MOODY'S DOWNGRADES FUJI BANK'S LONG TERM RATINGS (DEPOSITS TO Baa1, SENIOR TO Baa2), CONFIRMS P-2 RATING
New York, 08-27-98 -- Tokyo, August 28, 1998 -- Moody's Investors Service lowered Fuji Bank's long-term deposit rating to Baa1, its senior debt rating to Baa2, its subordinated debt rating to Baa3, its junior subordinated debt rating to Ba1, and its bank financial strength rating to E+. The Prime-2 short-term rating was confirmed. These rating actions conclude the review initiated on May 27, 1998. The rating outlook is stable for deposit and senior debt ratings.
However, Moody's said, the ratings for Fuji Bank's subordinated debt and preferred stock remain on review for possible downgrade, along with those of other Japanese banks with financial strength ratings of E+ or lower that were placed on review on June 12, 1998. Moody's said at that time that it was considering widening further the differentials between deposit ratings and such ratings, because the uncertainty surrounding the prospective treatment of capital-type securities in failed-bank resolutions was rising. This action does not reflect any issues specific to Fuji Bank.
The rating actions primarily reflect the sharp decline in Fuji Bank's pre-provision profitability and Moody's assessment that the bank's earnings are unlikely to rebound substantially in the medium term. The decline in earnings further reduces the bank's financial flexibility and ability to resolve its asset quality problems, at a time when all major Japanese banks' portfolios are under great pressure because of the domestic recession and the turmoil in East Asia. Furthermore, Fuji Bank has less economic capital than its peers, partly because of large embedded losses on its stock holdings. In addition, in Moody's opinion, Fuji Bank faces contingent risks relating to Yasuda Trust (senior at Ba1) because Fuji Bank recently strengthened its ties with that institution.
The bank has taken proactive steps to improve its asset quality, the rating agency said, but Fuji Bank's financial constraints limit its ability to dispose of its problem loans. Moody's added that Fuji Bank has a strong domestic deposit base and relies less on purchased funding than some of its peers. Nonetheless, Moody's said, the sustained rise in the bank's overseas funding costs has affected the profitability of its international business.
Fuji Bank is taking steps to raise its profitability over time, by focusing on higher-margin business in Japan and streamlining its domestic branch network. However, Moody's said, it may be difficult to achieve substantially higher earnings because of the depressed domestic economy and intense competition in the customer segments that Fuji has targeted.
The following ratings are lowered:
The Fuji Bank, Limited-the long-term deposit rating to Baa1 from A3, the senior debt rating to Baa2 from A3, the subordinated debt rating to Baa3 from Baa1, the junior subordinated debt rating to Ba1 from Baa2, and the bank financial strength rating to E+ from D+.
Fuji Bank (Luxembourg) S.A.-the senior debt rating to Baa2 from A3.
Fuji Bank International Finance N.V.-the subordinated debt rating to Baa3 from Baa1 and the junior subordinated debt rating to Ba1 from Baa2.
Fuji Bank, Ltd., Hong Kong Branch-the long-term deposit rating to Baa1 from A3.
Fuji Bank, Ltd., Paris Branch-- the long-term deposit rating to Baa1 from A3.
Fuji Finance (Cayman) Limited-the subordinated debt rating to Baa3 from Baa1 and the junior subordinated debt rating to Ba1 from Baa2.
Fuji International Finance PLC-the senior debt rating to Baa2 from A3.
Fuji International Finance (Australia) Ltd.-the senior debt rating to Baa2 from A3.
Fuji International Finance (Bermuda) Trust-the preferred stock rating to "ba1" from "baa2".
Fuji JGB Investment L.L.C.-the preferred stock rating to "ba1" from "baa2."
Fuji Trust and Banking Co-the deposit rating to Baa2 from Baa1, the issuer rating to Baa2 from Baa1, and the bank financial strength rating to E+ from D.
The following ratings were confirmed:
Fuji Bank, Limited--the Prime-2 rating for short-term deposits and other short-term obligations.
Fuji Bank Canada-the Prime-2 rating for short-term deposits.
Fuji Bank, Ltd., Paris Branch-- the Prime-2 short-term deposit rating.
Fuji Trust & Banking Co., Ltd. -- the Prime-2 short-term deposit rating.
Fuji International Finance PLC-the Prime-2 rating of the company for commercial paper.
The following ratings remain on review for possible downgrade:
The Fuji Bank, Limited-the Baa3 subordinated debt rating and the Ba1 junior subordinated debt rating.
Fuji Bank International Finance N.V.-the Baa3 subordinated debt rating and the Ba1 junior subordinated debt rating.
Fuji Finance (Cayman) Limited-the Baa3 subordinated debt rating and the Ba1 junior subordinated debt rating.
Fuji International Finance (Bermuda) Trust-the "ba1" preferred stock rating.
Fuji JGB Investment L.L.C.-the "ba1" preferred stock rating.
As of March 30, 1998, Fuji Bank, Limited had assets of 51 trillion yen and stockholders' equity of 1.1 trillion yen.
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