Actions follow Banco Popular's resolution and subsequent acquisition by Banco Santander
Madrid, June 08, 2017 -- Moody's Investors Service has today affirmed all of Banco Santander S.A.
(Spain)'s (Banco Santander) and its supported entities' ratings:
(1) The A3/Prime-2 deposit and senior debt ratings; (2) the
(P)Baa2 subordinated debt ratings; (3) the Baa2 junior senior unsecured
debt ratings; (4) the Ba1(hyb) and Ba2(hyb) preference shares ratings;
(5) the bank's baseline credit assessment (BCA) and adjusted BCA of baa1;
and (6) its Counterparty Risk Assessment (CR Assessment) of A3(cr)/Prime-2(cr).
The outlook for the long-term senior debt and deposit ratings remains
stable.
At the same time, Moody's has taken actions on the following ratings
of Banco Popular Espanol, S.A. (Banco Popular):
(1) upgraded the bank's long-term deposit ratings to Ba1
from B2 and placed these on review for further upgrade; (2) upgraded
the long-term senior programme ratings to (P)Ba1 from (P)B3 and
placed these on review for further upgrade; and (3) upgraded the
bank's CR Assessment to Baa3(cr)/Prime-3(cr) from Ba3(cr)/Not
Prime(cr) and placed these on review for further upgrade. Banco
Popular's short-term ratings of Not Prime have also been
placed on review for upgrade.
As part of today's rating actions on Banco Popular, Moody's
has also: (1) downgraded the bank's BCA to ca; (2) upgraded
the adjusted BCA to b1 on review for upgrade from caa1; (3) downgraded
the bank's subordinated debt ratings to C from Caa2, and (4)
downgraded various ratings of preference stock to C(hyb) from Ca(hyb),
which are guaranteed by Banco Popular and issued by several issuing vehicles.
Moody's will subsequently withdraw the ratings of Banco Popular's
subordinated debt and preference stock.
The rating actions were triggered by the announcement made on 7 June 2017
by the Single Resolution Board (SRB) and the Spanish resolution authority
(the FROB or "Fondo de Reestructuración Ordenada Bancaria")
that they had taken a resolution action in respect of Banco Popular.
As part of the resolution scheme adopted for the bank, the resolution
authorities have decided to transfer Banco Popular to Banco Santander.
Prior to the transfer, all of Banco Popular's existing shares
and the Additional Tier 1 instruments were written down, while the
Tier 2 instruments were converted into shares and acquired by Banco Santander
for the price of €1.
As part of the acquisition of Banco Popular, Banco Santander has
announced a fully underwritten capital increase for around €7 billion,
that will offset the negative impact of integrating Banco Popular.
A list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE
-- RATIONALE FOR THE AFFIRMATION WITH A STABLE OUTLOOK OF
BANCO SANTANDER'S RATINGS
The affirmation of Banco Santander's standalone BCA at baa1 follows
Moody's assessment that Banco Santander's capital position
remains broadly unchanged after the acquisition of Banco Popular.
The rating agency considers that the impact of acquiring a materially
weaker institution will be largely offset by the announced €7 billion
rights issue that has been fully subscribed. Banco Popular accounted
for 10.9% of Santander's total assets at end-March
2017.
The acquisition of Banco Popular has a negative impact on Santander's
asset risk metrics with non-performing loans (NPLs) to total gross
loans increasing to 5.9% for the combined entity from 4.2%
for Banco Santander at end-March 2017. At the same time,
the level of non-performing assets (NPAs, defined as NPLs
plus real estate assets) increases to 9.4% from 6.1%.
However, Moody's notes positively that the level of provisions
of Banco Popular's NPAs has significantly increased by €7.9
billion, resulting in a coverage ratio of 67% up from 45%
prior to the acquisition. Moreover, Banco Santander is targeting
the disposal of the totality of Banco Popular's NPAs by 2022 with
50% to be accomplished in 18 months.
With this acquisition, Banco Santander will significantly strengthen
its market positioning in the more profitable SME market in Spain achieving
a 24.8% market share up from 11.1%.
Banco Santander will also become Spain's leading domestic bank by
loans and customer funds.
The combined group's profitability will be negatively impacted by
restructuring charges that are estimated at €1.3 billion,
although no decision has been taken regarding the timing of its materialization.
Banco Santander targets €500 million of pre-tax efficiency
gains by 2020, which represents one-third of Banco Popular's
existing cost base and approximately 10% of that of the combined
entity.
The affirmation of Banco Santander's deposit and senior debt ratings
reflects: (1) the affirmation of the bank's standalone BCA
at baa1; (2) the outcome of Moody's Advanced Loss-Given-Failure
(LGF) analysis that results in two notches of uplift respectively for
the deposit and debt ratings; and (3) Spain's sovereign rating of
Baa2 stable, which caps Banco Santander's deposit and senior ratings,
in turn, at A3, which is two notches above the sovereign rating.
-- RATIONALE FOR THE ACTIONS ON BANCO POPULAR's RATINGS
The downgrade of Banco Popular's BCA to ca follows the resolution
of the bank which according to Moody's definitions constitutes an
event of default. The bank's adjusted BCA has been upgraded
to b1 to reflect Moody's assessment of a very high probability of
affiliate support coming from Banco Santander. Moody's considers
that Banco Popular's senior creditors could benefit from Banco Santander's
affiliate support following the acquisition, therefore mitigating
the risks emerging from the bank's extremely weak standalone credit profile.
The adjusted BCA is on review for further upgrade to reflect the upcoming
merger of Banco Popular into Banco Santander.
The upgrade of Banco Popular's deposit ratings to Ba1 (and placement on
review for further upgrade) from B2 and the bank's and its supported
entities' senior unsecured debt ratings to Ba1 (and placement on review
for further upgrade) from B3 reflect: (1) the upgrade of adjusted
BCA to b1 (and placement on review for further upgrade); (2) the
result of the rating agency's Advanced LGF analysis; and (3) Moody's
assessment of moderate probability of government support for Banco Popular,
which results in one notch of uplift for both the deposit and the senior
debt ratings. As a domestic subsidiary of Banco Santander,
Moody's considers both entities to be subject to the same resolution perimeter
and therefore applies the Advanced LGF analysis of Banco Santander,
which now results in two notches of uplift for the deposit and senior
debt ratings from one notch and no uplift respectively previously.
The downgrade of Banco Popular's subordinated debt and preference
share ratings to C and C(hyb) reflects the decision taken by the resolution
authorities to bail-in these instruments to address the shortfall
in the valuation of Banco Popular and as part of the resolution scheme
approved for the bank. The ratings on these instruments will consequently
be withdrawn.
---RATIONALE OF THE CR ASSESSMENTS
As part of today's rating action, Moody's has also affirmed at A3(cr)/Prime-2(cr)
the CR Assessment of Banco Santander, one notch above the adjusted
BCA of baa1 and reflecting the cushion provided by the volume of bail-in-able
debt and deposits (20% of tangible banking assets at end-December
2016), which would likely support operating obligations in resolution.
The CR Assessment is capped at A3(cr), two notches above Spain's
sovereign rating.
At the same time, Moody's has upgraded Banco Popular's
CR Assessment to Baa3(cr)/Prime-3(cr) and placed it on review for
further upgrade, in line with the review for upgrade of the bank's
b1 adjusted BCA. The CR Assessment is driven by the bank's b1 adjusted
BCA, Banco Santander's Advanced LGF analysis that provides
three notches of uplift and a moderate likelihood of systemic support,
leading to another notch of uplift for the CR Assessment.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure on Banco Santander's ratings are primarily dependent on
an upgrade of the government of Spain as the bank's home country sovereign,
given that Moody's current A3 long-term debt and deposit
ratings already exceed the sovereign ratings by two notches and are constrained
at that level under the rating agency's methodology.
In terms of BCA, Moody's assessment already incorporates some
expected further improvement in the bank's fundamentals, and as
such the rating agency does not expect to increase the BCA over the medium
term. In addition, any upward pressure on Santander's BCA
is unlikely to materialise as long as the Spanish government's bond rating
remains at Baa2, because the bank's BCA already exceeds the Spanish
sovereign rating by one notch.
Banco Santander's current BCA already incorporates Moody's expectation
for an improvement in its financial fundamentals. A weakening or
reversal in the positive trajectory could, therefore, have
negative rating implications. In relation to Banco Santander's
acquisition of Banco Popular, challenges on the group's asset
risk and profitability could stem from a slower than expected disposal
of Banco Popular's NPAs, higher provisioning needs in relation
to its NPAs portfolio and litigations costs.
A downgrade of Spain's government rating could also lead to the downgrade
of Banco Santander's BCA and of its deposit and senior unsecured ratings.
The bank's debt and deposit ratings are linked to the standalone BCA;
as such, any change to the BCA could also affect these ratings.
Banco Popular's debt and deposit ratings will be aligned to those
of Banco Santander once the merger effectively takes place.
A downgrade of Banco Popular's debt and deposit ratings is highly
unlikely given the current review for upgrade.
LIST OF AFFECTED RATINGS
Issuer: Banco Santander S.A. (Spain)
..Affirmed:
....Long-term Counterparty Risk Assessment,
affirmed A3(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Long-term Bank Deposits,
affirmed A3 Stable
....Short-term Bank Deposits,
affirmed P-2
....Long-term Issuer Rating,
affirmed A3 Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)A3
....Senior Unsecured Shelf, affirmed
(P)A3
....Junior Senior Unsecured Medium-Term
Note Program, affirmed (P)Baa2
....Junior Senior Unsecured Shelf, affirmed
(P)Baa2
....Junior Senior Unsecured Regular Bond/Debenture,
affirmed Baa2
....Subordinate Medium-Term Note Program,
affirmed (P)Baa2
....Subordinate Shelf, affirmed (P)Baa2
....Preferred Stock Non-cumulative,
affirmed Ba1(hyb)
....Commercial Paper, affirmed P-2
....Adjusted Baseline Credit Assessment,
affirmed baa1
....Baseline Credit Assessment, affirmed
baa1
..Outlook Action:
....Outlook remains Stable
Issuer: Banco Espanol de Credito, S.A. (Banesto)
..Affirmed:
....Preferred Stock Non-cumulative,
affirmed Ba2 (hyb) (assumed by Banco Santander, S.A.
(Spain))
..Outlook Action:
....No Outlook assigned
Issuer: Banesto Holdings, Ltd.
..Affirmed:
....Backed Preferred Stock Non-cumulative,
affirmed Ba2 (hyb)
..Outlook Action:
....No Outlook assigned
Issuer: Santander International Products PLC
..Affirmed:
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)A3
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed A3 Stable
....Backed Other Short Term, affirmed
(P)P-2
....Backed Commercial Paper, affirmed
P-2
..Outlook Action:
....Outlook remains Stable
Issuer: Banco Santander, S.A., London
Branch
..Affirmed:
....Long-term Counterparty Risk Assessment,
affirmed A3(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Long-term Deposit Note/CD Program,
affirmed (P)A3
....Short-term Deposit Note/CD Program,
affirmed (P)P-2
..Outlook Action:
....No Outlook assigned
Issuer: Emisora Santander Espana S.A.U
..Affirmed:
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed A3 Stable
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)A3
..Outlook Action:
....Outlook remains Stable
Issuer: Santander Central Hispano International Ltd
..Affirmed:
....Backed Commercial Paper, affirmed
P-2
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)A3
....Backed Other Short Term, affirmed
(P)P-2
..Outlook Action:
....No Outlook assigned
Issuer: Santander Central Hispano Issuances Ltd.
..Affirmed:
....Backed Subordinate Medium-Term
Note Program, affirmed (P)Baa2
....Backed Subordinate Shelf, affirmed
(P)Baa2
..Outlook Action:
....No Outlook assigned
Issuer: Santander Commercial Paper, S.A. Unipersonal
..Affirmed:
....Backed Commercial Paper, affirmed
P-2
..Outlook Action:
....No Outlook assigned
Issuer: Santander Finance Capital, S.A. Unipersonal
..Affirmed:
....Backed Preferred Stock, affirmed
Ba2(hyb)
....Backed Preferred Stock Non-cumulative,
affirmed Ba2(hyb)
..Outlook Action:
....No Outlook assigned
Issuer: Santander Finance Preferred, S.A. Unipersonal
..Affirmed:
....Backed Preferred Stock Non-cumulative,
affirmed Ba2 (hyb)
..Outlook Action:
....No Outlook assigned
Issuer: Santander International Preferred, S.A.U.
Affirmed:
....Backed Preferred Stock Non-cumulative,
affirmed Ba2 (hyb)
..Outlook Action:
....No Outlook assigned
Issuer: Santander Int'l Debt, S.A. Unipersonal
..Affirmed:
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)A3
....Backed Other Short Term, affirmed
(P)P-2
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed A3 Stable
..Outlook Action:
....Outlook remains Stable
Issuer: Santander Issuances S.A. Unipersonal
..Affirmed:
....Backed Subordinate Medium-Term
Note Program, affirmed (P)Baa2
....Backed Subordinate Shelf, affirmed
(P)Baa2
....Backed Subordinate Regular Bond/Debenture,
affirmed Baa2
..Outlook Action:
....No Outlook assigned
Issuer: Santander Perpetual, S.A. Unipersonal
..Affirmed:
....Backed Junior Subordinated Regular Bond/Debenture,
affirmed Baa3(hyb)
..Outlook Action:
....No Outlook assigned
Issuer: Santander US Debt, S.A. Unipersonal
..Affirmed:
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed A3 Stable
....Backed Senior Unsecured Shelf, affirmed
(P)A3
..Outlook Action:
....Outlook remains Stable
Issuer: Banco Popular Espanol, S.A.
..Placed on Review for Upgrade:
....Short-term Bank Deposits,
currently NP
....Other Short Term, currently (P)NP
....Commercial Paper, currently NP
..Upgraded and placed under Review for further Upgrade:
....Long-term Bank Deposits,
upgraded to Ba1 from B2, outlook changed to Ratings under Review
from Negative
....Long-term Counterparty Risk Assessment,
upgraded to Baa3(cr) from Ba3(cr)
....Short-term Counterparty Risk Assessment,
upgraded to Prime-3(cr) from NP(cr)
....Senior Unsecured Medium-Term Note
Program, upgraded to (P)Ba1 from (P)B3
....Adjusted Baseline Credit Assessment,
upgraded to b1 from caa1
Downgraded:
....Baseline Credit Assessment, downgraded
to ca from caa1
....Subordinate Medium-Term Note Program,
downgraded to (P)C from (P)Caa2, to be withdrawn at close
....Subordinate Regular Bond/Debenture,
downgraded to C from Caa2, to be withdrawn at close
....Preferred Stock Non-cumulative,
downgraded to C(hyb) from Ca(hyb), to be withdrawn at close
..Outlook Action:
....Outlook changed to Ratings under Review
from Negative
Issuer: BPE Finance International Limited
..Upgraded and placed under Review for further Upgrade:
....Backed Senior Unsecured Regular Bond/Debenture,
upgraded to Ba1 from B3, outlook changed to Ratings under Review
from Negative
..Outlook Action:
....Outlook changed to Ratings under Review
from Negative
Issuer: BPE Financiaciones, S.A.
..Downgraded:
....Backed Subordinate Medium-Term
Note Program, downgraded to (P)C from (P)Caa2, to be withdrawn
at close
....Backed Subordinate Regular Bond/Debenture,
downgraded to C from Caa2, to be withdrawn at close
..Upgraded and placed under Review for further Upgrade:
....Backed Senior Unsecured Medium-Term
Note Program, upgraded to (P)Ba1 from (P)B3
....Backed Senior Unsecured Regular Bond/Debenture,
upgraded to Ba1 from B3, outlook changed to Ratings under Review
from Negative
..Outlook Action:
....Outlook changed to Ratings under Review
from Negative
Issuer: Banco Pastor, S.A.
..Downgraded:
....Subordinate Regular Bond/Debenture,
downgraded to C from Caa2 (assumed by Banco Popular Espanol, S.A.),
to be withdrawn at close
..Outlook Action:
.No Outlook assigned
Issuer: Pastor Particip. Preferent., S.A.
Unipersonal
..Downgraded:
....Backed Preferred Stock Non-cumulative,
downgraded to C (hyb) from Ca (hyb), to be withdrawn at close
..Outlook Action:
.No Outlook assigned
Issuer: Popular Capital, S.A.
..Downgraded:
....Backed Preferred Stock Non-cumulative,
downgraded to C(hyb) from Ca(hyb), to be withdrawn at close
..Outlook Action:
.No Outlook assigned
PRINCIPAL METHODOLOGY
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.
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.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
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.
Maria Cabanyes
Senior Vice President
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
Client Service: 44 20 7772 5454
Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
