Moody,s Investors Service confirmed Banco Bilbao Vizcaya (BBV)'s Aa2/Prime-1 deposit and senior debt ratings and its B+ financial strength rating. A negative outlook is maintained for the Aa2 and B+ ratings. At the same time, Moody,s placed under review for possible upgrade the Aa3 long-term deposit and senior debt ratings and the B financial strength rating of Argentaria, Caja Postal y Banco Hipotecario, S.A. (Argentaria) and the Aa3 long-term deposit and senior debt ratings of its subsidiary Banco de Cr‚dito Local (BCL). According to Moody,s, these rating actions follow the announcement on Tuesday, October 19, of BBV,s and Argentaria,s intention to merge earlier in year 2000 and thus to create Spain,s second largest financial institution. Moody%s added that the most likely outcome will be the upgrade of Argentaria%s ratings.
Moody,s commented that the expected merger between BBV and Argentaria would give the new group, Banco Bilbao Vizcaya Argentaria, S.A. (BBVA), impressive market shares in Spain across all business segments and a strong competitive position. Domestically, the merger should provide opportunities for economies of scale and, though to a lesser extent, revenue enhancements from cross-selling between the two merging banks. Economies of scale, presently targeted at Ptas. 85 billion (Euro 510 million) by management, should come mainly from the rationalization of back-office operations. Savings at the domestic branch networks level will be limited for the time being. In this respect however, Moody,s noted that the rapid realization of the expected cost savings, both in Spain and abroad, represents a major management challenge over the medium-term. Moody,s added that the smooth integration of the two groups, banking cultures would also require heightened attention.
Moody,s noted that, as a result of the merger, the weight of BBV,s Latin American exposure will be diluted because Argentaria,s own involvement in the region is far more limited and has been concentrated on the inherently less risky pension fund businesses -- the new group will hold a 30% market share in the Latam pension fund business. Nevertheless, the rating agency said that it remains concerned about the new banking group,s vulnerability to a further downturn in Latin America considering the size of its aggregated investments in the region. Continuing instability in the region could weigh on the performance of the new banking group,s Latin American affiliates. In addition, despite its future strong market position in Spain, BBVA, like the other Spanish banks, will be under pressure from rising domestic competition, which is constraining lending margins. However, Moody,s added that it expects BBVA to maintain solid fundamentals ) including good profitability, high asset quality and ample economic capitalization ) and to pursue a conservative strategy both at home and abroad where the new group ambitions to play a leading role in Southern Europe.
The following ratings were confirmed:
Banco Bilbao Vizcaya, S.A. -- the Prime-1 rating for short-term deposits and commercial paper, the Aa2 rating for long-term deposits and for senior domestic bonds, the Aa3 rating for domestic subordinated bonds, the B+ financial strength rating and the Aa2 issuer rating.
BBV International Finance Ltd. -- the Aa2/Prime-1rating for guaranteed senior obligations and the Aa3 rating for guaranteed subordinated obligations.
BBV Finance (Delaware), Inc. -- the Prime-1 rating for commercial paper.
Banco Bilbao Vizcaya Int'l (Gibraltar) -- the "aa3" rating for guaranteed preferred stock.
Bilbao Vizcaya International Ltd. -- the "aa3" rating for guaranteed preferred stock.
Bilbao Vizcaya Investments B.V. -- the Aa3 rating for guaranteed convertible subordinated eurobonds.
Argentaria, Caja Postal y Banco Hipotecario, S.A. -- the Prime-1 rating for short-term deposits.
Argentaria Commercial Paper Ltd. -- the Prime-1 rating for commercial paper.
Argentaria Global Finance Ltd. -- the Prime-one rating for guaranteed short-term debt.
Banco de Credito Local, S.A. -- the Prime-1 rating for short-term deposits and the B+ financial strength rating.
BCL International Finance Ltd. -- the Prime-1 rating for commercial paper.
The following ratings were placed under review for possible upgrade:
Argentaria, Caja Postal y Banco Hipotecario, S.A. (Argentaria) -- the Aa3 rating for long-term deposits, the B financial strength rating and the Aa1 rating for cedulas hipotecarias (mortgage certificates).
Argentaria Global Finance Ltd. -- long-term senior unsecured debt guaranteed by Argentaria at Aa3.
Argentaria Capital Funding Ltd. -- long-term subordinated debt guaranteed by Argentaria at A1 and preferred stock guaranteed by Argentaria at "a1".
Argentaria Preferred Capital Ltd. -- preferred stock guaranteed by Argentaria at "a1".
Banco de Credito Local, S.A. -- the Aa3 rating for long-term deposits.
BCL International Finance Ltd. -- long-term senior unsecured debt guaranteed by BCL at Aa3.
BBV, S.A., headquartered in Bilbao, Spain, had total assets of Ptas. 38 trillion (approx. Euro 226 billion) at end-September 1999. Argentaria, Caja Postal y Banco Hipotecario, S.A., headquartered in Madrid, Spain, had total assets of Ptas. 13 trillion (approx. Euro 77 billion) at end-June 1999. Also headquartered in Madrid, Spain, Banco de Credito Local, S.A. had Ptas. 1.5 trillion (about Euro 9 billion) in total assets at end-December 1998.
MOODY´S CONFIRMS THE Aa2/Prime-1/B+ RATINGS OF BBV AND REVIEWS FOR POSSIBLE UPGRADE THE Aa3/B RATINGS OF ARGENTARIA AND THE Aa3 LONG-TERM RATING OF ITS SUBSIDIARY BANCO DE CREDITO LOCAL FOLLOWING THE ANNOUNCEMENT OF THE TWO BANK´S INTENTION TO MERGE
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