London, 13 April 2017 -- Moody's Investors Service has today assigned a Ba2(hyb) rating to the
CHF 200 million high trigger additional tier 1 (AT1) contingent write-down
capital notes issued by Credit Suisse Group AG in March 2017.
These perpetual non-cumulative AT1 securities rank junior to all
liabilities of Credit Suisse Group AG, including subordinated liabilities
other than parity securities, but they rank senior to participation
securities and all classes of shares. Coupons may be cancelled
on a non-cumulative basis at the issuer's option and on a mandatory
basis, subject to the availability of distributable profits,
the meeting of solvency conditions and regulatory discretion. The
principal of the AT1 securities will be fully and permanently written-down
if Credit Suisse Group AG's consolidated Common Equity Tier 1 (CET1) ratio
falls below 7%.
RATINGS RATIONALE
The Ba2(hyb) rating is based on the likelihood of Credit Suisse Group
AG's CET1 capital ratio reaching the write-down trigger,
the probability of a bank-wide failure, and the expected
loss severity if either or both these events occur. Moody's assesses
the probability of a trigger breach using a model-based approach
incorporating the group's creditworthiness, its most recent CET1
ratio and qualitative considerations, particularly with regard to
how the bank may manage its CET1 ratio on a forward-looking basis.
Under Moody's approach to rating high-trigger contingent capital
securities, as described in its "Banks" rating methodology,
published in January 2016, Moody's rates high-trigger AT1
securities to the lower of the model-based outcome and Credit Suisse
Group AG's non-viability security rating.
The CET1 ratio trigger is defined as Credit Suisse Group AG's consolidated
transitional (or phase-in) Basel III Common Equity Tier 1 capital
ratio ("BIS CET1 ratio") as determined in accordance with the relevant
Basel III regulations as calculated by Credit Suisse and reviewed by The
Swiss Financial Market Supervisory Authority (FINMA). At end-December
2016 Credit Suisse reported a transitional 13.5% BIS CET1
ratio.
Credit Suisse Group AG is the parent bank holding company for Credit Suisse
AG, which accounts for the vast majority of Credit Suisse Group
AG's assets. As such, the group's intrinsic financial strength
corresponds to the baa2 baseline credit assessment (BCA) of Credit Suisse
AG. Moody's used the BCA and proforma CET1 as inputs to its model,
which led to a model output of Ba1(hyb).
In the absence of a non-viability security being rated, the
model outcome was then compared with the rating of a hypothetical Credit
Suisse Group AG non-viability security, which would be positioned
at Ba2(hyb), three notches below the BCA of baa2, based on
Moody's advanced Loss Given Failure (LGF) analysis. The non-viability
rating captures the probability of a bank-wide failure, the
risk of coupon suspension on a non-cumulative basis, and
loss severity if one or both of these events happen.
When comparing the Ba1(hyb) model output and the hypothetical Ba2(hyb)
non-viability security rating, the 'high trigger' security
rating is constrained by the rating on the non-viability security,
leading to the assignment of a Ba2(hyb) rating to Credit Suisse Group
AG's 'high trigger' AT1 security.
The outcome of Moody's model sensitivity analysis on Credit Suisse Group
AG, which considers changes to the group-level BIS CET1 ratio
including actions Credit Suisse is taking to strengthen its CET1 ratio
and the increased level of CET1 deductions which are to be fully phased-in
by 2018, confirms that the Ba2(hyb) rating is resilient under the
main plausible scenarios.
Credit Suisse Group AG is in the midst of substantial restructuring with
the goal of improving its profitability and de-risking its operations.
Several of these actions we expect will be capital accretive, including
the deleveraging of legacy capital market activities, the potential
public offering of a minority stake in its Swiss domestic subsidiary (Credit
Suisse (Schweiz) AG) and cost-cutting exercises and investments
in businesses to improve profitability.
The rating agency notes that the AT1 securities also contain a clause
which allows principal to be permanently and fully written-down
in the case of a viability event, which can occur if the FINMA identifies
the bank needs capital and customary measures to improve capital are not
adequate or infeasible or if the bank were to receive direct or indirect
support from the public sector. A viability event can occur ahead
of a trigger breach. Moody's believes that the probability of this
event occurring is already factored into the assigned rating level.
WHAT COULD CHANGE THE RATING UP/DOWN
The rating of Credit Suisse Group AG's AT1 securities is currently constrained
by the rating on the issuer's non-viability security, which
in turn could be upgraded if Credit Suisse AG's baa2 BCA were to increase.
Conversely, a downgrade of the rating on the AT1 securities could
materialise if Credit Suisse AG's BCA was reduced and/or if Credit Suisse
Group AG's BIS CET1 ratio were to decline below 10.6% on
a sustained basis. Moody's would also reconsider the rating in
the event of an increased probability of a coupon suspension.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Banks published in January
2016. 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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Michael Eberhardt, CFA
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
