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Rating Action:

MOODY'S AFFIRMS INVESTEC BANK AUSTRALIA'S Baa2 / P-2 / D+ RATINGS ON ROTHSCHILD ACQUISITION; ALSO AFFIRMS Baa2 / P-2 / C- RATINGS OF PARENT BANK INVESTEC BANK (UK) LTD AND Baa3 / P-3 RATINGS OF ULTIMATE PARENT HOLDING COMPANY INVESTEC PLC

11 Jul 2006
MOODY'S AFFIRMS INVESTEC BANK AUSTRALIA'S Baa2 / P-2 / D+ RATINGS ON ROTHSCHILD ACQUISITION; ALSO AFFIRMS Baa2 / P-2 / C- RATINGS OF PARENT BANK INVESTEC BANK (UK) LTD AND Baa3 / P-3 RATINGS OF ULTIMATE PARENT HOLDING COMPANY INVESTEC PLC

All ratings are affirmed with a stable outlook; deposit, senior debt and subordinated debt ratings assigned to newly owned Rothschild Australia subsidiary

Sydney, July 11, 2006 -- Moody's affirmed the Baa2 / Prime-2 deposit ratings of Investec Bank (Australia) Limited [IBAL] and its Bank Financial Strength Rating [BFSR] of D+ with a Stable rating outlook, following the acquisition by its parent Investec Bank (UK) Limited [IBUK] of NM Rothshchild Australia Holdings Pty Ltd [NMRAH], and pending the anticipated transfer of NMRAH assets and liabilities to IBAL at end September 2006. Moody's further affirmed the Baa2 / P-2 issuer ratings and C- BFSR of IBUK and of the Baa3 / P-3 issuer ratings of the holding company of this bank, Investec PLC. At the same time, Baa2 / Prime-2 deposit and senior debt ratings and Baa3 subordinated debt ratings were assigned to NM Rothshchild & Sons (Australia) Limited [NMRSAL].

The inclusion of the Rothschild businesses will bring important strategic synergies and diversification to IBAL, the rating agency said, which will offset an expected decline in profitability ratios in the short-term (despite an expected lift in absolute dollar profit). Consequently the BFSR of D+ has been affirmed with a Stable outlook. Capital and liquidity at IBAL will be boosted by the transaction terms, demonstrating the continued supportive stance of IBUK towards its Australian subsidiary IBAL, which underpins the latter's Baa2 / P-2 deposit and issuer ratings.

In affirming the ratings of IBUK and Investec PLC, Moody's said that the acquisition would provide a greater degree of diversification for the consolidated earnings of the UK-based parent group, which would likely maintain healthy capital ratios and solid liquidity following the deal. The ratings agency expects the execution and credit quality risks arising from the acquisition to be relatively modest in relation to the recurring earnings power and balance sheet strength of the group.

Selected Rothschild assets and liabilities are to be transferred to IBAL in a two-stage process. First IBUK will acquire NMRAH. Then at end September 2006, IBUK will transfer the Rothschild assets and liabilities to IBAL. The effect will be to inject the net asset value of the Rothschild operations as equity into IBAL.

The Rothschild business operations are complimentary to those of IBAL, strengthening the latter's position and capabilities in the growing area of resources, infrastructure and acquisition finance, and providing coverage of the Western Australia market. The transferred loan book will have very strong asset quality as only selected credit exposures are to be taken on by IBAL. It will also help to diversify IBAL away from its traditional area of commercial property related exposure from approximately four fifths of total loans to around half. The terms of the transaction will also slightly boost IBAL's capital and liquidity metrics on a pro-forma basis.

The Rothschild assets to be acquired are substantial, more than doubling IBAL's balance sheet. They are also relatively low-yielding in comparison to IBAL's loan book, so while there should be an improvement in absolute dollar profit, IBAL's profit in relation to assets is likely to experience a decline following the transaction. On the upside, IBAL is to take on only a limited number of Rothschild staff, swiftly creating cost synergies that should start to redress the balance. However, the business combination does bring the risk that senior management may have to allocate considerable time and internal resources to the integration process, which may lower the ability of IBAL to grow its existing business as rapidly as before. Moreover, the nature of much of the lending is short-term, and rapidly rolls off the balance sheet, further challenging the bank to maintain its loan book and profit growth.

However, if IBAL can manage the risks of the integration, maintain and grow the acquired franchise, and hence rebuild its profitability without compromising asset quality, Moody's would expect a positive impact on the BFSR. We would expect to see Pre-Provision Profits / Risk-Weighted Assets in excess of 2.8% and Non-Performing Assets / Gross Loans under 3%.

Conversely, deterioration in these metrics would be expected to have negative implications for the BFSR. Key thresholds would be PPP / RWA falling below 2% or NPAs / Gross Loans of rising above 6%.

Moody's continues to see IBAL's deposit ratings as moving in lock-step with those of IBUK due to the latter's supportive stance, which closely aligns the two banks' credit profiles.

The ratings assigned to the obligations of NMRSAL (which are guaranteed by NMRAH) are at the same level as the obligations of IBAL, reflecting (i) its shared status with IBAL as a subsidiary of IBUK during the interim holding period, (ii) IBUK's supportive attitude towards its existing Australian subsidiary, and (iii) the rapid planned assumption of these obligations by IBAL.

Following the transfer of the Rothschild assets and liabilities to IBAL, it is expected that the NMRSAL legal entity may eventually be eliminated, and the ratings would be withdrawn. New and identical ratings would then be assigned to these debts as obligations of IBAL.

Investec Bank (Australia) Limited, headquartered in Sydney, had total assets of AUD1587 million (USD1179 million, GBP642 million) and shareholders' equity of AUD334 million (USD248 million, GBP135 million) as at 31 March 2006.

Investec Bank (UK) Ltd, headquartered in London, had total assets of GBP7.46 billion (USD12.98 billion) and shareholders' equity of GBP588 million (USD1022 million) as at 31 March 2006.

Investec PLC, headquartered in London, had total assets of GBP7.84 billion (USD13.64 billion) and shareholders' equity of GBP774 million (USD1346 million) as at 31 March 2006.

Singapore
Patrick Winsbury
VP - Senior Credit Officer
Financial Institutions Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308

Sydney
Marina Ip
Associate Analyst
Financial Institutions Group
Moody's Investors Service Pty Ltd
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100

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