Madrid, July 30, 2009 -- Moody's Investors Service has today downgraded to Aa2 from Aa1 the
senior debt and deposits ratings of Banco Santander, S.A.
("Santander") and to B- from B its Bank Financial Strength
Rating (BFSR). At the same time, dated subordinated debt
was downgraded to Aa3 from Aa2, junior subordinated debt to A1 from
Aa2 and the rating on preferred instruments to A2 from Aa3. All
ratings now have a negative outlook. Short-term ratings
were affirmed at Prime-1.
In a related rating action, Moody's has also downgraded the
senior debt and deposit ratings of its subsidiary Banco Español
de Credito, S.A. (Banesto) from Aa2 to Aa3 and of
its dated subordinated debt to A1 from Aa3 and the rating on preferred
shares to Baa1 from A1. All ratings now have a negative outlook.
The bank's BFSR at C- and its Prime-1 short-term
ratings were affirmed.
The potential impact of Santander's downgrade on other rated subsidiaries
will be discussed in separate press releases.
With these rating actions, Moody's concludes the rating reviews
initiated on May 19, 2009.
Maria Cabanyes, Senior Vice President at Moody's and lead
analyst for Banco Santander, said: "The downgrade of
Santander's rating by one notch expresses our concerns about the
broad deterioration of the Spanish economy, to which Santander remains
heavily exposed, as well as its recently increased exposure to the
UK and the US, which both also face severe economic disruptions.
We recognize that the expansion into these markets -- with the acquisition
of Alliance & Leicester in the UK and Sovereign in the US --
could bring some long-term strategic benefits. But we believe
that in the short- and medium term the shift towards the UK and
US away from Latin America has increased Santander's risk profile.
We expect that Santander will continue to face further asset quality pressures
both from Sovereign and Alliance & Leicester as well as from its home
market. We believe that this will lead to quite significant future
provisioning requirements, which in turn would affect Santander's
earning power and ability to strengthen its capital levels internally."
"With a BFSR of B-," Maria Cabanyes emphasized,
"Santander remains among the highest rated banks globally.
This continues to reflect the robustness and sustainable profitability
of their retail-focused, geographically diversified activities.
And while we believe that the likelihood of needing support from the government
remains low, we take further comfort from the availability of such
support which Santander would very likely receive in the unexpected case
of need as one of the Spanish banking system's largest bank.
This underpins the debt ratings remaining at the high level of Aa2.
The negative outlook on the bank's BFSR (which then also translates
into a negative outlook on the bank's other ratings) primarily indicates
the continuing credit challenges and uncertainties in the markets that
Santander operates in, as well as its expansive acquisition strategy.
This notwithstanding and despite some high borrower concentration,
we believe that the bank's retail focus, diversification and
integration track record of past acquisitions should offset some of these
pressures and underpin the current BFSR.
DOWNGRADE OF SANTANDER'S BFSR
Moody's downgrade of Santander's BFSR reflects the following concerns:
(i) asset quality is likely to continue to deteriorate over the next 12
to 18 months across the group's core markets, particularly
acute in Spain - which accounts for more than 40% of the
group's loan portfolio and one third of its earnings, UK (31%
of loans with a 15% earnings contribution), Mexico (2%
of loans with a 4% earnings contribution, and the US (9%
of loans with a negative contribution to earnings); (ii) This is
likely to lead to higher credit-related write-downs than
previously anticipated in the ratings and could exert adverse pressure
on profitability and capitalization.
Santander's credit profile shows a very strong resilience to Moody's
conservative expected scenarios -- which is the basis for
our ratings -- but may not be entirely resilient to a stress scenario
of further significant asset quality deterioration and earnings decline.
In this regards, in our stress scenario we have assessed Santander's
resilience against an assumed earnings decline of 20% against the
2008 base, combined with additional write-downs of €
60 billion.
This resilience stems primarily from Santander's strong profitability
(risk adjusted pre-provision profitability stood at 3.42%
at the end of 2008, significantly higher than the 1.75%
average for Western European peers). Santander's credit profile
also benefits from its anti-cyclical loan loss provisions amounting
to € 6.1 billion in June 2009. Both this additional
cushion and the bank's high profitability boost Santander's
resilience in addition to its capital cushion: Tangible common equity
as per Moody's calculations stood at 7.71% of risk
weighted assets and tier-1 at 9.18%.
Downward pressure on Santander's BFSR could ultimately result from
(i) additional acquisitions which could further increase its risk profile
-- at least temporarily, (ii) inadequate lower risk absorption
capacity (i.e. recurring earnings, excess capital
and loan loss reserves) in relation to estimated credit losses,
(iii) a lower level of recurring earnings, which could be driven
either by an increased exposure to more volatile markets or a shift to
more volatile activities.
DOWNGRADE OF SANTANDER'S SENIOR DEBT AND DEPOSIT RATINGS
The downgrade and negative outlook of Santander's senior debt and
deposit ratings follows the downgrade and negative outlook of the bank's
BFSR. The two-notch uplift from the bank's BCA stems
from our expectation that there is a very high probability that the Spanish
authorities would support Santander in a period of financial distress
given the bank's importance in the system. Santander group
holds market shares of around 10% in loans and 12% in deposits.
Santander also holds leading positions in other retail market segments.
At Aa2, the rating agency considers Santander to be one of the more
resilient global banks, as demonstrated by its capacity to generate
capital consistently every quarter through earnings since the beginning
of the crisis. Moody's notes that the current global credit
crisis has validated the strength of Santander's business model
that hinges on its focus on retail banking (around 80% of the earnings).
Results published for the first half of 2009 confirm Santander's
earnings resilience with pre-provision income increasing by 19%
on the back of an increase in net interest income of 24% (18%
at constant rates and same perimeter) and an increase in operating costs
of 8% (0.3% at constant rates and same perimeter).
Net attributable profit declined by 4.5% (2.1%
at constant rates and same perimeter) on the back of higher loan loss
provisions which despite the 61% growth over last year ( 51%
at constant rates and same perimeter) - nevertheless still only
amounted to 40% of the group's pre-provision.
DOWNGRADE OF BANESTO'S DEBT RATING
The Aa3 ratings for Banesto benefit both from a high probability of systemic
support in the event of a stress situation as well as from a high probability
of parental support. Systemic support is expected to be high based
on Banesto's tier-2 status in the Spanish banking system
and our view that likely systemic support would not be lower than for
other regional players with dominant market position in their regions.
Banesto has nationwide market shares of around 4%. In addition,
Banesto's ratings benefit from a high probability of support for
its parent bank Santander. Moody's believes that Banesto
is a strategic asset for Santander, reinforcing the group's
domestic franchise and counter-balancing the more volatile earnings
derived from the group's sizeable exposure in Latin America.
The downgrade of Banesto BFSR to C- from B- in June 15,
2009, and of Santander to B- from B have been drivers behind
the downgrade of the debt ratings to Aa3 from Aa2.
DOWNGRADE OF SUBORDINATED DEBT AND HYBRID RATINGS
The downgrade of the dated subordinated debt instruments is driven by
the same factors considered in the downgrade of the senior unsecured debt.
These dated subordinated debt instruments continue to be rated one notch
lower than the senior debt instruments based on subordination in the case
of liquidation.
Moody's sees the risk on the junior subordinated debt instruments in the
unlikely event of liquidation as slightly higher than that of dated subordinated
debt. Given the net loss deferral trigger for both junior subordinated
and preference shares, the risk of coupon deferral under a going
concern-assumption has increased: The risk of a net loss
has also increased for Santander, given the volatility and uncertainty
in many of its markets. However, the expected loss in such
a scenario is more limited than for preference shares given the perpetual
and cumulative characteristics of the junior subordinated debt issues.
These two considerations have led to the downgrade of these instruments,
which are now rated one notch lower than dated subordinated debt.
The risk profile for the preference shares is different than that of the
subordinated instruments. The coupons are non-cumulative
and have a mandatory deferral trigger, which is a P&L loss (or
regulatory capital shortfall). Given the heightened possibility
of a net loss for many of these banks, Moody's has applied an Expected
Loss analysis to these instruments to capture the higher risk of coupon
deferral, with the probability of a coupon deferral being linked
to the strength of the bank as reflected in its BFSR. This has
resulted in these instruments being rated one notch below the bank's
BFSR of B- (mapping into a Baseline Credit Assessment of A1) at
A2 Moody's notes that it released a Request for Comment entitled,
"Moody's Proposed Changes to Bank Subordinated Capital Ratings" dated
June 2009, in which the rating agency has requested market feedback
on potential changes to its bank hybrid rating methodology. Should
Moody's implement this revised methodology as proposed, the rating
on the hybrid securities could potentially be negatively affected further.
Moody's has also downgraded DAREP's insurance financial strength
rating to A1 from Aa3, and assigned a negative outlook on the rating.
Moody's announced that it will withdraw this rating for business
reasons. Please refer to Moody's rating withdrawal policy available
on www.moodys.com.
Moody's last rating action on Banco Santander was on 19 May 2009,
when its BFSR and long-term debt and deposit ratings were placed
on review for possible downgrade. On June 15, 2009 the Prime-1
rating was affirmed.
Moody's last rating action on Banesto was on 15 June 2009, when
its BFSR was downgraded to C- from B-. The principal
methodologies used in rating this issuer were "Bank Financial Strength
Ratings: Global Methodology" (February 2007) and "Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology" (March 2007), which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies sub-directory. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Credit Policy & Methodologies directory.
Banco Santander, S.A. is headquartered in Santander,
Spain. At the end of June 2009, it had total assets of €
1.149 billion.
Banco Español de Credito, S.A. (Banesto),
is headquartered in Madrid, Spain. At the end of June 2009,
it had total assets of € 117 billion.
Issuer: BCH Capital Limited
..Downgrades:
....Preference Stock Preference Stock,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: BSCH Finance Limited
..Downgrades:
....Preference Stock Preference Stock,
Downgraded to A2 from Aa3
....Preference Stock Shelf, Downgraded
to (P)A2 from (P)Aa3
....Preferred Stock Preferred Stock,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Banco Espanol de Credito, S.A. (Banesto)
..Downgrades:
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A1 to Aa3 from a range of
Aa3 to Aa2
....Preference Stock Preference Stock,
Downgraded to Baa1 from A1
....Preferred Stock Preferred Stock,
Downgraded to Baa1 from A1
....Senior Unsecured Deposit Rating,
Downgraded to Aa3 from Aa2
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Banco Santander S.A. (Spain)
..Downgrades:
.... Bank Financial Strength Rating,
Downgraded to B- from B
.... Issuer Rating, Downgraded to Aa2
from Aa1
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of Aa3 to Aa2 from a range of
Aa2 to Aa1
....Subordinate Regular Bond/Debenture,
Downgraded to Aa3 from Aa2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa2 from Aa1
....Senior Unsecured Deposit Rating,
Downgraded to Aa2 from Aa1
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Banesto Banco de Emisiones, S.A.
..Downgrades:
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A1 to Aa3 from a range of
Aa3 to Aa2
....Subordinate Regular Bond/Debenture,
Downgraded to A1 from Aa3
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa3 from Aa2
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Banesto Finance Ltd.
..Downgrades:
....Subordinate Medium-Term Note Program,
Downgraded to A1 from Aa3
....Subordinate Regular Bond/Debenture,
Downgraded to A1 from Aa3
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Banesto Financial Products PLC
..Downgrades:
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of A1 to Aa3 from a range of
Aa3 to Aa2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa3 from Aa2
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Banesto Holdings, Ltd.
..Downgrades:
....Preference Stock Preference Stock,
Downgraded to Baa1 from A1
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Banesto Issuances Ltd.
..Downgrades:
....Senior Unsecured Medium-Term Note
Program, Downgraded to Aa3 from Aa2
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Banesto Preferentes, S.A.
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to Baa1 from A1
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Darep Ltd
..Downgrades:
....Insurance Financial Strength Rating,
Downgraded to A1 from Aa3,
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Santander Central Hispano Fin. Serv. Ltd
..Downgrades:
....Junior Subordinated Regular Bond/Debenture,
Downgraded to A1 from Aa2
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Santander Central Hispano Finance, S.A.
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Santander Central Hispano International Ltd
..Downgrades:
....Senior Unsecured Medium-Term Note
Program, Downgraded to Aa2 from Aa1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa2 from Aa1
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Santander Central Hispano Issuances Ltd.
..Downgrades:
....Multiple Seniority Medium-Term
Note Program, Downgraded to Aa3 from Aa2
....Subordinate Regular Bond/Debenture,
Downgraded to Aa3 from Aa2
....Subordinate Shelf, Downgraded to
(P)Aa3 from (P)Aa2
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Santander Finance Capital, S.A. Unipersonal
..Downgrades:
....Preference Stock Preference Stock,
Downgraded to A2 from Aa3
....Preferred Stock Preferred Stock,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Santander Finance Preferred, S.A. Unipersonal
..Downgrades:
....Preference Stock Preference Stock,
Downgraded to A2 from Aa3
....Preferred Stock Preferred Stock,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Santander Int'l Debt, S.A. Unipersonal
..Downgrades:
....Multiple Seniority Medium-Term
Note Program, Downgraded to a range of Aa3 to Aa2 from a range of
Aa2 to Aa1
....Subordinate Regular Bond/Debenture,
Downgraded to Aa3 from Aa2
....Senior Unsecured Medium-Term Note
Program, Downgraded to Aa2 from Aa1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa2 from Aa1
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Santander International Preferred, S.A.U.
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Negative From
Stable
Issuer: Santander Issuances S.A. Unipersonal
..Downgrades:
....Multiple Seniority Medium-Term
Note Program, Downgraded to Aa3 from Aa2
....Subordinate Medium-Term Note Program,
Downgraded to Aa3 from Aa2
....Subordinate Regular Bond/Debenture,
Downgraded to Aa3 from Aa2
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Santander Overseas Bank, Inc.
..Downgrades:
....Preferred Stock Preferred Stock,
Downgraded to A2 from Aa3
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Santander Perpetual, S.A. Unipersonal
..Downgrades:
....Junior Subordinated Regular Bond/Debenture,
Downgraded to A1 from Aa2
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
Issuer: Santander US Debt, S.A. Unipersonal
..Downgrades:
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa2 from Aa1
..Outlook Actions:
....Outlook, Changed To Negative From
Rating Under Review
London
Johannes Wassenberg
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Madrid
Maria Cabanyes
Senior Vice President
Financial Institutions Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Lowers Banco Santander One Notch To Aa2 And Banesto To Aa3
