NOTE: On May 3, 2013 the press release was revised as follows: In the second paragraph, first sentence, and in the list of affected ratings for Banco Interacciones, S.A., removed a “(hyb)” indicator from the subordinated debt ratings. Revised release follows.
Mexico, March 05, 2013 -- Moody's de México affirmed Banco Interacciones, S.A.'s
(Interacciones) E+ standalone bank financial strength rating (BFSR)
but lowered the standalone baseline credit assessment (BCA) to b2,
from b1. Moody's also affirmed the bank's long- and
short-term global local and foreign currency deposit ratings of
Ba3 and Not Prime, as well as the Ba3 long-term global local
currency senior debt rating. Also affirmed were the A3.mx
and MX-3, long and short term Mexican National Scale ratings.
At the same time, Moody's de México downgraded the
bank's long-term global local currency subordinated debt
ratings to B3 from B1 and the Mexican National
Scale subordinated debt ratings to Ba2.mx from Baa1.mx . The action on the subordinated debt rating concludes the
review for downgrade initiated on 4 December 2012. Moody's has
removed systemic support from subordinated debt instruments, placing
them one notch below the bank's adjusted baseline credit assessment.
Moody's de México also affirmed the Ba3 long-term
global local currency issuer rating as well as the A3.mx Mexican
National Scale ratings on Interacciones Casa de Bolsa, S.
A. de C.V. (CB Interacciones) and changed CB Interacciones'
standalone credit strength to b2, from b1. The short-term
Mexican National Scale issuer rating was downgraded to MX-3 from
MX-2.
The rating outlook on all these ratings was changed to negative,
from stable.
LIST OF AFFECTED RATINGS
Banco Interacciones, S.A.
- Bank Financial Strength Rating of E+: Affirmed,
outlook changed to negative from stable
- Long-term global local currency deposits of Ba3:
Affirmed, outlook changed to negative from stable
- Short-term global local currency deposits of Not-Prime:
Affirmed
- Long-term foreign currency deposits of Ba3: Affirmed,
outlook changed to negative from stable
- Short-term foreign currency deposits of Not-Prime:
Affirmed
- Long-term Mexican National Scale rating of A3.mx:
Affirmed, outlook changed to negative from stable
- Short-term Mexican National Scale rating of MX-3:
Affirmed
- Long-term global local currency senior unsecured debt
(debt program) of (P) Ba3: Affirmed
- Short-term global local currency senior unsecured debt
(debt program) of (P) Not-Prime: Affirmed
- Long-term global local currency senior unsecured debt
of Ba3: Affirmed, outlook changed to negative from stable
- Long term Mexican National Scale senior unsecured debt (debt
program) of A3.mx: Affirmed
- Short term Mexican National Scale rating of MX-3:
Affirmed
- Long-term Mexican National Scale senior unsecured debt
of A3.mx: Affirmed, outlook changed to negative from
stable
- Long-term global local currency subordinated debt:
Downgraded to B3 from B1, negative outlook
- Long-term global local currency subordinated debt (debt
program): Downgraded to (P) B3 from (P) B1
- Long-term Mexican National Scale subordinated debt:
Downgraded to Ba2.mx from Baa1.mx, negative
outlook
- Long-term Mexican National Scale subordinated debt (debt
program): Downgraded to Ba2.mx from Baa1.mx
Interacciones Casa de Bolsa, S.A. de C.V.
- Long-term global local currency issuer rating of Ba3:
Affirmed, outlook changed to negative from stable
- Short-term global local currency issuer rating of Not-Prime:
Affirmed
- Long-term Mexican National Scale rating of A3.mx:
Affirmed, outlook changed to negative from stable
- Short-term Mexican National Scale rating: Downgraded
to MX-3 from MX-2
RATINGS RATIONALE
LOWERING THE STANDALONE CREDIT STRENGTH TO b2 WITH NEGATIVE OUTLOOK,
FROM b1
In lowering Interacciones' standalone baseline credit assessment
to b2, from b1, Moody's noted the high and still growing
loan concentrations to single borrowers relative to the bank's capital
and earnings; the increasing liquidity risk stemming from structural
asset and liability mismatches, and the concerns about the future
viability of the bank's specialized business franchise posed by
potential changes in the regulatory environment.
The bank's high industry and single credit concentrations to states
and municipalities relative to Tier 1 capital and core earnings continue
to increase, as reflected by the absolute growth of 22% in
the combined balance of the bank's 20 largest borrowers between
2011 and 2012, and which now accounts for over seven times Tier
1 capital, and 19.7 times core earnings, according
to Moody's estimates. Moreover, ten states and municipalities
comprise nearly 81% of the bank's total loan exposure to
this segment, a profile that reflects poor loan granularity and
weak risk diversification.
The bank's funding and liquidity profile remains a concern,
said Moody's, because of Interacciones' limited access
to long-term funding to support the long tenors of its loans,
particularly those to states and municipalities, and project and
infrastructure finance, which combined account for over 70%
of total loans, according to Moody's estimates. In
comparison, the bank's long-term funding sources in
the form of senior and subordinated debt represent a much lower 32%
of Interacciones' long term loans, with short-dated
customer deposits accounting for a significant share of total liabilities.
In Moody's view, this structural asset and liability mismatch
exposes the bank to liquidity and market risks, and leave the bank
vulnerable to potential sudden shifts in interest rates and investor confidence.
Moody's also noted that the downgrade and negative outlook on Interacciones'
ratings reflect the potential threats to the future viability of the bank's
niche business model and growth and earnings prospects posed by potential
new legislation and regulatory changes. Such potential changes
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.
AFFIRMATION OF DEPOSIT RATNGS
Moody's continues to assess a moderate probability of systemic support
to Interacciones' deposits in case of need. As a result,
the bank's Ba3 global local currency deposit rating receives a two-notch
uplift from the b2 standalone baseline credit assessment.
DOWNGRADE OF SUBORDINATED DEBT
In notching the subordinated debt ratings from the adjusted baseline credit
assessment, Moody's noted the global trend towards imposing losses
on junior creditors in the context of future bank resolutions, which
reduces the predictability of systemic support being provided to subordinated
debt holders. The removal of systemic support for subordinated
debt is consistent with recent actions Moody's has taken elsewhere,
including Colombia, Brazil, Chile, Peru, Guatemala,
Canada, and several European countries, reflecting Moody's
view that there is an increased likelihood that subordinated debt holders
would be subject to burden sharing if support were required.
Moody's notes that Mexican banking regulators have no explicit legal
ability to impose losses on subordinated debts that do not contractually
allow such measures. Mexican banking law nevertheless establishes
a clear mechanism whereby certain types of subordinated debt issuances
would be forced to bear losses up to levels which would re-establish
appropriate capitalization levels, based on breach of minimum early
warning capitalization thresholds or minimum capitalization levels.
The outlook on Interacciones' subordinated debt ratings is now negative,
in line with the negative outlook on the bank's senior and unsupported
ratings, from which they are derived.
INTERACCIONES CASA DE BOLSA, S.A. DE C.V.
(CB INTERACCIONES)
The downgrade of CB Interacciones' standalone credit strength to
b2 from b1 considers the effect the weaker intrinsic strength of Interacciones
could have on its sister company including heightened brand and reputational
risks that could potentially damage the brokerage house's franchise
and business potential.
The affirmation of the Ba3 global local currency issuer rating assigned
to CB Interacciones reflects the high level of integration between the
brokerage firm and Interacciones in terms of risk management, systems
and human resources. The short-term National Sacle rating
was dwongraded to MX-3 from MX-2 to align it to Interacciones'
short-term National Scale rating. The negative outlook on
CB Interacciones' ratings therefore also mirrors the negative outlook
on Interacciones.
BASELINE CREDIT ASSESSMENT
Baseline credit assessments incorporate the intrinsic financial strength
of banks, excluding any assessment of systemic or parental support.
Adjusted baseline credit assessments incorporate Moody's assessment of
the probability of parental support. In the case of Interacciones,
the baseline credit assessment equals the adjusted baseline credit assessment
because this bank does not benefit from parental support.
The following baseline credit assessment/adjusted baseline credit assessment
was downgraded:
Banco Interacciones: to b2/b2, from b1/b1
Interacciones is headquartered in Mexico City. As of 31 December
2012, the bank reported Mx$102 billion in assets (source:
Comisión Nacional Bancaria y de Valores).
The principal methodology used in this 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 these methodologies.
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 Interacciones was on 4 December
2012 when Moody's reviewed the subordinated debt ratings of two Mexican
bank issuers for downgrade.
The period of time covered in the financial information used to determine
Interacciones' rating is between 31 December 2006 and 30 December
2012 (source: Moody's, Issuer's financial statements,
CNBV and Banxico).
The sources and items of information used to determine Interacciones'
rating include 2011 and 2012 interim financial statements (source:
Banco Interacciones, S.A.); year-end 2011
and 2012 audited financial statements (source: Banco Interacciones,
S.A., audited by Salles Sainz Grant Thornton);
financial statements and information on market position (source:
CNBV); regulatory capital information (source: Banco de México);
debt offering memorandum (Banco Interacciones, S.A.).
REGULATORY DISCLOSURES
Sources of Information
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
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
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No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
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Moody's affirms Interacciones' Ba3 deposit rating; lowers standalone credit strength to b2 and outlook to negative
