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19 Dec 2006
Moody's affirms ratings of VTB Bank Europe plc
Rating outlook remains stable; affirmation follows information on entities to be acquired
London, 19 December 2006 -- Moody's Investors Service (Moody's) has today affirmed the foreign currency
bank deposit ratings and Bank Financial Strength Ratings of VTB Bank Europe
plc (the former Moscow Narodny Bank plc) at Baa2 / Prime-2 / D+.
All ratings have a stable outlook.
Moody's rating affirmation follows receipt of clarification and information
on the acquisitions which VTB Bank Europe will be completing before the
end of December 2006. VTB Bank Europe's Russian parent,
VTB (the former Vneshtorgbank, the state-owned Foreign Trade
Bank of Russia, rated Baa2/P-2/D-) had announced on
24 October 2006, that all of its banks in western Europe would be
united under a London based entity, with a view for the consolidated
entity becoming a more powerful financial institution to attract investment
in Russia and to service Russian corporations. Moody's now
understands that VTB Bank Europe will be this key entity and that the
bank will be buying, at this stage, two existing western European
subsidiaries of VTB. These units are VTB Bank (France) SA (formerly
BCEN EUROBANK, rated Baa2/ P-2/D) and VTB Bank (Deutschland)
A.G. (unrated, the former Ost-West Handelsbank
A.G.). These purchases should increase the consolidated
asset base of VTB Bank Europe from GBP1662 million reported for 30 June
2006 to almost GBP3300 million in December 2006, and increase its
shareholders' funds capital from GBP333 million to over GBP900 million.
It is further understood that in the medium term other subsidiaries of
VTB including VTB Bank (Austria) A.G. (formerly Donau Bank
A.G., rated Baa2/P-2/D-) and and the
subsidiary in Cyprus may also be acquired by VTB Bank Europe.
In affirming the D+ bank financial strength rating (BFSR) of VTB
Bank Europe, Moody's noted that while lower BFSRs have been
assigned to the unit in France , and -- with respect to the
later intended acquisition -- in Austria, the rating gap mainly
relates to these banks having a weaker or less well established customer
franchise in trade finance and in other activities, while the risk
profiles of the banks do not appear to have marked differences..
In Moody's view, the intention to co-ordinate the activities
and customer relations of these and to streamline their areas of specialisation
should enhance the overall franchise of the enlarged VTB Bank Europe..
Furthermore, Moody's noted that a number of proforma key financial
ratios such as pre-provision income to risk adjusted assets,
cost/income and regulatory capital total assets would appear to be better
than those for VTB Bank Europe plc (or the former Moscow Narodny Bank)
on a standalone basis. That being said, execution risks relating
to such a merger --which could have an impact on customer franchise
and short term costs -- are significant as are uncertainties regarding
the asset profile and earnings power of other VTB subsidiaries that may
be acquired by VTB Bank Europe in the medium term.
Moody's said that the Baa2/P-2 deposit ratings of VTB Bank
Europe plc reflect the rating agency's expectation of support for the
bank in a stress scenario from its current owner, VTB, and
indirectly the Russian state for whom VTB is of strategic and systemic
importance. The rating agency also said that the Prime-2
short-term bank deposit rating takes into account its expectation
of timeliness of support from its owners, in addition to the comfortable
liquidity position of the bank.
The stable outlook for VTB Bank Europe's BFSR reflects Moody's
expectation that (i) that the parent bank VTB would, in the immediate
case and for future acquisitions, ensure that the capital ratios
of VTB Bank Europe are maintained at suitable levels; (ii) further
acquisitions of VTB's western European interests will be carried
out in a gradual manner after the initial acquisitions have been fully
executed (iii) a meaningful degree of geographical diversification will
be maintained; and (iv) the cautious approach to asset quality which
has prevailed at the bank for some years will be maintained.
Moody's indicated that developments which could move the BFSR up
would include (i) increased geographic diversification combined with stable
asset quality; (ii) a significant improvement in post-provisions
profitability; and (iii) further improvements to the funding profile
; Conversely, developments which could move the ratings down
would include (i) a sustained increase of the proportions of assets and
undrawn commitments relating to Russia to levels significantly above 50%
prevailing in recent years; (ii) a notable deterioration in asset
quality; and (iii) a sharp downward movement in profitability
In relation to the debt and deposit ratings, Moody's said
that rating actions, either positive or negative, on VTB and/
or the Russian Federation could trigger a review or change in the ratings
of VTB Bank Europe.
The following ratings were affirmed:
VTB Bank Europe plc -
-- D+ Financial Strength Rating
-- Baa2 long-term bank deposits
-- Prime-2 short-term bank deposits
Moscow Narodny Finance B.V:
-- Baa2 senior debt
-- Baa3 dated subordinated notes
VTB Bank Europe plc is authorised and regulated by the Financial Services
Authority (FSA). It is 89% owned by VTB. Headquartered
in London, the bank had GBP1662 million of total assets and GBP333
million of shareholders' funds as at 30 June 2006.
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
No Related Data.
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