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Rating Action:

Moody's affirms Ibercaja's long-term deposit rating at B1; changes outlook to stable

13 Nov 2015

Madrid, November 13, 2015 -- Moody's Investors Service has today affirmed Ibercaja Banco SA's long-term deposit ratings at B1 and changed the outlook to stable from negative. The rating agency also affirmed the bank's baseline credit assessment (BCA) and adjusted bca at b1, upgraded Ibercaja's long-term Counterparty Risk Assessment (CR Assessment) to Ba2(cr) from Ba3(cr) and affirmed the short-term CR Assessment at NP(cr). The bank's short-term deposit ratings were affirmed at Not-Prime. Finally, Moody's affirmed Ibercaja's subordinated debt and preference shares ratings at B2 and Caa2(hyb) respectively.

This rating action reflects the stabilisation of the bank's credit fundamentals on the back of the favourable economic environment in Spain, as well as the results of Moody's Advanced Loss Given Failure (LGF) analysis, following Ibercaja's recent issuance of EUR500 million of subordinated Tier 2 debt.

RATINGS RATIONALE

---RATIONALE FOR AFFIRMING THE BCA

Ibercaja's affirmed b1 BCA continues to reflect the bank's good franchise value in its home region of Aragon, which has been reinforced after the integration of Banco Grupo Caja 3 (Caja 3) as well as its favourable liquidity position, with modest refinancing requirements and sizable liquid assets. However, the BCA also reflects Ibercaja's challenges and constrained financial flexibility following its acquisition of Caja 3 in 2013, namely in terms of asset risk and capital adequacy. These indicators have nevertheless shown a gradual stabilisation since the sharp deterioration observed in 2013 on the back of the more favourable economic environment in Spain allowing the bank to also address its weakness of a high stock of non-performing assets.

In this context, Moody's notes that Ibercaja recently announced the sale of a EUR700 million commercial real-estate portfolio which, according to the institution, will improve its problem loan ratio (which stood at 10.3% as of September 2015) by around 120 basis points. While Moody's acknowledges the positive impact of this transaction on Ibercaja's credit profile, further progress will need to be achieved to ascertain a sustainable improvement in its asset quality matrix and strengthening capital buffers. The bank's b1 BCA remains primarily constrained by Moody's assessment of the bank's weak capital position as measured by the rating agency's core capital measure of 4.5% tangible common equity ratio as of 1H 2015 owing to the large volume of deferred tax assets held on its balance sheet (compared to the reported 11.5% CET 1 ratio as of the same date).

--- RATIONALE FOR AFFIRMING THE DEPOSIT RATINGS

Moody's affirmation of Ibercaja's B1 deposit ratings are based on the bank's BCA and the results of Moody's Advanced LGF analysis.

Ibercaja's deposits are likely to face moderate loss-given-failure, driven by: (1) the modest amount of junior deposits and outstanding senior unsecured debt; and (2) the volume of junior debt instruments in the liability structure which provide a cushion for deposits in loss absorption. This results in a Preliminary Rating Assessment (PRA) of b1 for deposits, in line with the Adjusted BCA.

--- RATIONALE FOR THE STABLE OUTLOOK ON THE LONG-TERM DEPOSIT RATINGS

The change in the outlook on the long-term deposit ratings to stable from negative reflects Moody's expectation of a lower loss severity for the bank's deposits in the event of resolution. This is a result of an increased volume of bail-in-able debt protecting deposits following the bank's recent EUR500 million subordinated debt issuance. This mitigates the uncertainty regarding Ibercaja's balance sheet evolution, and therefore also regarding the result of Moody's Advanced LGF analysis, in case the bank does not meet its plan to substantially reduce its securities portfolio.

While this uncertainty remains, any negative effect on Moody's expectation of moderate loss-given-failure for deposits is now less likely, following the subordinated debt issuance.

--- RATIONALE FOR AFFIRMING THE JUNIOR DEBT RATINGS

Moody's affirmation of Ibercaja's B2 subordinated debt and Caa2(hyb) preference shares ratings are based on the bank's BCA and the results of Moody's Advanced LGF analysis.

For junior securities, Moody's Advanced LGF analysis indicates a high level of loss-given-failure, given the small volume of debt and limited protection from more subordinated instruments and residual equity. Moody's also incorporates additional downward notching for preference shares instruments to reflect coupon suspension risk ahead of a potential failure. The resulting PRAs for subordinated debt and preference shares are one and four notches below the adjusted BCA respectively.

--- RATIONALE FOR THE UPGRADE OF THE LONG-TERM CR ASSESSMENT

As part of today's action, Moody's also upgraded to Ba2(cr) from Ba3(cr) Ibercaja's long-term CR Assessment, which is two notches above the adjusted BCA of b1. The upgrade is driven by the increase in bail-in-able debt in the liability structure, following the recent issuance of EUR500 million subordinated Tier 2 debt, which will likely shield counterparty obligations from losses.

WHAT COULD CHANGE THE RATINGS UP / DOWN

Upward pressure on Ibercaja's BCA could arise primarily from enhanced solvency levels, together with clear visibility of asset-quality improvement and a sustainable recovery in its recurring earnings. As the bank's deposit ratings are linked to the standalone BCA, a positive change in the bank's BCA would likely affect the deposit ratings. The deposit ratings could also be upgraded if the bank changes its current liability structure, which indicates a lower loss-given-failure to be faced by deposits (e.g. by issuing a material amount of long-term unsecured debt securities).

Downward pressure on the bank's BCA could arise: (1) if the bank fails to maintain the problem assets ratio below the average for the system; and/or (2) if the bank's liquidity profile deteriorates significantly by becoming more reliant on market funding. The deposit ratings could also be downgraded due to changes in the liability structure, which indicate a higher loss-given-failure to be faced by deposits.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings 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.

Alberto Postigo
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

Carola Schuler
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 Ibercaja's long-term deposit rating at B1; changes outlook to stable
No Related Data.
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