MOODYS LOWERS THE LONG-TERM DEPOSIT RATING AND THE FINANCIAL STRENGTH RATING OF ABN AMRO BANK N.V. TO Aa2 AND B+ RESPECTIVELY; RATING OUTLOOK REMAINS NEGATIVE
Moody's Investors Service lowered the long-term deposit ratings and the financial strength rating of ABN AMRO Bank N.V. to Aa2 from Aa1 and to B+ from A, respectively. This rating action, which takes account of the banking group's increasing risk profile arising from its growing geographic and activity diversification, concludes the rating review initiated in July 1998. The outlook for the bank's Aa2 long-term rating and B+ financial strength rating remains negative.
The rating review process was prompted by ABN AMRO's announcement that it planned to acquire majority control of Banco Real (rated B2/NP/C), which is Brazil's fourth-largest privately held bank. This transaction ranked as ABN AMRO's largest acquisition, establishing a "third home market" for the Dutch banking group in Brazil (after the Netherlands and the US Midwest). Moody's said that although relatively small in terms of total assets (as of year-end 1997, $14 billion for Banco Real, versus $414 billion for ABN AMRO), the future significance of Brazil within the ABN AMRO franchise may result in the contribution of as much as 20% of group profitability in the medium term. With the establishment of such a significant presence in the Brazilian banking market, the Dutch banking group is also likely to see a rise in the overall risk profile of its business and balance sheet.
Beyond the Brazilian acquisition, Moody's said that ABN AMRO has become increasingly exposed to global markets risk, including emerging markets. Exposures to the more stressed economies appear to be relatively well contained, both in absolute terms and in relation to core earnings and economic capital, but the provisioning requirement for certain exposures may affect profitability, while in the short to medium term earnings potential could also be reduced. ABN AMRO may continue to be challenged in successfully integrating its more fragmented investment banking activities, while at the same time enhancing earnings generation through a potentially more volatile source of revenue. These challenges underpin the negative rating outlook, added Moody's.
At the same time, the rating agency stated that it continues to view ABN AMRO as one of the stronger financial institutions in Europe and in the world. Beside its wide-encompassing business franchise, sound financial fundamentals, and stable position in the Netherlands, the group has built a profitable and coherent retail bank franchise in the US market. Notable is also ABN AMRO's excellent track record in managing its investments. In this respect, Moody's noted that ABN AMRO is well positioned to remain a meaningful player on the global banking scene.
The following ratings were downgraded:
ABN AMRO Bank N.V. long-term deposits to Aa2 from Aa1; senior debt to Aa2 from Aa1; subordinated debt to Aa3 from Aa2; subordinated ("Tier 3") debt to A1 from Aa3; issuer rating to Aa2 from Aa1; financial strength rating to B+ from A.
ABN AMRO Australia Limited senior debt guaranteed by ABN AMRO Bank N.V. to Aa2 from Aa1.
ABN AMRO North America, Inc. preferred stock supported by ABN AMRO Bank N.V. to "aa3" from "aa2".
ABN AMRO Bank N.V., Chicago branch subordinated debt guaranteed by ABN AMRO Bank, N.V. to Aa3 from Aa2; junior subordinated debt guaranteed by ABN AMRO Bank N.V. to A1 from Aa3.
ABN AMRO Bank N.V., New York branch senior debt guaranteed by ABN AMRO Bank, N.V. to Aa2 from Aa1; subordinated debt guaranteed by ABN AMRO Bank, N.V. to Aa3 from Aa2.
ABN AMRO Bank N.V., Paris branch senior debt guaranteed by ABN AMRO Bank, N.V. to Aa2 from Aa1.
LaSalle National Corporation preferred stock supported by ABN AMRO Bank N.V. to "aa3" from "aa2".
ABN AMRO Capital Funding LLC 1, preferred stock supported by ABN AMRO Bank N.V. to "aa3" from "aa2".
ABN AMRO Capital Funding Trust 1, preferred stock supported by ABN AMRO Bank N.V. to "aa3" from "aa2".
The ratings of all other ABN AMRO Bank N.V. subsidiaries were unaffected by the ratings action.
ABN AMRO Bank N.V., headquartered in Amsterdam, had total assets of US $414 billion as of December 31, 1997.
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