Review affects A1 long-term ratings and C- BFSRs; Prime-1 short-term ratings affirmed
Paris, March 30, 2011 -- This press release corrects and replaces the press release issued on 28th
March 2011. The hybrid indicator (hyb) has been added to all preferred
stock and junior subordinated debt ratings. The revised press release
follows below.
Moody's Investors Service has today placed on review for possible downgrade
the standalone Bank Financial Strength Ratings (BFSRs) and long-term
deposit and senior debt ratings of Dexia Group's three main operating
entities -- Dexia Bank Belgium (DBB), Dexia Credit
Local (DCL) and Dexia Banque Internationale à Luxembourg (DBIL).
The three entities' short-term ratings were affirmed.
The BFSRs of DBB, DCL and DBIL are currently aligned at C-,
mapping to Baa2 on the long-term scale. The long-term
debt and deposit ratings and the short-term debt ratings of these
subsidiaries are also aligned at A1 and Prime-1, respectively.
Upon the conclusion of its ratings review, Moody's may reposition
the three entities' BFSRs in the D range, most likely at D+,
mapping to a Baseline Credit Assessment (BCA) of Baa3 or Ba1 on the long-term
scale. We believe that potential systemic support, which
currently results in senior debt and deposit rated four notches above
the three entities' BCAs, is likely to remain an important rating
factor. For this reason, we see the potential downside to
the A1 long-term senior debt and deposit ratings to be limited
to one or possibly two notches. Our decision to affirm the Prime-1
short-term ratings is similarly driven by our expectation that
systemic support would be forthcoming for Dexia's financing needs,
as it was in the past.
Aa1 rated bonds of Dexia's issuing entities that benefit from a guarantee
of the governments of France (Aaa/stable), Belgium (Aa1/Stable)
and Luxembourg (Aaa/Stable) are unaffected by today's rating announcement.
Dexia's subordinated and hybrid securities were also placed on review
for possible downgrade. For a detailed list of ratings affected
please refer to the end of the press release.
RATINGS RATIONALE
Moody's decision to initiate a review for downgrade on the ratings of
Dexia's three main operating entities was prompted by concerns about the
group's continued reliance on both short-term funding and secured
funding. Although the group's short-term funding needs have
been substantially reduced, they remain sizeable and further improvements
are to some extent dependent upon disposals and deleveraging. Further,
the overall higher cost of funding the group has been experiencing since
2009 raises concerns over the economics of Dexia's business as it may
challenge its capacity to maintain its franchise in the public finance
business over time. Moody's believes that the current BFSRs of
C- may not be consistent with these challenges, and could
therefore reposition its assessment of the group's intrinsic strength
in the D category, most likely at D+. The initiation
of Moody's review on the A1 long-term debt and deposit ratings
is a direct consequence of the review of the BFSR, and will also
take into account the potential for systemic support, which we expect
to remain very high.
FUNDING CHALLENGES PUT LONG-TERM PRESSURE ON THE GROUP'S INTRINSIC
STRENTHS
Moody's recognises the substantial progress achieved by Dexia in reducing
its short-term funding needs over the past two years. Moody's
also notes that the group's access to secured funding has remained robust,
both on the long- and short-term markets, and that
it has been successfully increasing its retail and commercial deposits
base. The rating agency also notes the participation of La Banque
Postale (unrated) in Dexia's recent debt issues and the likelihood that
La Banque Postale will make further finance available, together
with other public entities.
Although we understand that Dexia does not plan to make significant use
of unsecured term funding, we believe that the group's limited access
to this financing channel makes it more dependent on the delicate deleveraging
process of its legacy assets and other disposals in order to achieve a
further significant decrease in its funding gap, which is therefore
likely to remain sizeable.
Over the longer term, Moody's considers that the aforementioned
financial constraints and the overall higher cost of funding may impact
the group's ability to maintain its market shares in public finance or
its profitability.
The review for possible downgrade will therefore focus on the following
factors which are exerting some downward pressure on the group's financial
profile:
- Dexia's ability to raise long-term funding at a cost that
preserves the economics and the viability of its public finance core business;
- Its ability to continue deleveraging its legacy assets without
adversely affecting the average quality and duration of the bond portfolio
in run-off; and
- The potential impact of Basel III regulations on Dexia's liquidity
management and the group's capitalisation.
Moody's acknowledges the very high inter-company support that currently
prevails within the centrally managed Dexia Group. This is reflected
in Moody's approach of assigning BFSRs at the same level for the three
main group companies (DBB, DCL and DBIL).
FOCUS ON LONG-TERM RATINGS AND SYSTEMIC SUPPORT ASSUMPTIONS
The downward pressure on the BFSR has prompted Moody's to also place the
long-term debt and deposit ratings on review for possible downgrade.
With long-term debt and deposit ratings of A1, Dexia's issuing
entities currently receive a four-notch uplift from their BCA of
Baa2. This reflects the very high probability of systemic support
from France, Belgium and Luxembourg, as evidenced by the capital
increase in 2008, the funding guarantee program and the asset guarantee
scheme provided by these countries. This support, in turn,
reflects the deep ties between Dexia and the public sectors of these countries,
both from its shareholders as well as a from a business franchise perspective.
Moody's considers this involvement to be a more structural feature of
Dexia's model compared to some other state-owned banks.
We will therefore review the degree of uplift from systemic support assigned
to the long-term ratings, but expect that support from government
shareholders will continue to be a key rating factor going forward.
For this reason we see the potential downside to the A1 senior debt and
deposit ratings to be limited to one or possibly two notches.
AFFIRMATION OF SHORT-TERM RATINGS
Moody's decision to affirm the Prime-1 short term ratings is similarly
driven by our expectation that a downgrade of the long-term ratings
to A3 is less likely than a downgrade to A2. In addition,
we note that a Prime-1 short-term rating is not incompatible
with an A3 long-term rating. While this combination is unusual,
it reflects Moody's continued high expectations of systemic support for
the group's financing needs.
HYBRIDS AND JUNIOR SUBORDINATED DEBT RATINGS
Additionally, the review on the BFSRs triggers a review on the ratings
of the group's outstanding hybrid securities. As such, the
B3 (hyb) preferred stock securities issued by DCL and by Dexia Funding
Luxembourg (DFL, guaranteed by Dexia Group) as well as the B1 (hyb)
preferred stock securities issued by DBIL were placed on review for possible
downgrade. Similarly, the Ba2 (hyb) junior subordinated debt
issued by DBB, and the Baa1 (hyb) junior subordinated debts issued
by DBIL and Dexia Overseas Limited were placed on review for possible
downgrade.
IMPACT ON SUBSIDIARIES
The ratings on a number of subsidiaries were placed on review for possible
downgrade as follows:
- Dexia Credit Local's C- BFSR, A1 long-term
deposit and senior unsecured debt ratings, A2 subordinated debt
rating, and B3 (hyb) preferred stock rating;
- Dexia Bank Belgium's C- BFSR, A1 long-term
deposit and senior unsecured debt ratings, A2 subordinated debt
rating, and Ba2 (hyb) junior subordinated debt rating;
- Dexia Banque Internationale à Luxembourg's C- BFSR,
A1 long-term deposit and senior unsecured debt ratings, A2
subordinated debt rating, Baa1 (hyb) junior subordinated debt rating,
and B1 (hyb) preferred stock rating;
- Dexia Funding Luxembourg's B3 (hyb) backed preferred stock rating;
- Dexia Kommunalkredit Bank's Baa2 long-term senior unsecured
debt rating;
- Dexia CLF Finance's A1 backed senior unsecured rating;
- Dexia Public Finance Norden's A1 long-term backed bank
deposit rating;
- Dexia Credit Local New York Branch's A1 long-term bank
deposit rating;
- Dexia Credit Local Tokyo Branch's A1 long-term bank deposit
rating;
- Dexia Funding Netherlands' A1 backed long-term senior
unsecured rating, and A2 backed subordinated debt rating;
- Dexia Overseas Limited's A1 long-term backed senior unsecured
rating, A2 backed subordinated debt rating and Baa1 (hyb) backed
junior subordinated debt ratings.
The Prime-1 ratings on the above entities, where applicable,
were affirmed.
The following ratings remain unchanged:
- Dexia Crediop S.p.A.'s C- BFSR,
A2 long-term deposit and senior unsecured debt ratings, A3
subordinated debt rating, and Prime-1 short-term debt
ratings. The outlook on deposit and senior unsecured debt ratings
remains negative;
- Crediop Overseas Bank Limited's A2 long-term deposit and
senior unsecured debt ratings, A3 subordinated debt rating and Prime-1
short-term debt ratings. The outlook on senior unsecured
debt ratings remains negative;
- Dexia Sabadell S.A.'s C- BFSR, Baa2
long-term deposit and senior unsecured debt ratings, and
Prime-3 short-term debt ratings. The outlook on the
BFSR and deposit and senior unsecured debt ratings remain negative;
- DenizBank A.S.'s C- BFSR, Baa2 domestic
currency deposit ratings, Ba3 long-term foreign currency
deposit ratings, Prime-2 short-term domestic currency
deposit ratings and Not-Prime short-term foreign currency
deposit ratings. The outlook on the BFSR and domestic currency
deposit ratings remains stable and the outlook on the foreign currency
deposit ratings remains positive.
- Dexia Delaware LLC's Prime-1 backed commercial paper rating;
- Dexia Credit Local, Stockholm Branch's Prime-1 short-term
deposit rating;
- Dexia Financial Products' Prime-1 backed commercial paper
rating;
PREVIOUS RATING ACTIONS AND METHODOLOGIES
The last rating action on Dexia took place on 12 February 2010,
when Moody's upgraded to C- from D+ the BFSRs of Dexia Group's
main operating entities (DBB, DCL and DBIL). At the time,
Moody's also affirmed the A1 long-term debt and deposit ratings
and the Prime-1 short-term debt and deposit ratings of DBB,
DCL and DBIL. The outlooks on the long-term debt and deposit
ratings and on the BFSRs were changed to stable from negative.
The principal methodologies used in rating this bank were "Bank Financial
Strength Ratings: Global Methodology" published in February 2007,
"Incorporation of Joint-Default Analysis into Moody's Bank Ratings:
A Refined Methodology" published in March 2007, and "Moody's Guidelines
for Rating Bank Hybrid Securities and Subordinated Debt" published in
November 2009.
Based in Brussels, Belgium, Dexia SA's consolidated net income
group share amounted to EUR723 million in 2010, down by 28%
from EUR1.1 billion in 2009. Dexia had total assets of EUR566
billion at the end-December 2010, down by 2% from
EUR577 billion at the end-December 2009. At end-December
2010, the bank's Tier 1 ratio stood at 13.1% (year-end
2009: 12.3%) under the Basel II advanced approach.
Paris
Yasuko Nakamura
Vice President - Senior Analyst
Financial Institutions Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Frankfurt am Main
Carola Schuler
MD - Banking
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Correction to Text, March 28, 2011 Release: Moody's places long term ratings of Dexia's main operating entities on review for possible downgrade
