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By clicking “I AGREE” [at the end of this document], you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s inform​ation that becomes accessible to you [after clicking “I AGREE”] (the “Information”).   References herein to “Moody’s” include Moody’s Corporation, Inc. and each of its subsidiaries and affiliates.

 

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Rating Action:

Moody's affirms ratings on Bermuda's banks and assigns counterparty risk assessments

21 May 2015

New York, May 21, 2015 -- Moody's has affirmed its ratings and standalone baseline credit assessments (BCA) on The Bank of N.T. Butterfield & Son Limited and on Bermuda Commercial Bank Limited (BCB). Moody's has also assigned Counterparty Risk (CR) assessments to both banks.

Butterfield's ratings and assessments are listed below:

- Long-term / short-term deposit ratings: A3 / Prime-2

- Long-term issuer rating: A3

- Subordinated debt rating: Baa1

- Government-guaranteed preferred stock rating: A1(hyb)

- BCA: baa3

- Adjusted BCA: baa3

- Long-term / short-term CR assessments: A2(cr) / Prime-1(cr)

The outlook for the long-term deposit and long-term issuer ratings remains negative.

In addition, Butterfield's ratings and CR assessments benefit from a very high assumption of government support and incorporate a three-notch uplift based on Moody's A1 rating on the Government of Bermuda (government bond rating).

BCB's ratings and assessments are listed below:

- Long-term / short-term deposit ratings: Ba2 / Not Prime

- Long-term issuer rating: Ba2

- BCA: ba2

- Adjusted BCA: ba2

- Long-term / short-term CR assessments: Ba1(cr) / Not Prime(cr)

The outlook for the long-term deposit and long-term issuer ratings remains stable.

Unlike Butterfield, BCB's ratings and CR assessments do not benefit from Moody's government support assumptions.

Please click this link for Moody's new Banks methodology: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_320662.

RATINGS RATIONALE

RATINGS RATIONALE FOR BUTTERFIELD

The affirmation of Butterfield's ratings reflects Moody's expectation that Butterfield's liquidity will remain strong and that its asset quality will improve, along with Bermuda's economy. The negative outlook reflects the significant decline in Butterfield's capital after its buyout of Canadian Imperial Bank of Commerce's equity stake, which will diminish Butterfield's loss absorption capacity over the short-term if earnings are lower than Moody's expects. The negative outlook also reflects Carlyle Global Financial Services Partners LP's ownership stake in the bank: The private equity firm's shorter-term investment horizon increases uncertainty about Butterfield's longer-term strategic direction, including the bank's capital plan.

A return to a stable rating outlook for Butterfield is unlikely until the bank can rebuild its capital ratios. Moody's considers strong capital to be particularly important for Butterfield's ratings because its assets are highly concentrated in Bermuda real estate. As a result, signs of aggressive capital management, including a rise in leverage or more risk-taking, could lead to a downgrade. A downgrade is also possible if asset quality or profitability weakens, most likely if Bermuda's economy stops improving.

RATINGS RATIONALE FOR BCB

The affirmation of BCB's ratings reflects Moody's view that the bank's limited wholesale franchise, its concentration in less-liquid securities, its comparatively low core profitability and the lack of a lender of last resort in Bermuda are mitigated by the bank's strong capitalization.

An upgrade to BCB's ratings is unlikely, given the bank's limited franchise and the risks associated with the securities portfolio; a downgrade is possible if concerns about the bank's securities portfolio arise, such as the potential for unexpected losses that could materially reduce its capital base and undermine confidence in the bank.

COUNTERPARTY RISK ASSESSMENTS

CR assessments are opinions of how counterparty obligations are likely to be treated if a bank fails, and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than the likelihood of default and the expected financial loss suffered in the event of default and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR assessments are an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities.

In most cases, the starting point for the CR assessment -- which is an assessment of the ability to avoid defaulting on its operating obligations -- is one notch above the bank's Adjusted BCA, to which Moody's then adds the same notches of support uplift as applied to deposit and senior unsecured debt ratings.

As a result, the CR assessments for both of these banks are one notch higher than their deposit and issuer ratings, reflecting Moody's view that Bermuda's authorities are likely to honor the operating obligations to which the CR assessment refers, to preserve the banks' critical functions and minimize the potential for contagion.

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy 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 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.

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.

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.

Thuy Nguyen
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Franklyn Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms ratings on Bermuda's banks and assigns counterparty risk assessments
No Related Data.
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​
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