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19 Mar 2010
Tokyo, March 19, 2010 -- Moody's Investors Service has placed on review for possible downgrade
the ratings of eight subsidiaries (engaging mainly in securities broking,
but including an overseas banking subsidiary) of Japanese banks,
that are supported by keep-well letters from their parent or sibling
banks (parent banks).
The review has been prompted by Moody's departure from its past practice
with regard to rating the keep-well letter supported subsidiaries
of Japanese banks. Previously, when analyzing subsidiaries
supported by keep-well letters, ratings were generally uplifted
to the level of the parent bank's debt rating, regardless
of the subsidiaries' standalone credit assessment or baseline credit
This practice had been underpinned by Moody's positive evaluation of Japan's
traditionally strong parent/subsidiary support relationships, as
demonstrated by cases where parents provided extensive liquidity and capital
support when needed. Also underpinning Moody's practice had
been the strong commitments articulated in the keep-well letters,
with regard to ownership maintenance, liquidity commitments,
and positive net-worth maintenance.
The change in approach has been prompted by Moody's changing view on two
issues: appropriate degree of incorporation of parent support and
the need for BCA. With regard to parent support, ratings
supported by keep-well letters have traditionally benefited substantially
from the high systemic support components of the parent banks' debt
ratings. While to date Japan has seen no historical case of regulatory
intervention that prevented a parent bank from extending support even
during the country's banking crisis, in light of the primary
purpose of systemic support to protect the parent bank's depositors
-- not to directly support the senior unsecured creditors of its
subsidiaries, in a stress situation, the risk of intervention
could increase for the keep-well supported entities, relative
to the guaranteed entities.
With regard to the BCA, the growing complexity of the investment
banking business model could significantly impact the financial fundamentals
of the parent bank as evidenced in many cases of non-Japanese banks.
Up to now, the scale and complexity of investment banking at Japanese
banks' securities subsidiaries has been generally modest relative to a
parent's available financial resources, and losses stemming
from the recent financial crisis have been lower than at the international
wholesale investment banks. However, the Japanese banks'
increasing strategic emphasis on investment banking highlights the need
to better capture fundamentals -- and reflect the differences in
the subsidiaries' final ratings.
Moody's notes that the rating actions announced here do not indicate any
recent change in the standalone credit fundamentals of these issuers or
their parents -- or in the issuers' strategic importance to
The rating reviews will focus on assessment of BCA of such entities to
the extent possible, their strategic importance to the parents,
the degree of integrated nature of their investment banking business,
and re-assessing the appropriate level of uplift from their BCAs.
Below is a list of those supported entities whose ratings have been placed
on review for possible downgrade.
Mitsubishi UFJ Securities Co., Ltd. --
Aa2 long-term issuer rating
Mitsubishi UFJ Securities International plc -- Aa2 Euro
Medium Term Note Programme senior unsecured rating, Aa2 long-term
senior unsecured and issuer ratings, and Aa3 Euro Medium Term Note
Programme subordinated rating
Mitsubishi UFJ Securities (HK) Capital, Ltd. --
Aa2 long-term euro certificate of deposit programme rating
Mitsubishi UFJ Trust International Limited -- Aa2 long-term
Nikko Cordial Securities Inc. -- Aa2 long-term
Sumitomo Mitsui Banking Corporation Europe Limited -- Aa2
long-term deposit rating
Mizuho Securities Co., Ltd. -- Aa3 Euro
Medium Term Note Programme rating, and Aa3 long-term unsecured
senior debt rating
Mizuho International plc -- Aa3 Euro Medium Term Note Programme
rating, and Aa3 long-term unsecured senior debt rating
Moody's last rating action on Mitsubishi UFJ Securities Co.,
Ltd., Mitsubishi UFJ Securities International plc,
Mitsubishi UFJ Securities (HK) Capital, Ltd. and Mitsubishi
UFJ Trust International Limited was on August 12, 2009, when
all ratings were confirmed after downward review.
The last rating action on Mizuho Securities Co., Ltd.
and Mizuho International plc was on May 8, 2009, when assigning
Aa3 rating to the EMTN programme.
The last rating action on Sumitomo Mitsui Banking Corporation Europe Limited
was on August 25, 2009, when all ratings were confirmed after
The last rating action on Nikko Cordial Securities Inc. was on
January 19, 2010, when the rating was upgraded to Aa2 from
Ratings are assigned by evaluating factors we believe are relevant to
an entity's credit profile, such as franchise value,
risk positioning, operating and regulatory environment, and
financial fundamentals versus its competitors, as well as the company's
projected performance in the near to medium term. These attributes
are compared to those of other issuers both inside and outside its core
industry. The methodologies used to determine the ratings for these
companies can be found at www.moodys.com in the Research
& Ratings directory, in the Rating Methodologies subdirectory.
Senior Vice President - Regional Credit Officer
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Moody's: Japan banks' keep-well letter supported subsidiaries on review for possible downgrade
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
No Related Data.
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