New York, April 13, 2007 -- Following application of its joint default analysis (JDA) methodology
and its updated bank financial strength rating (BFSR) methodology to its
bank ratings in Spain, Moody's published today bank rating results
for subsidiaries of those banks located in the United States and Puerto
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 affiliates of banks located in Spain. With
the implementation of the JDA and BFSR methodologies for banks in those
countries, Moody's has now incorporated parental support from the
parent bank, along with any other support elements, into the
ratings for each of 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 BFSR methodology:
Banco Santander Puerto Rico
The BFSR of Banco Santander Puerto Rico (BSPR), at C, was
unchanged from its previous level when Moody's concluded its rating
actions on March 2, 2007. Previously, however,
Moody's had assumed a high likelihood of support for BSPR from its
parent, Banco Santander Central Hispano, S.A.,
which now has a BFSR of B and a baseline risk assessment of Aa3,
and a long-term deposit rating of Aa1. In applying its JDA
methodology to BSPR's ratings, however, Moody's
lowered its expectations for support, ascribing a moderate level
of potential support. That level of potential support is consistent
with Moody's view of support for other rated bank subsidiaries within
the Banco Santander Central Hispano, S.A. structure.
As a result, Moody's has downgraded BSPR's long-term
deposit and other senior ratings to A2 from A1. BSPR's C
financial strength rating equates to a baseline risk assessment of A3,
implying a one notch lift as a result of its ownership by Banco Santander
Sovereign Bank and Sovereign Bancorp
The BFSR of Sovereign Bank was upgraded on March 2, 2007 to C from
C-, which translates to an A3 baseline risk assessment.
Banco Santander Central Hispano, S.A. owns approximately
25% of Sovereign Bancorp, which is the holding company of
Sovereign Bank. Ascribing a moderate level of support results in
a one notch lift to the US bank's and its holding company's
long-term ratings. Consequently, Sovereign Bank's
long-term deposit rating was raised to A2 from A3, the short-term
deposit rating was raised to P-1 from P-2 and the senior
debt of Sovereign Bancorp was raised to A3 from Baa1.
The ratings of Banco Bilbao Vizcaya Argentaria Puerto Rico, Texas
State Bank, and its parent Texas Regional Bancshares, all
wholly-owned subsidiaries of Banco Bilbao Vizcaya Argentaria,
S.A., are affirmed.
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
Moody's announces bank rating actions in USA and Puerto Rico resulting from implementation of JDA methodology
Senior Vice President
Financial Institutions Group
Moody's Investors Service