is based
on the supported deposit ratings for subordinated debt, or adjusted
BCA in the case of junior subordinated debt.
LIST OF RATING ACTIONS
The following rating actions were taken:
BANCO BRADESCO
Banco Bradesco S.A.'s (Bradesco) long-term
deposit rating was downgraded by two notches to A3, from A1,
and now incorporates one notch of uplift derived from Moody's assumption
of the probability of government support because of its systemic importance.
The short-term rating was lowered to Prime 2, from Prime
1. These actions are the result of the downgrade of Bradesco's
standalone BCA by three notches to baa1, from a1. Both standalone
and supported ratings carry a positive outlook reflecting the positive
outlook on Brazil's Baa2 debt rating.
The standalone baa1 credit assessment is one notch above that of the sovereign
debt rating and reflects Bradesco's relative resilience to Brazilian
sovereign risk, as evidence by (i) the bank's diversified
earnings base, including its sizable insurance operation that contribute
one third to the bank's results; (ii) its broad based domestic
core funding sources ; and (iii) its well-established franchise
in Brazil and strong credit fundamentals relative to global peers.
ITAU-UNIBANCO
Itau-Unibanco S.A.'s (IU) and Banco Itau BBA
S.A.'s (IBBA) long-term deposit ratings were
downgraded by two notches to A3, from A1, and now incorporate
one notch of uplift derived from Moody's assumption of the high
probability of government support because of its systemic importance.
The short-term ratings were lowered to Prime 2, from Prime
1. These actions are the result of the downgrade of IU's
and IBBA's standalone BCA's by three notches to baa1,
from a1. Both standalone and supported ratings carry a positive
outlook reflecting the positive outlook on the Brazil's Baa2 debt
rating.
The standalone baa1 credit assessment for both banks is one notch above
that of the sovereign debt rating and reflects IU's and IBBA's
relative resilience to Brazilian sovereign risk, as evidence by
(i) geographic diversification and international operations that provide
moderate asset diversification; (ii) high levels of earnings diversification,
including those derived from fee-generating businesses; and
(iii) their broad based core funding sources.
The local currency issuer and debt ratings of IU's leasing entities,
Itaubank Leasing S.A Arrendamento Mercantil, Dibens Leasing
S.A. Arrendamento Mercantil, and BFB Leasing S.A.
Arrendamento Mercantil, have also been downgraded by two notches,
following the downgrade of Itau Unibanco's ratings.
Itaú-Unibanco Holding S.A.'s (IUH) issuer
rating was downgraded to Baa1, from A2, notched off the supported
ratings of its two main operating banking subsidiaries (IU and IBBA) taking
into consideration structural subordination. The short-term
rating was lowered to Prime 2, from Prime 1. The issuer rating
of Itaúsa S.A. was also downgraded by two notches,
to Baa2, from A3, to reflect the downgrade of Itau Unibanco's
ratings.
BANCO DO BRASIL
Banco do Brasil's (BB) long-term deposit rating was downgraded
by one notch to A3, from A2, and now incorporates one notch
of uplift derived from Moody's assumption of the probability of
government support because of its systemic importance. The short-term
rating was lowered to Prime 2, from Prime 1. This action
is the result of the downgrade of BB's standalone BCA by three notches
to baa2, from a2. The supported long-term deposit
and debt ratings carry a positive outlook reflecting the positive outlook
on the Brazil's Baa2 debt rating.
The standalone baa2 credit assessment is at the same level of sovereign
debt rating, reflecting the high level of sovereign linkage,
particularly because of its government ownership and its public role.
BANCO VOTORANTIM
Banco Votorantim S.A.'s (Banco Votorantim) long-term
deposit rating was downgraded by two notches to Baa2, from A3,
and continues to incorporate one notch of uplift derived from the support
of its shareholder, Banco do Brasil. This action is the result
of the downgrade of Banco Votorantim's standalone BCA by one notch
to baa3, from baa2, and the downgrade of the deposit rating
of its shareholder BB to A3, from A2. All ratings carry stable
outlook.
The downgrade of Banco Votorantim's standalone rating primarily
reflects the material asset quality deterioration since 3Q11 and weakened
performance as the bank restructures its consumer finance activities.
As a result, loan origination has decline, which in turn,
weakens the bank's profitability, and thus, its ability
to replenish capital. The stable outlook on the ratings acknowledges
the strategic repositioning of the consumer operation, and the improved
balance sheet protection provided by higher reserves and the recently
announced capital injection of R$2 billion.
HSBC BANK BRASIL
HSBC Bank Brasil S.A.'s (HSBC Brazil) long-term
deposit rating was confirmed at A1, despite the (i) the one notch
downgrade on the bank's standalone rating to C-, from
C, that now maps to a standalone credit assessment of baa2,
lowered from a3; and (ii) the one notch downgrade on the parent HSBC
Holdings' plc instrinsic standalone financial strength to a1,
from aa3, announced on 21 June 2012 (please refer to press release
"Moody's downgrades firms with global capital markets operations").
The local currency deposit rating carries a stable outlook, while
the foreign currency rating remains constrained by Brazil's foreign
currency deposit ceiling and has a positive outlook, in line with
the positive outlook on the ceiling. The short-term deposit
ratings were confirmed at Prime 1.
The standalone baa2 credit assessment is at the same level of sovereign
debt rating.
BANCO SANTANDER (BRASIL)
Banco Santander (Brasil) S.A.'s (Santander Brazil)
long-term deposit rating was downgraded by two notches to Baa1,
from A2, and incorporates one notch of uplift derived from Moody's
assumption of the probability of government support because of its systemic
importance. The short-term rating was lowered to Prime 2,
from Prime 1. These actions are the result of the downgrade of
Santander Brazil's standalone BCA by two notches to baa2,
from a3, and the downgrade of the BCA of its parent Banco Santander
- Spain to baa2 from a3, announced on 25 June 2012 (refer
to press release "Moody's downgrades Spanish banks").
The standalone and supported ratings carry a stable outlook, except
for the foreign currency deposit rating that has a positive outlook and
remains constrained by Brazil's foreign currency deposit ceiling.
The standalone baa2 credit assessment is at the same level of sovereign
debt rating.
BANCO SAFRA
Banco Safra's (Safra) long-term deposit rating was downgraded
by one notch to Baa2, from Baa1, repositioned at the level
of the sovereign debt rating. This action is the result of the
lowering of Safra's standalone BCA by one notch to baa2, from
baa1. The long-term deposit and debt ratings carry a positive
outlook reflecting the positive outlook on the Brazil's Baa2 debt
rating.
ING BANK -- SÃO PAULO BRANCH
ING Bank N.V. São Paulo Branch's (ING Brazil)
long-term global local currency deposit rating was downgraded by
one notch to A2, from A1, as a result of the downgrade of
its parent bank, ING Bank N.V. of the Netherlands,
of which ING Brazil is legally structured as an branch. The outlook
on the rating is negative in line with the outlook of ING Bank N.V.'s
long-term deposit rating.
BM&FBOVESPA
BM&FBovespa S.A.'s (BMFBovespa) long-term
local currency issuer rating was downgraded to A3, from A1,
with a stable outlook, and is now two notches above the sovereign
debt level.
The rating action reflects (i) the exchange's diversified sources of earnings,
both by products and geography, with sizable portion originated
from international investors; (ii) little earnings dependence from
government-related sources; (ii) BMFBovespa's robust free
cash flow generation ability and superior financial metrics, including
low leveraged operation; (iii) its central risk management infrastructure
and the consistency to support the exchange's particular size,
business model and risk profile, and (iv) dominant status as the
only standardized cash equities and futures exchange and central clearinghouse
in Brazil.
DOWNGRADE OF INSURANCE RATINGS ITAÚ SEGUROS GROUP
Moody's Investors Service has downgraded Itaú Seguros' and Itaú
Vida e Previdência's global local currency (GLC) insurance
financial strength (IFS) ratings to Baa1 (positive outlook) from A2 (review
down) and has affirmed the companies' Aaa.br/Stable IFS ratings
on the Brazilian national scale. Concurrently, Moody's América
Latina Ltda. has downgraded the GLC subordinated debt rating of
Itauseg Participações S.A. (the insurers'
intermediate holding company) to Baa3 (positive outlook) from Baa1 (review
down) while affirming its Aaa.br (stable outlook) national scale
rating.
The rating actions follow the rating downgrades of Itaú Unibanco
S.A. and Itaú Holding S.A. (the insurers'ultimate
parent companies) and conclude a review initiated on February 24,
2012. According to Moody's, Itaú Seguros'
stand-alone credit profile now stands at Baa1, as compared
with A3 previously, the change primarily reflecting a reduced assessment
of the group's financial flexibility, given the lowering of
the parent' companies' ratings. Conversely Itaú
Vida e Previdência's stand-alone credit profile now
stands at Baa2, considering both a reduced assessment of the group's
financial flexibility, but also the insurer's very high investment
exposure to Brazil sovereign credit risk relative to its capital base,
which - in consideration of the recently-published Ratings
Implementation Guidance on how sovereign credit quality can affect other
ratings - effectively results in a lowering of the company's
the stand-alone credit profile to the level of Brazil's sovereign
debt rating. Because of Itaú Vida e Previdência's
significant product and distribution integration with its banking affiliates,
as well as its brand-sharing with the parent, Moody's
insurance financial strength rating for the company reflects 1 notch of
uplift from parental support from Itaú Unibanco.
The affirmation of the insurers' Aaa.br national scale IFS
ratings, with a stable outlook, reflects the fact that their
Baa1 global IFS ratings continue to map exclusively to the Aaa.br
national scale rating. The downgrade of Itauseg Participações
S.A's subordinated debt rating is based on the downgrade
of the insurance subsidiaries' global ratings, and application
of the 2-notch spread between the debt and IFS ratings.
The affirmation of the national scale subordinated debt rating at Aaa.br,
the higher of two possible alternatives on Moody's GLC-NS
mapping for Brazil, reflects Moody's view that the holding
company remains strong relative to other Brazilian issuers within the
Baa3 rating category.
METHODOLOGIES USED
The methodologies used in these banks' ratings were Bank Financial
Strength Ratings: Global Methodology, published in February
2007, and Incorporation of Joint-Default Analysis into Moody's
Bank Ratings: Global Methodology, published in March 2012.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
The ratings are Moody's National Scale Ratings (NSRs) which are intended
as relative measures of creditworthiness among debt issues and issuers
within a country, enabling market participants to better differentiate
relative risks. NSRs differ from Moody's global scale ratings in
that they are not globally comparable with the full universe of Moody's
rated entities, but only with NSRs for other rated debt issues and
issuers within the same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".mx"
for Mexico. For further information on Moody's approach to national
scale ratings, please refer to Moody's Rating Methodology published
in March 2011 entitled "Mapping Moody's National Scale Ratings to
Global Scale Ratings.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_143528
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
Sources of Information
Person Approving Credit Ratings
The following Global Scale Credit Ratings are EU endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
Banco Bradesco S.A.
Banco Bradesco S.A., Grand Cayman Branch
Banco Bradesco S.A., New York Branch
Banco do Brasil S.A.
Banco Do Brasil S.A. (Cayman)
Banco Itau BBA S.A.
Banco Safra S.A.
Banco Santander (Brasil) S.A.
Banco Santander (Brasil) S.A. - Cayman Br
Banco Votorantim S.A.
Banco Votorantim S.A. (Nassau Branch)
BM&FBovespa S.A.
HSBC Bank Brasil S.A. - Banco Multiplo
Itau Unibanco Holding S.A.
Itau Unibanco Holding S.A. (Cayman Islands)
Itau Unibanco S.A.
Itau Unibanco S.A. (Cayman Islands)
Itauseg Participacoes S.A.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
The below contact information is provided for information purposes only.
Please see the issuer page on www.moodys.com for Moody's
regulatory disclosure of the name of the lead analyst and the office that
has issued the credit rating.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
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entities that hold ratings from MIS that have also publicly reported to
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Please see Moody's Rating Symbols and Definitions on the Rating Process
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Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
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Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Ceres Lisboa
VP - Senior Credit Officer
Financial Institutions Group
Moody's America Latina Ltda.
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16th Floor, Room 1601
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SUBSCRIBERS: 55-11-3043-7300
Maria Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
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SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's America Latina Ltda.
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Brazil
JOURNALISTS: 800-891-2518
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Moody's concludes review for downgrade on Brazilian financial institutions
