Madrid, May 07, 2012 -- Moody's Investors Service has today widened the scope of the existing
review for downgrade on Banco Santander's Aa3 long-term ratings
(initiated on 15 February 2012) to include the Prime-1 short-term
ratings.
The review of Santander's short-term rating is driven by
Moody's review of whether Spanish banks with standalone credit assessments
at (or below) the government's rating can continue to benefit from
systemic support that lifts a bank's rating above that of the Spanish
government. This review reflects the rating agency's concern
that in a systemic crisis, the Spanish government's capacity
and willingness to support its banking system may have diminished.
Moody's will announce the outcome of this review at the same time
as it concludes its wider review of Spanish bank debt and deposit ratings.
RATINGS RATIONALE
To date, Moody's has assumed that the Spanish government has
a high propensity to provide system-wide support, even if
doing so could undermine the government's own credit profile.
Consequently, it has so far been possible for systemic support --
calculated using Moody's Joint Default Analysis methodology --
to lift Spanish banks' ratings above that of the government.
This implies a lower probability of default for certain banks than exists
for the sovereign, even though the standalone strength of those
banks is at (or below) that of the sovereign.
This view is currently reflected in a 'Systemic Support Indicator'
(SSI) for Spain of '+1', which allows bank ratings
that incorporate systemic support uplift to exceed that of the sovereign
(currently A3, negative) by one notch.
However, the rising pressures on the Spanish banking system,
the government's finances and the Spanish economy has led Moody's
to review the government's ability and willingness to commit public
funds to support banks. Although Moody's believes that it
remains appropriate to factor in some support to the debt ratings of certain
Spanish banks, it may no longer be appropriate to assume that the
government is more willing and able to provide support to banks than it
is to service its own debt, or therefore to assume that support
from the government could imply a higher rating for any Spanish bank than
for the government itself.
If this view is affirmed supported ratings would be capped at the same
level as the sovereign rating. In that scenario, the short-term
rating of Banco Santander could be affected if Moody's downgrades
Santander's standalone bank financial strength rating from B-
to C (mapping to an a3 standalone credit strength). At the C/a3
level, it would no longer be possible to factor any systemic support
into Santander's long-term debt rating, which would
therefore not exceed A3. Moody's has therefore placed the
short-term Prime-1 rating of Banco Santander on review for
downgrade, in line with all other ratings of Banco Santander.
All the long- and short-term ratings of other banks who
currently benefit from a support uplift above the government's ratings
of A3 are already on review for downgrade, and the review of these
banks will need to incorporate the outcome of Moody's review of
the SSI.
WHAT COULD CHANGE THE RATINGS UP/DOWN
The ratings could be downgraded if Spain's government rating is
downgraded. Negative pressure on Santander's BFSR could ultimately
result from (i) inadequate risk absorption capacity (i.e.,
recurring earnings, excess capital and loan-loss reserves)
compared with Moody's estimated credit losses; (ii) failure to withstand
Moody's liquidity stress test; or (iii) a lower share of recurring
earnings. This could be driven by increased exposure to inherently
volatile markets and/or market segments.
Any upward pressure of Santander's ratings is currently unlikely
given the current review for downgrade of its ratings and the negative
outlook on Spain's A3 government debt rating. Notwithstanding
the above, any upgrade would also be contingent on (i) evidence
of more favourable economic conditions across its core markets; (ii)
evidence of a sustained reversal in the deterioration in asset quality
and profitability indicators; (iii) stronger Tier 1 and tangible
common equity ratios, further offsetting estimated credit losses
under Moody's scenarios; and (iv) normalised funding markets.
A rating upgrade will also depend on a materially lower credit-risk
concentration, particularly with regards to single-name exposures.
The following ratings were affected:
- The short-term deposit rating of Banco Santander S.A
- The short-term ratings on CD of Banco Santander,
S.A. London branch
- The short-term ratings on CP and MTN program of Santander
Central Hispano International guaranteed by Banco Santander SA
- The short-term ratings on CP of Santander Commercial Paper
SA Unipersonal guaranteed by Banco Santander SA
- The short-term ratings on MTN program of Santander International
Debt, S.A. Unipersonal guaranteed by Banco Santander
SA
The methodologies used in these ratings were Bank Financial Strength Ratings:
Global Methodology published in February 2007, and Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology published in March 2007. Please see the Credit Policy
page on www.moodys.com for a copy of these methodologies.
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
agent(s) 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 reviews.
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.
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
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for further information.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
Maria Cabanyes
Senior Vice President
Financial Institutions Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
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Johannes Felix Wassenberg
MD - Banking
Financial Institutions Group
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Releasing Office:
Moody's Investors Service Espana, S.A.
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Madrid 28002
Spain
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Moody's extends Santander's current ratings review to its short-term ratings
