London, 22 May 2012 -- The following release represents Moody's Investors Service's summary credit
opinion on HBOS plc's affiliates and includes certain regulatory
disclosures regarding its ratings. This release does not constitute
any change in Moody's ratings or rating rationale for HBOS plc's
affiliates.
Moody's current ratings on HBOS plc's affiliates are:
Halifax plc
BACKED Subordinate (domestic currency) ratings of Baa2, on review
for downgrade
BACKED Junior Subordinate (domestic currency) ratings of Ba1/B3,
on review for downgrade (hyb)
HBOS Capital Funding No. 1 L.P.
Preferred Stock Non-cumulative (foreign currency) ratings of Ba2,
on review for downgrade (hyb)
HBOS Capital Funding No. 2 L.P.
BACKED Preferred Stock Non-cumulative (foreign currency) ratings
of Ba2, on review for downgrade (hyb)
HBOS CAPITAL FUNDING NO. 3 L.P.
BACKED Preferred Stock Non-cumulative (foreign currency) ratings
of B3 (hyb)
HBOS Capital Funding No. 4 L.P.
BACKED Preferred Stock Non-cumulative (domestic currency) ratings
of B3 (hyb)
HBOS Group Euro Finance (Jersey)
BACKED Preferred Stock Non-cumulative (foreign currency) ratings
of Ba2, on review for downgrade (hyb)
Leeds Permanent Building Society
BACKED Subordinate (domestic currency) ratings of Baa2, on review
for downgrade
BACKED Junior Subordinate (domestic currency) ratings of B3 (hyb)
RATING RATIONALE
The A2 senior debt rating of HBOS and the A1 long-term bank deposit
and senior debt ratings of Bank of Scotland reflect their ownership by
Lloyds and role within Lloyds Banking Group. Lloyds has not guaranteed
or assumed any outstanding debt of HBOS or any of its subsidiaries.
However, the equalisation of both groups' debt ratings reflects
the strategic importance of HBOS to Lloyds, and the fact that the
businesses are being managed as one. It also incorporates our expectation
that government support would be available to the combined group without
a differentiation of legacy structures.
The D+ BFSR of BoS incorporates the bank's troubled assets and riskier
exposures (against which a high level of provisions have been taken and
are being actively run down), the bank's reliance on wholesale and
parental funding, and the restructuring of HBOS' businesses that
is being carried out by Lloyds, but also reflects the bank's strong
retail franchise in the UK and the fact that the bank is fully adopting
the more conservative risk positioning of Lloyds.
Rating Outlook
The long term debt ratings of HBOS and the long term deposit and debt
ratings of Bank of Scotland are under review for downgrade in line with
the review for downgrade of Lloyds TSB and Lloyds Banking Group ratings,
as mentioned above.
The D+ BFSR of Bank of Scotland reflects the weaker asset quality
of the loan books which is vulnerable in our severe stress scenarios to
further deterioration. The stable outlook on the BFSR reflects
the stabilisation taking place in the financial profile of the group and
reduced likelihood of the rating moving lower over the medium term.
What Could Change the Rating - Up
Over the long term, as the Bank of Scotland becomes fully integrated
within Lloyds Banking Group and the assets that are outside the risk appetite
of the group are wound down, we would expect the BFSR of Bank of
Scotland to move closer to that of Lloyds TSB (currently C-,
mapping to Baa1, but under review for downgrade as discussed above).
What Could Change the Rating - Down
Further stress in the commercial property market or a double-dip
in house prices could put further pressure on HBOS' asset quality and
lead to downward pressure on the BFSR. Further reduction of the
systemic support uplift in Lloyds Banking Group's debt ratings would reduce
the long term ratings of HBOS and Bank of Scotland.
The methodologies used in these ratings were Bank Financial Strength Ratings:
Global Methodology published in February 2007, and Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Global
Methodology published in March 2012. Please see the Credit Policy
page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entities or their related third parties within
the two years preceding the credit rating action. Please see the
special report "Ancillary or other permissible services provided
to entities rated by MIS's EU credit rating agencies" on the
ratings disclosure page on our website www.moodys.com for
further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%)
and for (B) further information regarding certain affiliations that may
exist between directors of MCO and rated entities as well as (C) the names
of entities that hold ratings from MIS that have also publicly reported
to the SEC an ownership interest in MCO of more than 5%.
A member of the board of directors of this rated entity may also be a
member of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Elisabeth Rudman
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Johannes Felix Wassenberg
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Disclosures on Credit Rating of HBOS plc's affiliates
