Moody's announces bank rating action in USA resulting from implementation of JDA Methodology in Ireland and the United Kingdom
New York, April 20, 2007 -- Following application of its joint default analysis (JDA) methodology
and its updated bank financial strength rating (BFSR) methodology to its
bank ratings in Ireland and the United Kingdom, Moody's published
today bank rating results for subsidiaries of those banks located in USA.
BFSRs evaluate the stand-alone or intrinsic financial strength
of banks without reference to external support factors. BFSRs are
the starting point of Moody's bank credit analysis, and are
an important determinant of Moody's bank deposit and debt ratings.
Moody's then uses its JDA methodology to incorporate the potential
for external support into a bank's local currency deposit rating.
The potential for external support can reduce the riskiness of a bank's
deposit and debt obligations; however, such support is often
uncertain. Moody's uses conservative support assumptions
and a limited number of support levels to ensure that sufficient weight
is given to a bank's intrinsic financial strength in its bank deposit
and debt ratings.
Moody's uses deposit ratings to determine bank debt ratings based
on its notching guidelines for bank securities. Ratings for foreign
currency obligations are determined after considering Moody's country
ceilings for foreign currency ratings.
The methodologies are being implemented country by country, with
results being announced on a weekly basis. Results for those banks
with a parent bank located in another country where the methodologies
have not yet been implemented are concluded at the same time as the parent.
The following banks are subsidiaries of banks located in Ireland and the
United Kingdom. With the implementation of the JDA and BFSR methodologies
for banks in Ireland and the United Kingdom, Moody's has now incorporated
parental support from the parent banks, along with any other support
elements, into the ratings for these banks using the JDA methodology.
As noted in Moody's press release from March 2, 2007, only
the BFSR for these banks had previously been concluded under the updated
M&T Bank Corporation:
M&T Bank Corporation is 24%-owned by Allied Irish Banks,
p.l.c. (AIB), which is deemed to be M&T's
bank holding company for purposes of Bank Holding Company Act.
Its principal bank subsidiary is Manufacturers and Traders Trust Company,
also known as M&T Bank.
The BFSR of Manufacturers and Traders Trust Company was upgraded on March
2, 2007 to B- from C+. The B- BFSR translates
into a baseline risk assessment of A1. Based on moderate parental
support from its parent, AIB, and no systemic support from
the USA, Moody's upgraded the long-term deposit rating
of Manufacturers and Traders Trust Company to A1 from A2, and the
long-term issuer rating of M&T Bank Corporation to A2 from
A3. More explicitly, the application of Moody's JDA
methodology did not provide any lift to Manufacturers and Traders Company's
deposit and debt ratings, and the upgrade is entirely attributable
to its stronger BFSR. The upgrade in the long-term issuer
rating at M&T Bank Corporation is the result of applying Moody's
standard notching practices.
The ratings of HSBC Bank USA NA and its immediate holding company HSBC
USA Inc., wholly owned subsidiaries of HSBC Holdings plc,
Likewise, the ratings of Charter One Bank, N.A.,
Citizens Bank of Connecticut, Citizens Bank of Massachusetts,
Citizens Bank of New Hampshire, Citizens Bank of Pennsylvania,
Citizens Bank of Rhode Island and Citizens Bank, N.A.,
all wholly-owned subsidiaries of the Royal Bank of Scotland Group,
ABOUT MOODY'S BANK RATINGS
Bank Financial Strength Rating
Moody's Bank Financial Strength Ratings (BFSRs) represent Moody's opinion
of a bank's intrinsic safety and soundness and, as such, exclude
certain external credit risks and credit support elements that are addressed
by Moody's Bank Deposit Ratings. Bank Financial Strength Ratings
do not take into account the probability that the bank will receive such
external support, nor do they address risks arising from sovereign
actions that may interfere with a bank's ability to honor its domestic
or foreign currency obligations. Factors considered in the assignment
of Bank Financial Strength Ratings include bank-specific elements
such as financial fundamentals, franchise value, and business
and asset diversification. Although Bank Financial Strength Ratings
exclude the external factors specified above, they do take into
account other risk factors in the bank's operating environment,
including the strength and prospective performance of the economy,
as well as the structure and relative fragility of the financial system,
and the quality of banking regulation and supervision.
Global Local Currency Deposit Rating
A deposit rating, as an opinion of relative credit risk, incorporates
the Bank Financial Strength Rating as well as Moody's opinion of any external
support. Specifically, Moody's Bank Deposit Ratings are opinions
of a bank's ability to repay punctually its deposit obligations.
As such, Moody's Global Local Currency Bank Deposit Ratings are
intended to incorporate those aspects of credit risk relevant to the prospective
payment performance of rated banks with respect to local currency deposit
obligations, and includes: intrinsic financial strength and
both implicit and explicit external support elements. Moody's Bank
Deposit Ratings do not take into account the benefit of deposit insurance
schemes which make payments to depositors, but they do recognize
the potential support from schemes that may provide assistance to banks
Foreign Currency Deposit Rating
Moody's ratings on foreign currency bank obligations derive from the bank's
local currency rating for the same class of obligation. The implementation
of JDA for banks can lead to a high local currency ratings for certain
banks, which could also produce high foreign currency ratings.
Nevertheless, it should be reminded that foreign currency deposit
ratings are in all cases constrained by the country ceiling for foreign
currency bank deposits. This may result in the assignment of a
different, and typically lower, rating for the foreign currency
deposits relative to the bank's rating for local currency obligations.
Foreign Currency Debt Rating
Foreign currency debt ratings are derived from the bank's local currency
debt rating for the same class of obligation. In a similar way
to foreign currency deposit ratings, foreign currency debt obligations
may also be constrained by the country ceiling for foreign currency bonds
and notes, however, in some cases the ratings on foreign currency
debt obligations may be allowed to pierce the foreign currency ceiling.
A particular mix of rating factors are taken into consideration in order
to assess whether a foreign currency bond rating pierces the country ceiling.
They include the issuer's global local currency rating, the foreign
currency government bond rating, the country ceiling for bonds and
the debt's eligibility to pierce that ceiling.
National Scale Rating
National scale ratings are intended primarily for use by domestic investors
and are not comparable to Moody's globally applicable ratings; rather
they address relative credit risk within a given country. An Aaa
rating on Moody's National Scale indicates an issuer or issue with the
strongest creditworthiness and the lowest likelihood of credit loss relative
to other domestic issuers. National Scale Ratings, therefore,
rank domestic issuers relative to each other and not relative to absolute
default risks. National ratings isolate systemic risks; they
do not address loss expectation associated with systemic events that could
affect all issuers, even those that receive the highest ratings
on the National Scale.
Gregory W. Bauer
Financial Institutions Group
Moody's Investors Service
Michael L. Mascarenhas
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service