New York, February 23, 2017 -- Moody's Investors Service today assigned an A1 Issuer ratings with
a stable outlook and a Aa2(cr) counterparty risk assessment to J.P.
Morgan Securities plc ("JPMS plc"). Moody's also
assigned a short-term issuer ratings of Prime-1 and a short-term
counterparty risk assessment of Prime-1(cr). Existing backed
program ratings that are based solely on a full and unconditional guarantee
from JP Morgan Chase Bank N.A were affirmed.
Issuer: J.P. Morgan Securities plc
...Affirmations:
.... Backed LT Issuer Rating, Affirmed,
Aa3, Stable
.... Backed ST Issuer Rating, Affirmed,
P-1
.... Backed LT Deposit Note/CD program,
Affirmed, (P)Aa2
.... Backed ST Deposit Note/CD program,
Affirmed, P-1
..Assignments:
.... LT Issuer Ratings, Assigned A1,
Stable
.... ST Issuer Ratings, Assigned P-1
.... LT Counterparty Risk Assessment,
Assigned Aa2(cr)
.... ST Counterparty Risk Assessment,
Assigned P-1(cr)
..Outlook Actions:
....Outlook, Remains Stable
RATINGS RATIONALE
The A1 issuer rating reflects JPMS plc's favorable competitive position
as part of JP Morgan's global capital markets franchise, its
strong and steady profitability and its critical role as the flagship
operating entity for JP Morgan's European capital markets activities.
The legal entity is closely integrated -- managerially, operationally,
and financially, with the rest of JP Morgan. The ratings
consider the standalone creditworthiness of JPMS plc, the importance
of the legal entity to JP Morgan's capital market franchise,
and finally, structural or internal forms of credit enhancement.
Standalone Credit Quality
Moody's considers the standalone assessment of JPMS plc to be Baa3,
considering the firm's operating environment as well as the inherent
risks of its capital markets activities. JPMS plc operates predominantly
in countries with strong macro level indicators and relatively mature
capital markets, which help offset the challenging competitive dynamics
facing the firm. The inherent risks of capital markets activities
include the ease of switching and confidence-sensitivity of customers
and counterparties, the periodic requirement to assume concentrated,
less-liquid positions, complex risk-management challenges,
and opacity. These operating risks can lead to a rapid decline
in franchise value and creditworthiness.
The standalone assessment also considers how JPMS plc mitigates these
risks. Reliance on wholesale funding has often been the proximate
cause of rapid declines in creditworthiness at capital markets firms.
Although JPMS plc makes heavy use of wholesale funding, Moody's
consider its reliance on external funding as manageable, given the
entity's $37.4 billion in capital at 31 December 2015,
substantial amounts of intercompany funding, anda liquid asset profile.
JPMS plc has been soundly and consistently profitable and has an extensive
and well diversified client list. This profitability provides JPMS
plc with flexibility to absorb potential operating costs arising from
Britain's decision to initiate a separation from the European Union.
The consistency of JPMS plc's profitability relates in part to its
own board governance and suite of risk limits at the legal entity level,
including defined risk appetite ratios, limits and stress tests
to curtail various concentration risks. Accordingly, we do
not expect the volatility of JPMS plc's results to vary significantly
from the overall volatility of JP Morgan's Corporate & Investment
Bank, adjusted for a more narrow business mix.
JPMS plc has manageable gross leverage, and reported a Pillar 1
Capital ratio of 20.7% at 31 December 2015. The firm's
moderate risk appetite reflects a relatively low proportion of Level Three
assets (less than 3% of financial assets held for trading at 31
December, 2015) and a moderate proportion of higher-risk
Level Two assets. Finally, we think the overall risk profile
of JPMS plc is complemented by extensive regulation by the UK's
Prudential Regulation Authority and the Financial Conduct Authority that
benefits creditors.
Likelihood of Support From the JP Morgan group
The likelihood of support for JPMS plc from JP Morgan is very high.
Moody's views JPMS plc as an essential client-facing entity
for JP Morgan and an integral part of the group's capital market
operations. Furthermore, through shared services agreements,
JPMS plc also benefits from technological and operational support as well
as revenue allocations The value of this support raises the intrinsic
creditworthiness of JPMS plc three notches to the level of the a3 baseline
credit assessment of JPMorgan Chase Bank NA.
Furthermore, as a critical client facing entity, Moody's
expects that JPMS plc would likely benefit from the bail-in of
holding company obligations during a resolution of JP Morgan under Title
II of the Dodd Frank Act, since Single Point of Entry ("SPE")
receivership is the preferred approach by which US bank regulators would
implement Title II. Therefore, senior debt obligations of
JPMS plc would face low loss given failure due to the loss absorption
provided by the substantial volume of holding company obligations at JP
Morgan Chase & Co. This structural support lifts JPMS plc's
Issuer Rating a further two notches to the final assigned A1 level.
The Aa2(cr) CR assessment captures the probability of default on certain
senior obligations, rather than expected loss and is driven purely
by subordination (not volume of the instrument class) and this results
in three notches of lift for the CR assessment, before any potential
government support discussed below.
Potential for Government Support of Client Facing Obligations
While the Issuer rating does not contain any uplift for government support,
the Counterparty Risk Assessment at JPMS plc incorporates one notch of
uplift for government support. This reflects Moody's view
that JPMS plc's systemic importance primarily revolves around its
high degree of interconnectedness with other global systemically important
banks and its role as a significant derivatives counterparty. As
such, Moody's believes there is a moderate likelihood that
in resolution, the US government would take action to support the
counterparty and operational liabilities of JPMS (but not its debt) in
order to limit systemic risk, resolution costs and contagion and
facilitate an orderly unwind of such obligations. The resulting
one additional notch of uplift to the counterparty risk assessment leads
to an assessment of Aa2(cr).
The principal methodology used in these ratings was Securities Industry
Market Makers, published in February 2017. 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 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.
Peter E. Nerby
Senior Vice President
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 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
