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Rating Action:

Moody's affirms Banco Bilbao Vizcaya's ratings at Baa2; outlook positive

29 Jul 2014

The affirmation follows the announcement of the acquisition of Catalunya Banc

Madrid, July 29, 2014 -- Moody's Investors Service today affirmed the long-term senior debt and deposit ratings of Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) at Baa2 and its short-term ratings at Prime-2. This follows the affirmation of the bank's standalone bank financial strength rating (BFSR) at C- (equivalent to a baa2 baseline credit assessment [BCA]). The outlook on the bank's debt and deposit ratings remains positive, while the BFSR continues to carry a stable outlook. Concurrently, Moody's has affirmed BBVA's Baa3 subordinated debt and Ba3(hyb) hybrid ratings.

The affirmation of BBVA's ratings reflects the resilience of the bank's credit metrics to the potential acquisition of Catalunya Banc SA (B3 on review for downgrade BFSR/E stable/BCA caa2) announced on 21 July 2014. As at end-December 2013, Catalunya Banc had EUR63 billion in assets, compared to EUR599.5 billion for BBVA.

The transaction is subject to the pertinent regulatory approvals which are expected to be granted in the second half of the year. BBVA expects to close the transaction in the first quarter of 2015.

A list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

RATIONALE FOR AFFIRMING BFSR AND DEBT AND DEPOSIT RATINGS

The affirmation of BBVA's C- standalone BFSR and baa2 BCA reflects the rating agency's view that BBVA's financial strength is resilient to the potential integration of Catalunya Banc, which has a significantly weaker credit profile as captured in its caa2 BCA.

Post-integration, Moody's expects BBVA's risk absorption capacity to remain commensurate with a BCA of baa2, based on (1) the limited impact on BBVA's capital ratios (55 basis points on its phased-in Basel III common equity Tier 1 ratio which at end-March 2014 stood at 10.8%) that -- combined with the group's strong recurrent earning generation capacity -- makes the negative impact on BBVA's solvency manageable; and (2) agreed guarantees with the Spanish government that should safeguard BBVA's risk profile against potential contingencies. In addition, the agreed price of EUR1.187 billion incorporates a significant discount on Catalunya Banc's current book value amounting to EUR2.5 billion.

After two failed sale attempts in June 2012 and March 2013, Spain's Fund for the Orderly Restructuring of the Banking Sector (Fondo de Reestructuración Ordenada Bancaria or FROB), which is the current owner of Catalunya Banc, initiated on 2 June a new bidding process to sell the bank which is currently under a resolution process after being subject to several recapitalisations by the FROB. On 21 July, the FROB announced the acceptance of BBVA's bid which is subject to the pertinent regulatory approvals.

Although the planned acquisition does not benefit from any asset protection schemes, BBVA has obtained the following guarantees that are viewed positively by Moody's given their important risk mitigating effects: (1) the price paid by BBVA could be reduced by EUR267 million if, prior to the effective closing of the transaction, FROB and Catalunya Banc do not obtain confirmation from the tax authorities of the treatment of certain deferred tax assets (DTAs) amounting to EUR402 million out of a total of EUR3.5 billion; (2) the successful sale of the EUR6.4 billion problematic portfolio composed primarily of mortgages to US-based private-equity firm Blackstone that was announced on 17 July; and (3) additional guarantees to cover potential costs such as litigation resulting from the mis-selling of hybrid instruments and the break-up fee associated with the termination of the joint-venture with Catalunya Banc's bancassurance partner.

The planned acquisition will have a limited impact on BBVA's other ratios namely asset quality and profitability given Catalunya Banc's relative size versus that of BBVA (EUR63 billion total assets at year-end 2013 compared to BBVA's EUR599 billion at end-March 2014). Catalunya Banc accounts for 5% of BBVA's risk-weighted assets (RWAs) and accounts for 13% of BBVA's domestic book or 8% of the group's loan book. BBVA expects the acquisition to be accretive from year two, and to contribute EUR300 million to its bottom-line earnings from 2018 onwards.

The stable outlook on BBVA's BFSR balances (1) the bank's resilient credit fundamentals even after incorporating the impact of its acquisition of Catalunya Banc; and (2) Moody's view that the downside risks to the bank's credit profile have substantially diminished, sustained by the gradual recovery of the Spanish economy.

BBVA's Baa2 long-term ratings have also been affirmed, because this transaction does not change Moody's assumptions for systemic support for BBVA which is already very high. The positive outlook on BBVA's debt and deposit ratings reflects the positive outlook on Spain's debt rating and thus the potential positive impact on BBVA's ratings if Spain's ratings were to be upgraded.

RATIONALE FOR AFFIRMING SUBORDINATED DEBT AND HYBRID RATINGS

In line with the affirmation of the bank's standalone C- BFSR, Moody's has today affirmed the senior subordinated debt of BBVA at Baa3 and the preference shares' ratings at Ba3 (hyb). The outlook on these ratings remains stable.

WHAT COULD MOVE THE RATING UP/DOWN

BBVA's standalone BCA could come under upward pressure from a continued improvement of its financial performance, primarily a reduction of its stock of non-performing loans (including real estate and refinanced loans), especially in relation to its shock absorbers (equity and loan loss reserves) and improving profitability in its principal place of business, Spain.

At the current level, Spain's rating does not constrain BBVA's standalone BCA. However, BBVA's ratings are unlikely to exceed Spain's government bond rating as the bank remains heavily exposed to the domestic market with 55% of the group's loan book in Spain. The acquisition of Catalunya Banc will further increase the linkage with Spain's government bond ratings.

As BBVA's debt and deposit ratings are linked to the standalone BCA, any change to the BCA would likely also affect these ratings. An upgrade of Spain's rating could also have positive implications on debt and deposit ratings given its systemic importance.

Downward pressure on BBVA's BCA could develop following (1) inadequate risk-absorption capacity (i.e., recurring earnings, excess capital and loan loss reserves) compared with Moody's estimated credit losses; (2) evidence of the bank's inability to withstand Moody's liquidity stress test; (3) a lower share of recurring earnings; and (4) a contraction the Spanish GDP back into recession and/or any evidence of a weaker-than-anticipated performance in the bank's international activities . Negative pressure on the rating could also result from a downgrade of the Spanish government ratings -- currently at Baa2 positive.

LIST OF AFFECTED RATINGS

Affirmations:

..Issuer: Banco Bilbao Vizcaya Argentaria, S.A.

.... Adjusted Baseline Credit Assessment, maintained at baa2

.... Baseline Credit Assessment, maintained at baa2

.... Bank Financial Strength Rating, Affirmed C-

.... Issuer Rating, Affirmed Baa2

.... Deposit Rating, Affirmed P-2

....Multiple Seniority Medium-Term Note Program, Affirmed (P)P-2

....Multiple Seniority Medium-Term Note Program, Affirmed (P)Baa3

....Multiple Seniority Medium-Term Note Program, Affirmed (P)Baa2

....Subordinate Regular Bond/Debenture, Affirmed Baa3

....Senior Unsecured Deposit Rating, Affirmed Baa2

..Issuer: Banco Bilbao Vizcaya Argentaria, SA London Br

.... Deposit Rating, Affirmed P-2

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Deposit Rating, Affirmed Baa2

..Issuer: Banco Bilbao Vizcaya Argentaria, SA Paris Br

.... Deposit Rating, Affirmed P-2

....Senior Unsecured Deposit Program, Affirmed P-2

....Senior Unsecured Deposit Rating, Affirmed Baa2

..Issuer: Banco de Credito Local de Espana, S.A.

....Multiple Seniority Medium-Term Note Program, Affirmed (P)Baa2

..Issuer: BBVA Capital Finance, S.A Unipersonal

....Pref. Stock Non-cumulative Preferred Stock, Affirmed Ba3(hyb)

..Issuer: BBVA Capital Funding Limited

....Multiple Seniority Medium-Term Note Program, Affirmed (P)Baa3

....Subordinate Regular Bond/Debenture, Affirmed Baa3

....Subordinate Shelf, Affirmed (P)Baa3

..Issuer: BBVA Global Finance Ltd.

....Multiple Seniority Medium-Term Note Program, Affirmed (P)P-2

....Multiple Seniority Medium-Term Note Program, Affirmed (P)Baa2

....Subordinate Regular Bond/Debenture, Affirmed Baa3

....Senior Unsecured Shelf, Affirmed (P)Baa2

..Issuer: BBVA Global Markets B.V.

....Senior Unsecured Medium-Term Note Program, Affirmed (P)P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: BBVA International Limited

....Pref. Stock Non-cumulative Preferred Stock, Affirmed Ba3(hyb)

..Issuer: BBVA International Pref S.A. Unipersonal

....Pref. Stock Non-cumulative Preferred Stock, Affirmed Ba3(hyb)

..Issuer: BBVA Senior Finance, S.A. Unipersonal

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: BBVA Subordinated Capital, S.A. Unipersonal

....Multiple Seniority Medium-Term Note Program, Affirmed (P)Baa3

....Subordinate Regular Bond/Debenture, Affirmed Baa3

..Issuer: BBVA U.S. Senior, S.A. Unipersonal

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: BCL International Finance Limited

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Banco Bilbao Vizcaya Argentaria,SA, New York

....Deposit Rating, Affirmed P-2

....Senior Unsecured Deposit Note/Takedown, Affirmed Baa2

....Senior Unsecured Deposit Rating, Affirmed Baa2

Outlook Actions:

..Issuer: Banco Bilbao Vizcaya Argentaria, S.A.

....Outlook, Remains Positive(m)

..Issuer: Banco Bilbao Vizcaya Argentaria, SA London Br

....Outlook, Remains Positive

..Issuer: Banco Bilbao Vizcaya Argentaria, SA Paris Br

....Outlook, Remains Positive

..Issuer: Banco de Credito Local de Espana, S.A.

....Outlook, Remains Positive

..Issuer: BBVA Capital Finance, S.A Unipersonal

....Outlook, Remains Stable

..Issuer: BBVA Capital Funding Limited

....Outlook, Remains Stable

..Issuer: BBVA Global Finance Ltd.

....Outlook, Remains Positive(m)

..Issuer: BBVA Global Markets B.V.

....Outlook, Remains Positive

..Issuer: BBVA International Limited

....Outlook, Remains Stable

..Issuer: BBVA International Pref S.A. Unipersonal

....Outlook, Remains Stable

..Issuer: BBVA Senior Finance, S.A. Unipersonal

....Outlook, Remains Positive

..Issuer: BBVA Subordinated Capital, S.A. Unipersonal

....Outlook, Remains Stable

..Issuer: BBVA U.S. Senior, S.A. Unipersonal

....Outlook, Remains Positive

..Issuer: BCL International Finance Limited

....Outlook, Remains Positive

..Issuer: Banco Bilbao Vizcaya Argentaria,SA, New York

....Outlook, Remains Positive

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Banks published in July 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Maria Cabanyes
Senior Vice President
Financial Institutions Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Johannes Felix Wassenberg
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms Banco Bilbao Vizcaya's ratings at Baa2; outlook positive
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