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23 Apr 2000
MOODY'S UPGRADES SAKURA BANK'S CREDIT RATINGS AND LOWERS SUMITOMO BANK'S FIANNCIAL STRENGTH RATING (BOTH BANKS' DEPOSIT RATED AT A3/PRIME-1)
Tokyo, April 24, 2000 -- Moody's Investors Service upgraded Sakura Bank's long-term
deposit rating to A3 from Baa1, and long-term senior unsecured rating to A3 from Baa2.
Moody's confirmed Sakura's Bank Financial Strength Rating (BFSR) at E+. The senior
subordinated debt ratings assigned to the bank and its financial subsidiaries were upgraded
to Baa1 from Baa3, the junior subordinated debt ratings to Baa2 from Ba1, and the
preferred share ratings to "baa2" from "ba1". Moody's also upgraded the short-term rating
to Prime -1 from Prime-2 for both Sakura and Sumitomo. But the rating agency
downgraded Sumitomo's BFSR to E+ from D. The both banks' rating outlooks are stable.
Sumitomo Bank and Sakura Bank recently made an announcement that they accelerated
the merger date by one year and will now merge into a single institution named "Sumitomo
Mitsui Banking Corporation" effective April 1, 2001. With estimated total assets of
approximately Yen 100 trillion, Sumitomo Mitsui will become one of the world's largest
banking institutions. In response to this formal announcement, Moody's concluded the
rating review of Sakura Bank, which commenced on October 14, 1999. The rating agency
simultaneously took rating actions on Sumitomo Bank, to align both banks' ratings.
The rating actions reflect Moody's view that the consolidation of the two major banks will
result in an institution of such significant presence and importance in global markets that its
failure would be inconceivable. Further, in Moody's opinion, the system protection provided
by Japanese government is firm over the long- run, and will likely be maintained for large
institutions even after the planned removal of the unconditional safety net in March 2002.
Moody's said that the government's capital injection last year was followed by significant
improvement in market confidence, which substantially reduced the degree of short-term
credit risks, particularly for those banks with substantial market presence. The upgrade of
the two banks' short-term rating to Prime-1 from Prime-2 is based on these views.
However, Moody's confirmed Sakura's E+ bank financial strength rating and simultaneously
downgraded Sumitomo's BFSR to E+ from D. The action reflects the agency's opinion that
both banks' stand-alone economic capitalisation has been seriously impaired due to
massive and continuing provisioning in recent years and their overall financial condition will
likely remain weak when combined. Moody's added, however, that the merged entity will
likely have an opportunity to enhance its franchise via a much expanded customer base
and realization of synergetic benefits. Moody's has confidence that the merged bank will
likely achieve fair competitiveness in its targeted domestic retail and middle market. Yet,
given its formidable rivals' equally strong and competitive positions in these segments, a
near-term, dramatic enhancement of Sumitomo Mitsui's profitability and material strategic
differentiation is rather difficult, Moody's said.
The rating agency noted that major Japanese banks' asset quality appears to be stabilizing
in general, and thus, a further severe deterioration in major banks' portfolio quality is
unlikely. The current consolidation taking place in Japan, as well as stricter regulatory
environment, have accelerated the much-awaited clean-up process of Japanese banks'
loan quality. Thanks to better equity market conditions, Japanese banks are provisioning
more aggressively, which will likely result in substantial additional credit expenses in the
coming few years, Moody's said. In this context, Moody's expects Sumitomo and Sakura to
incur substantial additional credit expenses that will likely absorb a large portion of their
pre-provision profits. However, such costs are expected to remain within a manageable
range and may be offset by alternative resources, and thus, further acute erosion of their
capitalization is rather remote in Moody's assessment. Based on this view, the rating
outlook of Sakura and Sumitomo is stable. Moody's noted that timely restoration of their
poor financial condition and demonstration of sustainable earnings growth will become the
most crucial elements to determine their rating direction going forward.
The following ratings were upgraded:
Sakura Bank, Ltd. -- the issuer rating to A3 from Baa1, the long-term deposit rating to A3
from Baa1, the senior debt rating to A3 from Baa2, and the short-term deposit rating to
Prime-1 from Prime-2.
Sakura Bank, Ltd. (Paris Branch) -- the long-term deposit rating to A3 from Baa1 and the
short-term deposit rating to Prime-1 from Prime-2.
Sakura Bank (Canada) -- the senior debt rating to A3 from Baa2, the subordinated debt
rating to Baa1 from Baa3, and the short-term deposit rating to Prime-1 from Prime-2.
Sakura Bank (Deutschland) GMBH -- the senior debt rating to A3 from Baa2 and the short-
term debt rating to Prime-1 from Prime-2.
Sakura Bank (Luxembourg) -- the senior debt rating to A3 from Baa2 and the short-term
debt rating to Prime-1 from Prime-2.
Sakura Capital Funding (Cayman) Ltd. -- the junior subordinated debt rating to Baa2 from
Sakura Finance Asia Ltd. -- the senior debt rating to A3 from Baa2, and the short-term debt
rating to Prime-1 from Prime-2.
Sakura Finance Australia, Ltd. -- the senior debt rating to A3 from Baa2 and the
commercial paper and short-term debt rating to Prime-1 from Prime-2.
Sakura Finance (Cayman) Ltd. -- the subordinated debt rating to Baa1 from Baa3.
Sakura Global Capital Inc. -- the senior debt rating to A3 from Baa2 and the short-term debt
rating to Prime-1 from Prime-2.
Sakura Finance (Bermuda) Trust -- the preferred stock rating to "baa2" from "ba1".
Sakura Bank, Ltd. (Cayman Branch) -- the short-term deposit rating to Prime-1 from Prime-
Sakura Finance International Ltd. -- the commercial paper rating to Prime-1 from Prime-2.
The following rating was confirmed:
Sakura Bank, Ltd. -- the E+ bank financial strength rating.
The following ratings were upgraded:
Sumitomo Bank, Ltd. -- the short-term deposit rating to Prime-1 from Prime-2.
Sumitomo Bank, Ltd. (Cayman Branch) -- the short-term deposit rating to Prime-1 from
Sumitomo Bank, Ltd. (Paris Branch) -- the short-term deposit rating to Prime-1 from Prime-
Sumitomo Bank Capital Markets, Inc. -- the commercial paper rating to Prime-1 from Prime-
Sumitomo Finance (Asia) Ltd. -- the short-term debt rating to Prme-1 from Prime-2.
Sumitomo International Finance Australia Ltd. -- the short-term deposit, commercial paper,
and short-term debt ratings to Prime-1 from Prime-2.
The following rating was downgraded:
Sumitomo Bank, Ltd. -- the bank financial strength rating to E+ from D.
No Related Data.
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