London, 05 February 2010 -- Moody's Investors Service has today assigned long-term senior
unsecured debt and deposit ratings of Aa3 and a short-term rating
of Prime-1 to 'new' ABN AMRO Bank N.V.
At the same time Moody's also assigned a bank financial strength
rating (BFSR) of C (mapping to a Baseline Credit Assessment, BCA,
of A3). The ratings of subordinated and hybrid instruments are
discussed below. The long-term ratings and BFSR carry a
negative outlook. 'New' ABN AMRO Bank N.V.
is the new legal entity which is expected to shortly assume the Dutch
State-acquired businesses of ABN AMRO Bank N.V. through
a legal demerger... We will refer to this entity
as ABN AMRO Bank N.V., its new legal name following
the completion of the demerger and other transfers.
The ratings were assigned in anticipation of the legal demerger and other
transfers whereby the bank's commercial and retail banking businesses
in the Netherlands, global private client business and International
Diamond and Jewelry Group will be transferred to the newly formed bank,
ABN AMRO Bank N.V.. 'Old' ABN AMRO Bank
N.V. (to be renamed Royal Bank of Scotland N.V.
on completion of legal demerger) will retain its large corporate and wholesale
banking business, its global transactions business and a portion
of its international banking network. For a short period of time
following the demerger both banks will remain subsidiaries of ABN AMRO
Holding N.V., of which the shares are held by RFS
Holdings B.V., but it is expected that before mid-year
ABN AMRO Bank N.V. will be spun-off in a legal separation
and become indirectly wholly-owned by the Dutch government,
which is already incorporated in the ratings.
The legal demerger represents one of the final steps in the break-up
of ABN AMRO group following the bank's acquisition in 2007 by a
consortium of banks (Royal Bank of Scotland Group plc, Banco Santander
SA and Fortis SA), through a special purpose vehicle, RFS
Holdings B.V. In December 2008, the Dutch government
became the direct owner of Fortis's stake in ABN AMRO group following
the state bailout of Fortis Bank (Nederland). Although the Dutch
government plans to eventually merge ABN AMRO Bank N.V.
and Fortis Bank (Nederland), ABN AMRO Bank N.V. is
expected to remain separate for the time being. Full integration
is likely to take several years to complete.
The BFSR of C reflects Moody's expectations regarding the low risk
profile of ABN AMRO Bank N.V.'s lending portfolio,
the resilience of the bank's market shares that it has demonstrated
so far, and the high level of its anticipated pro forma capital
base, in large part due to existing and potential capital injections
from the Dutch state. Importantly Moody's understands that
the Dutch Finance Minister has received permission from the Dutch parliament
to make available EUR2.29bn of new capital for the Dutch State-acquired
businesses of ABN AMRO group as part of the total capitalisation for ABN
AMRO Bank N.V. and Fortis Bank (Nederland) N.V.
combined, as requested in his letter to parliament of 19 November
2009. As a condition for legal separation, the Dutch Central
bank (DNB) requires a Tier 1 ratio of at least 9% under Basel I.
It is Moody's expectation for this rating level that the capital
levels will be maintained at or above this level.
These strengths are likely to be counterbalanced by the bank's high
cost base and weak earnings generation capacity, as well as the
additional risks and costs expected to stem from the lengthy integration
process with Fortis Bank (Nederland). These issues are further
compounded by the fact that the new bank's geographic diversification
will be much more limited following legal demerger than was the case at
the legacy bank.
ABN AMRO Bank N.V.'s businesses are focused primarily
on commercial and retail lending. There is limited market risk
and no "toxic" assets. ABN AMRO has a long history
of managing the risks inherent to these businesses and this expertise
is being carried over to the new bank. Furthermore, the bulk
of its securities portfolio (held for liquidity purposes) is invested
in low-risk OECD government bonds. Moody's also notes
that, despite the ongoing disruptions suffered by ABN AMRO since
2007, the bank remains a dominant player in commercial and consumer
lending in the Netherlands with market shares that have proven resilient.
However, in connection with the bank's planned integration
with Fortis Bank (Nederland) N.V., the European Commission
has mandated the divestment of parts of ABN AMRO Bank N.V.'s
commercial banking business, which will negatively impact its position
in this market. Moody's therefore believes that a key challenge
for the bank will be to successfully maintain and grow its customer base
in this segment without unduly increasing its risk profile.
ABN AMRO Bank N.V. will also be encumbered by additional
costs from overhead functions, the separation initiatives and from
preparations for the integration with Fortis Bank (Nederland) N.V..
To address this, the bank has put in place ongoing cost-reduction
programmes, which Moody's expect should produce benefits over
the medium term.
Moody's notes that the Aa3 and Prime-1 senior unsecured ratings
incorporate the expectation of a very high probability of systemic support.
The support assumption is primarily based on the bank's dominant
position in the Dutch banking market. Moody's has not incorporated
additional support to reflect the bank's state ownership because
the Dutch government has indicated that it does not plan to remain the
bank's owner in the long term.
The negative outlook on the ratings reflects the potential challenges
to the bank's credit profile stemming from the complexities and
costs of the pending separation and divestment as well as the planned
integration with Fortis Bank (Nederland) N.V..
SUBORDINATED DEBT RATINGS OF A1 CONFIRMED
Moody's also confirmed the ratings of A1 on the rated senior subordinated
debt that will be assumed by ABN AMRO Bank N.V. (see list
below), one notch below the senior debt rating. For banks
in the Netherlands Moody's continues to incorporate systemic support
in its dated subordinated debt ratings to the same extent that it incorporates
such support in senior debt ratings. This reflects the absence
of a resolution framework in the Netherlands that would allow for the
imposition of losses on dated subordinated creditors outside of a liquidation.
HYBRID DEBT RATINGS CONFIRMED AT Ba2
The rating agency also confirmed the Ba2 ratings on the two hybrid securities
that will be assumed by ABN AMRO Bank N.V. -- GBP750
million perpetual subordinated upper tier 2 notes with cumulative deferral
language (XS0244754254) and EUR1,000 million perpetual capital securities
with cumulative deferral and ACSM settlement language (XS0246487457).
The ratings on both securities were lowered to Ba2 from A1 and A2,
respectively in September 2009, reflecting Moody's assumption
that the securities faced a high probability of coupon deferral.
The principal methodologies used in assigning these ratings were Moody's
"Bank Financial Strength Ratings: Global Methodology", published
in February 2007, "Incorporation of Joint-Default Analysis
into Moody's Bank Ratings: A Refined Methodology", published
in March 2007, and "Moody's Guidelines for Rating Bank
Hybrid Securities and Subordinated Debt", published in November
2009, which are available on www.moodys.com in the
Rating Methodologies sub-directory under the Research & Ratings
tab. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found in the Rating Methodologies
sub-directory on Moody's website.
Based in Amsterdam, the Dutch-state acquired businesses that
will comprise the new ABN AMRO Bank N.V. had total assets
amounting to EUR203 billion and reported a net profit of EUR45 million
at end of September 2009.
The last rating on this entity was 25 January 2010 when Moody's
assigned a provisional long-term senior unsecured debt rating of
(P)Aa3 and a short-term rating of Prime-1.
Issuer: ABN AMRO II N.V.
Bank Financial Strength Rating, Assigned C
Issuer Rating, Assigned Aa3, Aa3
Senior Unsecured Regular Bond/Debenture, Assigned Aa3, P-1
Senior Unsecured Deposit Rating, Assigned P-1, Aa3
Rating on the following senior unsecured note was confirmed at Aa3:
EUR64.7 million 5.00% senior unsecured Dutch bank
bonds due 2012 (NL0000065456)
Ratings on the following senior subordinated debt securities were confirmed
EUR500 million floating rate subordinated lower tier 2 due 2018 (XS0256778464)
EUR1000 million floating rate subordinated lower tier 2 due 2016 (XS0267063435)
EUR82 million floating rate subordinated debt due 2017 (XS0113243470)
EUR103.4 million floating rate subordinated lower tier 2 due 2020
EUR65 million floating rate subordinated lower tier 2 due 2015 (XS0233907442)
USD100 million floating rate subordinated lower tier 2 due 2015 (XS0233906121)
USD1000 million floating rate subordinated lower tier 2 due 2017 (XS0282833184)
Ratings on the following hybrid securities were confirmed at Ba2:
GBP750 million 5.00% callable perpetual subordinated upper
tier 2 (XS0244754254)
EUR1000 million 4.31% perpetual callable subordinated tier
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
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Moody's assigns Aa3/P-1/C ratings to 'New' ABN AMRO Bank N.V.
Senior Vice President
Financial Institutions Group
Moody's Investors Service