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Announcement:

Moody's affirms Banorte's ratings following Afore Bancomer's acquisition; changes outlook to negative

07 Dec 2012

Mexico, December 07, 2012 -- Moody's de Mexico today affirmed all of Banco Mercantil del Norte, S.A.'s (Banorte) ratings and changed the outlook to negative, from stable, following the announcement on 27 November 2012 of the acquisition of BBVA Bancomer Afore (Afore Bancomer) in Mexico. The following ratings on Banorte were affirmed with negative outlook: C- standalone bank financial strength rating (BFSR) and A3 long-term global local currency deposit rating. Banorte's standalone C- BFSR maps to a baa2 standalone credit strength.

At the same time, Moody's affirmed the global local currency issuer ratings of Arrendadora y Factor Banorte, S.A. and Casa de Bolsa Banorte, S.A., and changed the ratings outlook to negative from stable. The Mexican National Scale ratings of all these issuers were not affected by this action. The ratings of Ixe Banco, S.A. and Casa de Bolsa Banorte Ixe, S.A. were not affected by this action.

LIST OF AFFECTED RATINGS

The following ratings were affirmed and outlook changed to negative from stable:

Banco Mercantil del Norte, S.A.

- Bank financial strength rating (BFSR) of C-

- Long-term global local currency deposits of A3

Banco Mercantil del Norte, S.A. (Cayman Islands)

- Long-term foreign currency debt of A3

Arrendadora y Factor Banorte, S.A.

- Long-term global local currency issuer of A3

Casa de Bolsa Banorte, S.A.

- Long-term global local currency issuer of A3

RATINGS RATIONALE

In changing the outlook on Banorte's ratings to negative from stable, Moody's noted that the acquisition of Afore Bancomer, on which Banorte's commitment reaches to US$800 million, is a sizable one and challenges the bank's capital adequacy as it represents 23% of Banorte's tier 1, as of 30 September 2012.

Moody's noted that the sizable goodwill that could be generated by the transaction, of approximately US$700 million, would likely reduce Banorte's 11.9% tier 1 ratio by around 200 basis points, a level that is adequate relative to regulatory targets, though far below that of its Mexican bank peers. The negative outlook incorporates the uncertainty around the financing for the acquisition, that has yet to be finalized, and how it would affect Banorte's capital structure or its ability to replenish capital.

Moody's cited that Banorte has historically maintained a less strong capital profile relative to peers' as suggested by a lower share of high-quality tier 1 capital. In this context, the acquisition of Afore Bancomer brings additional pressure to Banorte's capital adequacy on a comparative basis, and may also challenge the bank's growth strategy as it expands to more capital-consuming assets such as consumer loans, going forward.

Moody's nevertheless explained that the negative outlook could be reversed if and when Banorte effectively replenishes its capital. Clarity on the financing structure of the acquisition and in final capital structure will be determinant for Moody's decision.

In affirming the ratings, Moody's cited Banorte's strong franchise value supported on its consistent earnings power, good financial performance overall and on a well established operation.

Moody's also acknowledges that by incorporating Afore Bancomer, Banorte's existing pension fund unit, Afore XXI Banorte, will become Mexico's largest pension fund manager by number of clients, with about 11.8 million accounts. This operation adds to GFNorte's non-organic expansion strategy and follows the fourth-quarter 2011 combination of the afores of Banorte and IMSS, and GFNorte's acquisition of IXE Grupo Financiero in 2010.

Banorte's A3 deposit rating incorporates two notches of uplift from the baa2 standalone credit strength because of Moody's assessment of a high probability of systemic support from the Mexican government given the bank's systemic importance as a deposit-taker and lender.

The principal methodology used in rating this bank's ratings was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The last rating action on Banco Mercantil del Norte, S.A. was on 4 December 2012, when Moody's reviewed the subordinated debt ratings of Banorte for downgrade.

Banorte is headquartered in Monterrey, NL; Mexico. As of 30 September 2012, Banorte reported Mx$641 billion in assets.

The period of time covered in the financial information used to determine Banorte's rating is between 31 December 2006 and 30 September 2012 (source: Moody's, Issuer's financial statements, CNBV and Banxico).

The sources and items of information used to determine Banorte's rating include 2011 and 2012 interim financial statements (source: Grupo Financiero Banorte); year-end 2011 audited financial statements (source: Grupo Financiero Banorte, audited by Deloitte Touche Tohmatsu Limited); financial statements and information on market position (source: CNBV); regulatory capital information (source: Banxico); debt offering memorandum (source: Grupo Financiero Banorte).

Additional information on Rating Symbols and Definitions, issuer, lead analyst, ratings history, etc. can be found in Moody's local website www.moodys.com.mx.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.mx.

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

A general listing of the sources of information used in the rating process, and the structure and voting process for the rating committees responsible for the assignment and monitoring of ratings can be found in the Disclosure tab in www.moodys.com.mx.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com.mx for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com.mx for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com.mx for further information.

Please see www.moodys.com.mx for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

The ratings issued by Moody's de Mexico are opinions regarding the credit quality of securities and/or their issuers and not a recommendation to invest in any such security and/or issuer.

David Olivares Villagomez
VP - Senior Credit Officer
Financial Institutions Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Maria Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Moody's affirms Banorte's ratings following Afore Bancomer's acquisition; changes outlook to negative
No Related Data.
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