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Rating Action:

Moody's affirms Banco Sabadell's ba3 baseline credit assessment; Ba2 deposit and senior ratings stay on review for upgrade

24 Mar 2015

Actions follow offer announcement

Madrid, March 24, 2015 -- Moody's Investors Service has today affirmed Banco Sabadell, S.A.'s standalone baseline credit assessment (BCA) at ba3 to reflect the bank's announcement on 20 March 2015 that it has launched a cash offer for 100% of the capital of TSB Banking Group plc (TSB, unrated), which is based in the UK (Aa1 stable) and 50% owned by Lloyds Bank plc (Lloyds, deposits A1 review for upgrade, BCA baa1). The affirmation captures Moody's view that the combined entity's standalone credit profile will remain resilient after integrating TSB into Banco Sabadell.

At the same time, the rating agency affirmed the Banco Sabadell's senior subordinated debt ratings at B1 and its preference shares at Caa1 (hyb).

The following ratings of Banco Sabadell were not affected and remain on review for upgrade the Ba2/Not Prime deposit ratings, and the Ba2 long term senior debt ratings. The bank's short-term senior debt rating remains unchanged at Not Prime. The current review for upgrade was initiated by Moody's on 17 March 2015 (please see "Moody's reviews global bank ratings"; https://www.moodys.com/research/--PR_321005).

Please refer to the end of this press release for a list of all the affected ratings.

RATINGS RATIONALE

--- RATIONALE FOR THE AFFIRMATION OF BANCO SABADELL'S STANDALONE BCA

The affirmation of Banco Sabadell's standalone BCA is based on Moody's view that the combined entity's credit profile, following the integration of TSB and the proposed EUR1.6 billion capital increase, remains commensurate with a BCA of ba3. This is underpinned by TSB's low asset risk (the bank reported a non-performing loan ratio of 0.9% at year-end 2014) and sound funding position (the loan-to-deposit ratio was only 88% at end-2014). However, Moody's also notes that these strengths are offset by TSB's high cost to income ratio (75% at year-end 2014) as well as the challenges for Banco Sabadell to achieve its plans to generate revenue benefits by developing TSB's franchise within UK's highly competitive market. At year-end 2014, TSB had GBP27.2 billion of total assets, which represents 21% of Banco Sabadell's.

In affirming the standalone BCA, Moody's has taken into account Banco Sabadell's expectation that it will improve TSB's weak efficiency levels, with the main cost savings deriving from a full migration of the IT services that Lloyd's currently provides onto Banco Sabadell's proprietary technology platform. Banco Sabadell expects to cover the costs of the IT migration through the GBP450 million that were committed by Lloyds at the time of the initial public offering of TSB.

--- DETAILS OF THE OFFER

Banco Sabadell has also agreed to acquire a 9.99% of TSB's capital from Lloyds, and Lloyds has entered into an irrevocable undertaking to accept the offer in respect of its entire remaining 40.01% shareholding in the capital of TSB. The transaction is subject to the relevant regulatory approvals.

Under the terms of the offer, TSB shareholders will receive 340 pence per share in cash for each of TSB's shares, which values TSB's entire share capital at approximately GBP1.7 billion.

Banco Sabadell will use its existing cash resources to finance the offer, although it has also announced a fully underwritten rights issue of EUR1.6 billion, which it intends to use to preserve its solvency ratios after the completion of the offer. The bank expects to reach a fully loaded Common Equity Tier 1 ratio of 11.6% in the event of acquiring 100% of TSB's capital and including the planned rights issue, broadly in line with the 11.5% reported at year-end 2014.

WHAT COULD CHANGE RATINGS UP/DOWN

Upward pressure on Banco Sabadell's standalone BCA could be driven by clear evidence that its asset quality is improving, along with a sustainable recovery in the bank's recurring earnings and improved capital quality. Any significant macroeconomic growth in Spain (Baa2 positive) in 2015 -- which exceeds Moody's central scenario of 2.0% GDP growth -- could underpin signs of a turnaround that might improve the bank's metrics.

Banco Sabadell's deposit and long-term senior debt ratings are on review for upgrade driven by Moody's review of the likely loss-given-failure that these securities face.

Downward pressure could be exerted on the bank's standalone BCA if (1) a broad deterioration of its financial fundamentals hinders the bank's ability to preserve its solvency levels; (2) operating conditions in Spain worsen beyond Moody's current expectations; and/or (3) the bank's liquidity profile deteriorates significantly.

A downgrade of Banco Sabadell's deposits and long-term senior debt rating is very unlikely given the current review for upgrade. As the bank's debt and deposit ratings are linked to the standalone BCA, any change to the BCA would likely also affect these ratings.

LIST OF AFFECTED RATINGS

Affirmations:

..Issuer: Banco Sabadell, S.A.

.... Adjusted Baseline Credit Assessment, Maintained ba3

.... Baseline Credit Assessment, Maintained ba3

....Subordinate Medium-Term Note Program, Affirmed (P)B1

....Pref. Stock Non-cumulative Preferred Stock, Affirmed Caa1 (hyb) NEG

....Subordinate Regular Bond/Debenture, Affirmed B1 NEG

....Senior Subordinated Regular Bond/Debenture, Affirmed B1 NEG

..Issuer: CAM International Issues, SA Sociedad Unipers

....Backed Subordinate Regular Bond/Debenture, Affirmed B1 NEG

PRINCIPAL METHODOLOGY

The principal methodology used in these rating was Banks published in March 2015. 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 Jose Mori
VP - Senior Credit Officer
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 Sabadell's ba3 baseline credit assessment; Ba2 deposit and senior ratings stay on review for upgrade
No Related Data.
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