Madrid, September 19, 2018 -- Moody's Investors Service has today affirmed the long-term deposit
and long-term senior unsecured debt ratings of Banco Sabadell,
S.A. (Banco Sabadell) at Baa2 and Baa3 respectively,
and changed the outlook to stable from positive. The rating agency
has also taken the following actions on Banco Sabadell: (1) affirmed
the bank's baseline credit assessment (BCA) and adjusted BCA at ba2;
(2) affirmed the bank's long-term Counterparty Risk (CR)
Assessment at Baa1(cr); and (3) affirmed the bank's long-term
Counterparty Risk Rating at Baa1. The bank's short-term
ratings and assessments remain unchanged.
Today's rating action reflects Moody's assessment of a slower-than-anticipated
improvement in Banco Sabadell's credit profile, namely in
terms of profitability and capital, following the extraordinary
items recorded during the first six months of 2018 and prevailing downside
risks to the performance of its subsidiary TSB Bank plc (TSB, Baa2
negative; baa2). The affirmation of the bank's ratings
also reflects the benefits of its de-risking strategy after it
recently divested the bulk of its portfolio of foreclosed real estate
assets and the declining trend in the stock of non-performing loans
(NPLs).
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
---RATIONALE FOR THE AFFIRMATION OF THE RATINGS
The affirmation of Banco Sabadell's standalone BCA at ba2 reflects
Moody's view that the bank's credit profile remains resilient
to the recent deterioration in its profitability and capital metrics.
This deterioration is balanced against the bank's improved asset
risk, following the sale of several portfolios of non-performing
assets (NPAs, NPLs + foreclosed real estate assets) that were
announced in July 2018.
At end-June 2018, Banco Sabadell reported net profit of EUR124
million, a 72% decline from end-June 2017 and the
equivalent of 0.1% of tangible assets. Banco Sabadell's
results were impacted by the losses booked by its subsidiary TSB,
which since April 2018 has been facing significant challenges related
to the migration of its IT system to that of its parent, which led
to the recognition of EUR294.7 million of migration and post-migration
costs at end-June 2018. While Moody's acknowledges
the temporary nature of the majority of the post-migration costs,
the rating agency notes the medium-term risks facing the subsidiary's
franchise and the possibility of a related regulatory penalty that could
affect TSB's profits in the future.
Banco Sabadell's domestic operations were also impacted by EUR177
million of extraordinary provisions linked to the sale of NPAs.
More positively, Moody's notes the improving trends of Banco
Sabadell's banking business in Spain, which will benefit from
cost savings stemming from the significant reduction in the stock of problematic
assets.
Banco Sabadell's capital was also impacted by a number of extraordinary
items in 2018, which led to a decline in Moody's key capital
metric, the tangible common equity to risk weighted assets,
to 7.6% at end-June 2018 from 10.0%
at end-December 2017. The group's capital was impacted
by the implementation of the new accountancy rule of IFRS 9 early in 2018
and later in Q2 2018 by some negative adjustments related to the securities
portfolio and to TSB's IRB models. Going forward, Moody's
expects Banco Sabadell's capital ratio to gradually improve from
current modest levels, aided by the accelerated de-risking
of its balance sheet as well as the improved earnings generation capacity
of its domestic franchise.
In July 2018, Banco Sabadell announced the sale of several portfolios
of NPAs for a gross book value of around EUR10.9 billion.
The disposal will significantly reduce the group's stock of NPAs
to around EUR10.6 billion from EUR17 billion at end-June
2018 and the NPA ratio (NPAs as percentage of gross loans and foreclosed
real estate assets) will likely decline to around 7% from 10.8%
at end-June 2018. This compares favourably with the average
of the Spanish banking system, which Moody's estimated at
13% at end-December 2017 (latest data available).
The rating agency expects Banco Sabadell's asset risk profile to
continue improving, on the back of Spain's sound economic
conditions and the recovery of the real estate market.
The affirmation of Banco Sabadell's Baa2 long-term deposit and
Baa3 long-term senior debt ratings reflects: (1) the affirmation
of the bank's ba2 BCA and adjusted BCA; (2) the outcome of Moody's
revised advanced Loss Given Failure (LGF) analysis, which indicates
very low loss given failure for depositors and low for senior debt creditors,
resulting in two notches of uplift and one notch uplift, respectively,
from the adjusted BCA; and (3) Moody's unchanged assessment of a
moderate probability of government support for Banco Sabadell, resulting
in a one-notch uplift for the deposit and senior debt ratings.
--RATIONALE FOR CHANGING THE OUTLOOK TO STABLE FROM POSITIVE
As part of today's rating action, Moody's changed the outlook on
Banco Sabadell's long-term Baa2 deposit ratings and long-term
Baa3 senior debt ratings to stable from positive. The outlook change
reflects the rating agency's view that the recent deterioration in the
bank's profitability and capital metrics limit the upside rating
pressure that Moody's anticipated prior to the extraordinary items recorded
in 2018.
The stable outlook also reflects Banco Sabadell's resilient credit
profile, which Moody's expects to gradually improve supported
by the group's accelerated de-risking strategy.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Banco Sabadell's BCA could be upgraded as a consequence of an improvement
in the bank's key financial factors, in particular:
(1) a net profit over tangible assets at or above 0.5% on
a sustained basis; and (2) a Moody's defined tangible common equity
(TCE) to risk weighted assets (RWA) ratio persistently above 9%.
Banco Sabadell's deposit and senior debt ratings could experience
upward pressure from movements in the LGF faced by these securities.
Downward pressure on the bank's BCA could result from: (1)
a reversal in current asset risk trends with an increase in the stock
of NPLs and/or other problematic exposures; (2) a weakening in Banco
Sabadell's internal capital-generation and risk-absorption
capacity as a result of subdued profitability levels; and/or (3)
a deterioration in the bank's liquidity position.
As the bank's debt and deposit ratings are linked to the standalone
BCA, any change to the BCA would also likely affect these ratings.
LIST OF AFFECTED RATINGS:
..Issuer: Banco Sabadell, S.A.
Affirmations:
....Adjusted Baseline Credit Assessment,
Affirmed ba2
....Baseline Credit Assessment, Affirmed
ba2
....Long-term Counterparty Risk Assessment,
Affirmed Baa1(cr)
....Long-term Counterparty Risk Rating
(Local and Foreign Currency), Affirmed Baa1
....Subordinate Medium-Term Note Program,
Affirmed (P)Ba3
....Senior Subordinate Medium-Term
Note Program, Affirmed (P)Ba3
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Baa3
....Preferred Stock Non-cumulative,
Affirmed B2(hyb)
....Subordinate Regular Bond/Debenture,
Affirmed Ba3
....Senior Subordinated Regular Bond/Debenture,
Affirmed Ba3
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa3, Outlook Changed To Stable From Positive
....Long-term Deposit Rating (Local
and Foreign Currency), Affirmed Baa2, Outlook Changed To Stable
From Positive
Outlook Actions:
....Outlook, Changed To Stable From
Positive
..Issuer: Banco Sabadell S.A.,
London Branch
Affirmations:
....Long-term Counterparty Risk Assessment,
Affirmed Baa1(cr)
....Long-term Counterparty Risk Rating
(Local and Foreign Currency), Affirmed Baa1
....Long-term Deposit Rating (Local
Currency), Affirmed Baa2, Outlook Changed To Stable From Positive
Outlook Actions:
....Outlook, Changed To Stable From
Positive
..Issuer: CAM Global Finance
Affirmations:
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed Baa3, Outlook Changed To Stable From Positive
Outlook Actions:
....Outlook, Changed To Stable From
Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies 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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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
Client Service: 44 20 7772 5454
Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
