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Announcement:

Moody's: Legacy assets continue to weigh on five European global investment banks

05 Oct 2015

London, 05 October 2015 -- While legacy assets of five European global investment banks (GIBs) -- Barclays, Credit Suisse, Deutsche Bank, RBS and UBS -- have reduced, they will continue to weigh on their asset risk, capital and profitability in 2015-16, says Moody's Investors Service in a report published today.

The risks are captured in the current ratings and outlooks of these banks, which, given the relatively high amount of legacy assets, in recent years have established large 'non-core' divisions to manage the divestment of these assets separately from their core operations.

Moody's report, entitled "Wind-down of Legacy Assets Has Reduced but Not Eliminated Tail Risk," is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.

The rating agency's report is an update to the markets and does not constitute a rating action.

Moody's data shows that the five European GIBs covered in the report have reduced their legacy assets by nearly 30% to a total of USD867 billion in the first half of 2015, since peaking at USD1.2 trillion at end-2013. Legacy assets include problematic exposures, assets that are performing but are capital-intensive, and holdings that no longer fit the banks' strategic objectives.

"In spite of ongoing reductions in non-core activities, the still-high stock of capital markets assets will continue to affect these five investment banks' profits and cause earnings volatility to remain high" says Andrea Usai, a VP-Senior Credit Officer at Moody's.

The five GIBs' non-core divisions generated a cumulative pre-tax loss of USD52 billion since 2012 - more than half of the group's underlying pre-tax profits for the same period. In 2015-16, the rating agency expects these losses to remain elevated.

The sizeable legacy asset portfolios continue to be source of downside risk and consume material capital resources, weighing on the assessment of the five banks' asset risk, capital and profitability, according to Moody's.

"These banks continue to hold large amounts of regulatory capital to support non-core assets. Meanwhile, their large holdings of illiquid capital market instruments could be subject to sudden valuation changes, particularly in times of market stress, contributing to earnings volatility," says Usai.

The rating agency expects the five GIBs to continue to suffer from large loan loss provisions and to incur asset disposal losses and associated funding costs. These will be offset only marginally by the gradual redeployment of regulatory capital released into more profitable strategic activities, in Moody's view.

Further, the generally opaque disclosure around legacy asset portfolios limits investors' visibility into the nature of these exposures and their likely run-off costs, says Moody's.

However, the rating agency positively notes that asset reduction targets of the European GIBs over the next 12-24 months, where disclosed, look achievable in the current credit environment. Moody's expects that overall favourable credit conditions in Europe and the US, and prospects for protracted low interest rates, will continue to fuel investors' appetite for higher-yielding assets.

Subscribers can access the report at: http://www.moodys.com/viewresearchdoc.aspx?docid=PBM_1008546

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Andrea Usai
VP - Senior Credit Officer
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

Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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: Legacy assets continue to weigh on five European global investment banks
No Related Data.
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