Mexico, March 13, 2013 -- Moody's de México today affirmed all of Banco Mercantil del
Norte, S.A.'s (Banorte) ratings and maintained
a negative outlook. The following ratings on Banorte were affirmed:
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 baseline credit assessment (BCA).
Moody's also affirmed the Baa3 long-term subordinated debt
and Ba1 junior subordinated debt ratings. The outlook on all these
ratings remains negative.
At the same time, Moody's affirmed the A3 global local currency
issuer ratings of Arrendadora y Factor Banorte, S.A.
as well as the A3 issuer rating of Casa de Bolsa Banorte, S.A.
The outlook on these ratings is negative.
The Mexican National Scale ratings of all these related 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 either.
LIST OF AFFECTED RATINGS
The following ratings were affirmed with negative outlook
Banco Mercantil del Norte, S.A.
- Bank financial strength rating (BFSR) of C-, negative
outlook
- Long-term global local currency deposits of A3,
negative outlook
- Global local currency subordinated debt of Baa3, negative
outlook
- Global local currency subordinated debt program of (P) Baa3
- Global local currency junior subordinated debt of Ba1 (hyb),
negative outlook
- Global local currency junior subordinated debt program of (P)
Ba1
- Mexican National Scale subordinated debt of Aa2.mx,
negative outlook
- Mexican National Scale subordinated debt program of Aa2.mx
- Mexican National Scale junior subordinated debt of Aa3.mx
(hyb), negative outlook
Arrendadora y Factor Banorte, S.A.
- Global local currency issuer of A3, negative outlook
- Global local currency senior debt program of (P) A3
Casa de Bolsa Banorte, S.A.
- Global local currency issuer rating of A3, negative outlook
RATINGS RATIONALE
Moody's continuation of the negative outlook on Banorte's
ratings reflects ongoing uncertainty regarding the bank's financial
performance as the bank is asked to support the servicing of its holding
company Grupo Financiero Banorte, S.A.B.'s
(GFNorte) bridge loan, taken on to finance the bank's acquisition
of Administradora de Fondos para el Retiro Bancomer, S.A.
de C.V. (Afore Bancomer). It is still unclear how
or when the holding will ultimately repay the sizable $800 million
of new debt it has contracted.
Moody's acknowledges that the downstreaming of resources from GFNorte
to replenish the bank's capital supports the $700 million
in goodwill generated by the acquisition of Afore Bancomer.
However, as the debt remains on the group's balance sheet
and given that Banorte is the largest earnings and cash generator of the
group, it represents a potential drain on the bank's capital
resources particularly if the group seeks to upstream additional dividends
to the holding in order to service the debt. Moody's also
noted that although a number of alternatives may be available to GFNorte
to repay its debt and strengthen its capital adequacy, i.e.
through a future public offering of shares, these alternatives are
contingent upon market conditions and are subject to strategic decisions
not yet taken or disclosed, which adds uncertainty to the group's
future capital adequacy and cash flow.
Banorte has historically presented a weaker capital profile relative to
large Mexican bank peers' as suggested by a lower share of high-quality
Tier-1 capital. In this context, despite the downstreaming
of the bridge loan by GFNorte to the bank, the acquisition of Afore
Bancomer and the bank's high industry and single borrower credit
concentrations bring additional pressure to Banorte's capital adequacy
and may challenge the bank's growth strategy as it expands to more capital-consuming
assets such as consumer loans.
SUB-SOVEREIGN SECTOR EXPOSURE
The negative outlook on Banorte's ratings also reflects the bank's
large and growing exposure to Mexico's sub-sovereign sector,
and particularly its high single borrower credit concentrations with local
governments relative to capital and earnings. The majority of the
bank's exposure to the 20 largest borrowers is comprised of large
loans to Mexican states, which account for more than 1.3
times Tier 1 capital and 3.4 times core earnings, according
to Moody's estimates. Moreover, the five largest single
loans to local governments represent 82% of the bank's Tier
1 capital. These high credit concentrations to a single sector
point to weak loan granularity and risk diversification.
Moody's also indicated that the future viability of Banorte's
business with local governments, which currently represents one
fifth of total loans and contributes a good share of total loan revenues
is being threatened by potential new legislation and regulatory changes
currently under discussion. This is critical to Banorte to the
extent that business with local governments represents one of the major
cornerstones of the bank's current and future growth strategy.
Such potential changes in the regulatory front include: (i) new
norms limiting concentrated exposures to sub-sovereign entities,
including those backed by federal tax transfers; ii) new legislation
that contemplates restricting the borrowing and spending activities of
states and municipalities, and iii) the possibility of direct guarantees
by the federal government being proffered to states and municipalities
that could influence the pricing and hence the profit dynamics of banks
lending to this segment, including Banorte.
AFFIRMATION OF STANDALONE AND DEPOSIT RATINGS
In affirming the standalone C-/baa2 ratings, Moody's cited
Banorte's strong franchise value supported by important market shares
and recurrent earnings power.
Banorte's A3 deposit rating incorporates two notches of uplift from the
baa2 standalone credit assessment because of Moody's assessment of a high
probability of systemic support from the Mexican government in a stress
situation given the bank's importance as a leading deposit-taker
and lender in the Mexican market.
Banorte is headquartered in Mexico City. As of 31 December 2012,
the bank reported Mx$604 billion in assets (source: Comisión
Nacional Bancaria y de Valores).
The principal methodology used in these ratings was Moody's Consolidated
Global Bank Rating Methodology published in June 2012. Please see
the Credit Policy page on www.moodys.com.mx for a
copy of this methodology.
Moody's National Scale Ratings (NSRs) are intended as relative measures
of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale ratings in that they are not globally
comparable with the full universe of Moody's rated entities, but
only with NSRs for other rated debt issues and issuers within the same
country. NSRs are designated by a ".nn" country
modifier signifying the relevant country, as in ".mx"
for Mexico. For further information on Moody's approach to national
scale ratings, please refer to Moody's Rating Methodology published
in October 2012 entitled "Mapping Moody's National Scale Ratings
to Global Scale Ratings".
The date of the last Credit Rating Action on Banorte was on 4 March 2013
when Moody's concluded the review of Mexican banks' subordinated debt
ratings.
The period of time covered in the financial information used to determine
Banorte's rating is between 31 December 2006 and 31 December 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 and 2012 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).
REGULATORY DISCLOSURES
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
The rating has been disclosed to the rated entity prior to public dissemination.
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.
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.mx.
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.
This Rating is subject to upgrade or downgrade based on future changes
in the financial condition of the Issuer/Security, and said modifications
will be made without Moody's de Mexico S.A. de C.V
accepting any liability as a result.
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.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
David Olivares Villagomez
VP - Senior Credit Officer
Financial Institutions Group
Moody's de Mexico S.A. de C.V
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No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
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Maria Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
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SUBSCRIBERS: 212-553-1653
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Moody's affirms Banorte's ratings; outlook remains negative
