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Rating Action:

Moody's: Fortis Bank's A1 long-term ratings on review for upgrade

21 Sep 2011

BFSR of C- affirmed with a positive outlook and remapped to Baa1

Paris, September 21, 2011 -- Moody's Investors Service has today affirmed Fortis Bank SA/NV's BFSR to C- which now translates into Baa1 on the long-term scale versus Baa2 previously. At the same time the outlook on the BFSR has been revised to positive from negative. Concurrently, the A1 long-term debt and deposit ratings have been placed on review for upgrade and the Prime-1 short-term rating has been affirmed. Moody's has also affirmed the Convertible and Subordinated Hybrid Equity-linked Securities (CASHES) at Ba3 (hyb) with a negative outlook, as well as the perpetual junior subordinated securities at A3 (hyb), which have been place on review for possible upgrade. The Tier 1 instruments were upgraded to Baa1 (hyb) from Baa3 (hyb), while the perpetual junior subordinated notes issued by BNP Paribas Fortis funding were upgraded to A3 (hyb) from Baa2 (hyb), both instruments remain under review for possible upgrade.

The conclusion of the review for upgrade of the long-term debt and deposit ratings will depend on the outcome of the current review on parent BNP Paribas (Aa2 on review for downgrade, B-/A1 on review for downgrade, P-1). Any upgrade would be limited to one notch.

RATINGS RATIONALE

The affirmation of the BFSR which now maps to Baa1 on the long-term scale reflects the stabilization in Fortis Bank's franchise and progressive integration into BNP Paribas, the progress achieved in de-risking and restructuring the bank as well as the bank's adequate financial fundamentals, notably its solid capital base and restored liquidity profile.

After a period of significant turmoil leading to the break-up of the former Fortis group, Moody's believes that the banking franchises in Belgium and Luxembourg have stabilized, thanks to the acquisition by the Belgium and Luxembourg states and the subsequent sale of 75% to BNP Paribas. We note that the bank has significantly de-risked and deleveraged its balance sheet and operations in recent years, in particular with the sale of the most-troubled structured credit assets to Royal Park Investment SPV, the reduction of its investment portfolio risk-wise despite some notable exposures to European sovereigns, the closure or transfer of riskier CIB activities to BNP Paribas and a focus on client-driven activities in this field, and a refocusing on countries considered as core (Belgium, Luxembourg, Poland and Turkey).

The progressive integration with BNP Paribas' centralised systems for risk management, liquidity management and trading are also viewed as positive steps towards improving the bank's risk profile. Moody's believes that the integration with BNP Paribas is progressing satisfactorily and notes that targeted synergies from the merger have been revised upwards in 2010. The opening of Brussels-based Competence Centers in trade services, factoring, cash management and corporate & transaction banking Europe for the entire group BNP Paribas seems to confirm this view.

The BFSR is still constrained by a variety of factors among which are Fortis Bank's very significant and ongoing reorganisation and expectation of further integration costs going forward (revised upwards in 2010), the bank's limited recurring profitability in retail banking in Belgium due to its high cost base, some borrower concentration in respect of large corporate clients and European sovereigns, and the transfer to BNP Paribas of its leasing and asset management activities.

The positive outlook on Fortis Bank's BFSR reflects Moody's expectation that following the stabilization of Fortis Bank's franchise and risk profile, further visible improvements in profitability should be achievable over the foreseeable future.

LONG-TERM RATINGS ON REVIEW FOR UPGRADE

The review for upgrade of the long-term debt and deposit ratings reflects a number of factors, namely i) the higher Baa1 standalone credit profile, ii) Moody's parental support assumptions for Fortis Bank which have been revised to "very high" from "moderate", reflecting the ongoing successful integration with the parent and strategic relevance for the group, thereby taking the adjusted baseline credit assessment (BCA) to A2, and iii) unchanged assumptions for very high systemic support by Belgium (Aa1; stable).

The outcome of Fortis Bank's long-term ratings' review depends on the conclusion of the pending rating review of BNP Paribas. In case the parent's BFSR and LT ratings are confirmed, Fortis Bank's long-term debt and deposit ratings will be upgraded by one notch to Aa3. However, if BNP Paribas's BFSR and LT ratings are downgraded by one notch, Fortis Bank's long-term debt and deposit ratings will be confirmed at A1.

KEY RATING SENSITIVITIES

Improvements in recurring underlying profitability in Belgium and continued progress on integration with BNP Paribas's standards and centralised risk management systems (which could lead us to progressively align the bank's Risk Positioning scores with those of its parent) would be positive for the ratings.

The BFSR could be downgraded if the bank: (i) suffers significant asset quality deterioration; (ii) fails to stabilise its franchise (e.g. if its market shares decline); (iii) cannot sustain a satisfactory level of underlying profitability; or (iv) enters into riskier activities too aggressively.

Fortis Bank's long-term debt and deposit ratings are currently on review for upgrade with possible rating outcomes described above.

SUBORDINATED OBLIGATIONS AND HYBRID SECURITIES

The starting point in Moody's approach to rating hybrid securities is the Adjusted Baseline Credit Assessment (Adjusted BCA), which reflects the bank's standalone credit strength, including parental and/or cooperative support, if applicable. The Adjusted BCA excludes systemic support.

The Adjusted BCA is A2 for Fortis Bank and includes some uplift for parental support from BNP Paribas.

The perpetual debt securities (ISIN: BE0119807122) issued by Fortis Bank were upgraded to Baa1 (hyb) from Baa3 (hyb), and placed on review for further upgrade. The ratings were positioned two notches below the Adjusted BCA to reflect the instruments' deeply subordinated claim in liquidation. Coupons must be suspended if a weak mandatory deferral trigger is breached (solvency). There is also optional deferral, which is restricted by a pusher with a 12-month look-back period. Any unpaid coupons are cumulative and must be settled through an alternative coupon settlement mechanism (ACSM).

The Tier 1 perpetual debt securities (ISIN: BE0117584202) issued by Fortis Bank were also upgraded to Baa1 (hyb) from Baa3 (hyb), and placed on review for further upgrade. The ratings were positioned two notches below the Adjusted BCA to reflect the instruments' deeply subordinated claim in liquidation. Coupons must be suspended if a weak mandatory deferral trigger (solvency) is breached or at the issuer's option. Both the mandatory and optional deferral are subject to a pusher with a 12-month look-back period. Any unpaid coupons are cumulative and must be settled through an alternative coupon settlement mechanism (ACSM).

Moody's affirmed Fortis Bank's rating on its Upper Tier 2 perpetual junior subordinated securities rating (ISIN: BE0934549511) at A3 (hyb) and the rating was placed on review for upgrade. The rating is positioned one notch below the Adjusted BCA to reflect the instruments' junior subordinated claim in liquidation. Coupons must also be suspended if a weak mandatory deferral trigger (solvency) is breached. There is also optional deferral, which is restricted by a pusher with a 12-month look-back period.

Moody's upgraded BNP Paribas Fortis Funding's Upper Tier 2 perpetual junior subordinated securities ratings (ISIN: XS0071344799 and XS0063913387) to A3 (hyb) from Baa2 (hyb). The ratings are positioned one notch below the Adjusted BCA due to its junior subordinated claim in liquidation. Coupons can be suspended at the issuer's option, subject to a pusher with a 12-month look-back period.

Moody's also affirmed the Ba3 (hyb) rating of the Convertible and Subordinated Hybrid Equity-linked Securities (CASHES), with a negative outlook. The securities were issued by Fortis Bank. However, Moody's rating of the CASHES is based on Ageas Holdings' rating as the terms and conditions of the CASHES include a mandatory deferral trigger tied to dividend payments on Ageas Holdings' ordinary shares.

PRINCIPAL METHODOLOGIES

The methodologies used in these ratings were Bank Financial Strength Ratings: Global Methodology, published in February 2007, Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology, published in March 2007 and Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt, published in November 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

In 2010, Fortis Bank reported a net income group share of EUR 1,907 million, including EUR 970 million stemming from discontinued operations, while revenues stood at EUR 5.4 billion (versus EUR 4.6 billion in 2009). Fortis Bank had total assets amounting to EUR 348 billion and a Tier 1 ratio of 16.5% at year-end 2010 (respectively EUR 428 billion and 12.3% at year-end 2009). In the first half of 2011, Fortis Bank reported a net income group share of EUR 71 million, impacted by a loss of EUR 317 million on discontinued operations, while its Tier 1 ratio ended at 16.9%.

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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following : parties involved in the ratings, and public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating 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 entity or its related third parties within the three 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 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.

Guillaume Lucien-Baugas
Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's: Fortis Bank's A1 long-term ratings on review for upgrade
No Related Data.
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