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
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Guillaume Lucien-Baugas
Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
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Carola Schuler
MD - Banking
Financial Institutions Group
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Releasing Office:
Moody's France SAS
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Moody's: Fortis Bank's A1 long-term ratings on review for upgrade
