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Global Credit Research - 26 Jul 2010
Outlook on the D- BFSR remains negative
London, 26 July 2010 -- Moody's Investors Service has affirmed Zurich Bank's D- bank
financial strength rating ("BFSR" -- the D- maps
to Ba3 on the long-term scale) as well as the A1/Prime-1
long- and short-term bank deposit ratings and the backed-A2
senior unsecured debt programme rating. The outlook on the D-
BFSR remains negative and the outlook on the other ratings is stable.
The affirmation is a result of the recapitalisation of the bank by its
parent, Zurich Financial Services Group (Zurich Group), following
the high level of provisions taken by the bank in the first half of 2010.
In July 2010 the Zurich Group announced that as a result of a review of
the bank's property development lending books, the bank would
take a provision of USD330 million (approximately GBP216 million),
and that as a result of the provision charge the Zurich Group has recapitalised
the bank. In June and July 2010 the Zurich Group injected GBP150
million of equity and GBP30 million of upper tier 2 capital. Following
this capital injection into the bank and the substantially higher provisions
now taken, Moody's believes that further losses that the bank
may have to take on its loan portfolios will likely be able to be absorbed
by pre-provision profits and the current capital base.
Although this process has improved the bank's absorption capacity
Moody's does however consider that there are still risks to the
bank's financial fundamentals due to the still very challenging
commercial property markets in both the UK and Ireland. The D-
BFSR reflects this risk, as well as incorporating the fact that
the bank has stopped lending in both the UK and Ireland and will run-down
these portfolios over the medium-term. As a result of this
the future strategy and franchise of the bank is uncertain.
The affirmation of the bank's A1/Prime-1 long- and short-term
bank deposit ratings and the backed-A2 senior unsecured debt programme
rating reflects the high level of explicit support from the Zurich Group.
Zurich Bank's A1/P-1 deposit ratings are underpinned by a surety
bond issued by Zurich Insurance Company (ZIC - A1 insurance financial
strength rating). As the surety bond qualifies as an insurance
policy the beneficiary (Zurich Bank) ranks pari passu with ZIC's
other policy holders. The backed-A2 senior unsecured MTN
programme rating reflects that the bank is an issuer under the Zurich
Group's MTN programme and any issuance is guaranteed by ZIC (senior
debt rating -- A2/stable). The outlook on these ratings is
stable in line with the outlook on ZIC.
PREVIOUS RATING ACTION
The last rating action on Zurich Bank was on April 8, 2009,
when the BFSR was downgraded to D-, negative outlook,
RATING METHODOLOGIES APPLIED
The principal methodologies used in rating this issuer is Moody's "Bank
Financial Strength Ratings: Global Methodology", published
in February 2007 and "Incorporation of Joint-Default Analysis into
Moody's Bank Ratings: A Refined Methodology", published in
March 2007, which are available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating these issuers can also be found in
the Rating Methodologies sub-directory on Moody's website.
Zurich Bank is headquartered in Dublin, Ireland and had total assets
of GBP2.66 billion at end-2009.
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's affirms Zurich Bank A1/P-1/D- ratings
No Related Data.
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