Skipton's Baseline Credit Assessment (BCA) has been affirmed at baa2
London, 05 October 2016 -- Moody's Investors Service has today affirmed the long-term
deposits ratings of Skipton Building Society (Skipton) at Baa2.
The outlook on the deposit ratings has been changed to positive from stable.
The affirmation of the long-term rating is driven by the affirmation
of Skipton's baa2 BCA. Moody's has also affirmed the
society's Prime-2 short-term deposit ratings,
the Baa3 subordinated rating, the Ba2(hyb) pref. stock non-cumulative
issued by Scarborough Building Society and the A2(cr)/Prime-1(cr)
Counterparty Risk Assessment (CRA).
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
RATINGS RATIONALE FOR POSITIVE OUTLOOK
The change in the outlook on Skipton's deposit ratings reflects
(1) a now established track record of stable profitability which more
than offsets pressures which may materialise due to the impact of the
prolonged period of uncertainty following the outcome of the UK referendum
on revenues, asset quality and profitability; (2) additional
progress reducing downside risk arising from legacy portfolios and;
(3) the maintenance of strong capital and funding levels. The society
has made material progress improving its credit fundamentals since 2009
and has spent the last three years simplifying its business model following
the disposal of a number of subsidiaries. Although Moody's
believes that the challenges posed by the negative operating environment
following the UK decision to leave the EU will prevent further material
improvements, we believe that the entity will be able to maintain
a relatively strong performance.
RATINGS RATIONALE FOR AFFIRMATION
The affirmation of the rating continues to reflect Skipton's (1)
reduced organisational complexity; (2) the profit diversification
provided by its real estate agency division, Connells; (3)
improved asset risk; and (4) strengthened capital position.
Skipton's baa2 BCA also reflects its solid retail deposit funding
base and adequate liquidity.
What Could Change the Rating -- Up
Skipton's ratings could be upgraded if the BCA is also upgraded
following (1) the further reduction of downside risk from legacy portfolios;
(2) the preservation of a less complex organisational structure;
and (3) the maintenance of strong capital and profitability metrics in
the face of strong headwinds arising from the challenging operating environment
in the UK.
Skipton's senior unsecured program and deposits ratings could also
be upgraded if the society were to issue a significant amount of long-term
debt.
What Could Change the Rating -- Down
The current ratings include a deterioration in profitability driven by
increased competition and a more normalised cost of risk. However,
Skipton's BCA could be downgraded following any material deterioration
in asset quality and profitability difficulties at one of its major subsidiaries,
especially Connells, leading to a drain on resources (either financial
or managerial) away from the core lending franchise.
A downward movement in Skipton's BCA would likely result in downgrades
to all ratings.
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
List of affected ratings
Affirmations:
..Issuer: Skipton Building Society
.... LT Bank Deposits (Foreign Currency and
Local Currency), Affirmed Baa2 Positive From Stable
.... ST Bank Deposits (Foreign Currency and
Local Currency), Affirmed P-2
.... Senior Unsecured MTN, Affirmed
(P)Baa2
.... Subordinate MTN, Affirmed (P)Baa3
.... Subordinate Regular Bond/Debenture,
Affirmed Baa3
.... Adjusted Baseline Credit Assessment,
Affirmed baa2
.... Baseline Credit Assessment, Affirmed
baa2
.... Counterparty Risk Assessment, Affirmed
A2(cr)
.... Counterparty Risk Assessment, Affirmed
P-1(cr)
..Issuer: Scarborough Building Society
....Pref. Stock Non-cumulative,
Affirmed Ba2 (hyb)
Outlook Actions:
..Issuer: Skipton Building Society
....Outlook, Changed To Positive From
Stable
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.
Carlos Suarez Duarte
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454