Note: On November 15, 2012, added the following disclosure as the sixth paragraph of the Regulatory Disclosures section: The rated entity has received a Rating Assessment Service within the last two years preceding the Credit Rating Action. Revised release as follows:
Short-term Prime-1 rating affirmed
Frankfurt am Main, August 15, 2012 -- Moody's Investors Service has today downgraded by one notch the long-term
bank deposit rating of Bank Julius Baer & Co. AG (BJB) to A1
from Aa3, and downgraded BJB's standalone bank financial strength
rating (BFSR) to C+, equivalent to a standalone credit assessment
of a2, from B-/a1.
In addition, Moody's has affirmed BJB's Prime-1
short-term deposit rating and downgraded the long-term issuer
rating of Julius Baer Group (JBG) to A2 from A1 -- which
is one notch below BJB's A1 deposit rating -- reflecting
the structural subordination of the Group. All ratings, except
BJB's short-term rating, were placed under review for
further downgrade.
Please see the ratings list below for all affected ratings.
RATINGS RATIONALE
Moody's says that the one-notch downgrade of the bank's ratings
follows the announcement by the Group of its intention to acquire Merrill
Lynch's international wealth-management business outside
the US from Bank of America, and reflects the continued and increased
franchise pressures on traditional Swiss private banking franchises,
stemming from (i) the necessary recalibration of private banking models
towards on-shore from off-shore centres; (ii) declining
gross margins from lower client-risk appetite and trading activities;
and (iii) operating expense pressures, including pressure from a
strong Swiss franc. The downgrade also reflects JBG's increased
risk appetite to pursue a transformational deal that increases risks to
bondholders, in Moody's view.
FOCUS OF THE REVIEW
Moody's review of the long-term ratings of BJB and JBG reflects
the rating agency's view on the potential impact of the announced
transaction, which will likely cause a decline in BJB's currently
strong regulatory capital ratios. The deal will see JBG acquire
up to CHF72 billion in assets under management (AUM), for a total
consideration of CHF1.47 billion, including after-tax
restructuring and integration costs. The transaction remains subject
to shareholder and regulatory approval, and is not expected to close
before Q4 2012 or Q1 2013. As a result of the transaction,
JBG expects to add scale to its international platform and to increase
the share of AUM from growth markets.
Moody's recognises the franchise-enhancing aspects of the
proposed deal. However, the review will focus on the expected
decline in regulatory capital ratios from currently strong levels (as
of June 2012, JBG's Tier 1 ratio according BIS definition
was 21.4%), notwithstanding JBG's intention
to raise approximately CHF1 billion of new equity funding, which
in combination with regulatory approval are important pre-conditions
for the closing of the transaction. Moody's review will also
consider the Group's appetite for further acquisitions, as
well as the risks that the extended timeline for complete integration
of the transaction could weaken the franchise enhancing aspects of the
deal. Moody's expects to conclude its rating review after
the extra-ordinary shareholders' meeting takes place and,
based on current expectations, Moody's believes that a further
one-notch downgrade of BJB's and JBG's long-term
ratings is likely, if the transaction is approved.
WHAT COULD CHANGE THE RATINGS UP/DOWN
The review for downgrade indicates that there is currently no upwards
rating pressure for BJB's and JBG's ratings, and Moody's
current expectation is for a one-notch downgrade on closure of
the current rating review.
Further subsequent downwards pressure could develop on BJB's standalone
credit profile as a result of (i) material, prolonged erosion in
AUM, as well as client or advisor attrition; (ii) a continued
decline in gross and net margins on AUM; (iii) failure to successfully
integrate and efficiently operate an enlarged, global private banking
platform following the closure of the announced transaction; (iv)
unduly additional commercially or financially aggressive acquisitions;
and/or (v) litigation charges that exceed Moody's expectations of
those connected with typical private wealth-management suits (tax
cases or reputational cases).
A wider notching of JBG's ratings, for instance as a result of significant
double leverage at the holding company level, would also exert downwards
pressure on JBG's ratings.
LIST OF AFFECTED RATINGS
The following ratings of BJB were downgraded and placed on review for
further downgrade:
- Standalone BFSR to C+ from B-, mapping to a
standalone credit assessment of a2 from a1;
- Bank deposits rating to A1 from Aa3.
The following ratings of BJB were affirmed:
- Prime-1 short-term bank deposit rating.
The following ratings of JBG were downgraded and placed on review for
further downgrade:
- Issuer rating to A2 from A1;
- Senior subordinated debt (LT2) to Baa1 from A3;
- Hybrid securities (non-cumulative preferred stock) to
Baa3(hyb) from Baa2(hyb).
PRINCIPAL METHODOLOGIES
The principal methodology used in these ratings was Moody's Consolidated
Global Bank Rating Methodology published in June 2012. Please see
the Credit Policy page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
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.
The ratings have been disclosed to the rated entities or their designated
agents and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
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 rated entity has received a Rating Assessment Service within the last two years preceding the Credit Rating Action.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entities or their related third parties within
the two years preceding the credit rating action. Please see the
special report "Ancillary or other permissible services provided
to entities rated by MIS's EU credit rating agencies" on the
ratings disclosure page on our website www.moodys.com for
further information.
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
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
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
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
Swen Metzler
Vice President
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Bank Julius Baer to A1/C+; on review for downgrade
