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Rating Action:

Moody's assigns Ba3 issuer rating to VTB Capital plc; outlook stable

26 Apr 2019

Concludes review confirming long-term deposit ratings of Ba3 and withdraws ratings

London, 26 April 2019 -- Moody's Investors Service ("Moody's") today assigned Ba3 long-term and Not Prime short-term local- and foreign-currency issuer ratings to UK-based VTB Capital plc (VTBC). The issuer-level outlook changed to stable from rating under review. The agency confirmed VTBC's Ba3 long-term local- and foreign-currency bank deposit ratings and affirmed the Not Prime short-term local- and foreign-currency bank deposit ratings prior to withdrawing these deposit ratings. This follows the shift in VTBC's business model to investment banking rather than corporate banking and reduced emphasis on taking deposits from third parties. VTBC's Baseline Credit Assessment (BCA) of b2, adjusted BCA of b1, the long-term and short-term Counterparty Risk Assessments (CR Assessments) of Ba1(cr) and Not Prime(cr) were also withdrawn.

The rating actions concludes the reviews for downgrade on VTBC's ratings and assessments initiated on 25 June 2018.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

CHANGE OF APPLIED METHODOLOGY REFLECTING SHIFT IN BUSINESS MODEL

In 2018, in response to the UK's planned exit from the European Union and increased geopolitical risks, VTBC's parent Bank VTB, PJSC (VTB; Baa3 stable, b1) undertook a strategic review of its subsidiary's business model. It concluded that it would restructure VTBC, focusing on investment banking and brokerage, while reallocating part of its loan portfolio and derivative exposures to other VTB group entities domiciled in Germany and Russia and running down its third party deposits.

Moody's now applies its Securities Industry Market Makers methodology to VTBC, in the place of the Banks methodology hitherto employed. This reflects the recent shift in VTBC's business model, balance sheet and related risks based on the following: (1) VTBC will cease lending; (2) it will focus on trading, brokerage and investment banking services; and (3) its liability structure will be skewed towards related-parties and will remain largely short-term. This type of business is better captured by the Securities Industry Market Makers methodology.

ISSUER RATINGS ASSIGNMENT

The Ba3 long-term issuer ratings assigned to VTBC reflect a standalone assessment of B1 and a moderate probability of support from the Russian Government (Baa3 stable), the controlling shareholder of VTBC's parent Bank VTB, resulting in one notch of uplift. The stable issuer-level outlook reflects Moody's expectation that the firm's standalone creditworthiness will remain broadly unchanged in the next 12-18 months due to balanced financial profile and operating environment.

The B1 standalone assessment of VTBC is driven by an operating environment score of B1 which reflects VTBC's operations in a mix of emerging and developed countries. The standalone assessment is also constrained by a B1 financial profile score, reflecting a string of net losses, high earnings volatility, and a shortfall of long-term capital relative to long-term assets.

The financial profile is nevertheless supported by a good resilient liquidity cushion and low leverage.

WHAT COULD MOVE THE RATINGS UP/DOWN

Moody's could upgrade the issuer rating if there were a significant improvement in VTBC's financial profile, notably if it were to return to sustainable profitability, if its long-term funding were to be enhanced, or if its business profile shifted towards less risky countries.

Moody's may downgrade the long-term issuer ratings in the event of a lower standalone assessment, for example due to higher leverage, or if government support should diminish.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Securities Industry Market Makers published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LIST OF AFFECTED RATINGS

Issuer: VTB Capital plc

..Assignments:

.... Long-term Issuer Rating, Assigned Ba3, stable outlook assigned

.... Short-term Issuer Rating, Assigned NP

..Confirmation and withdrawal:

.... Long-term Bank Deposits, Confirmed at Ba3, Outlook Changed To Stable From Rating Under Review - ratings will be Withdrawn

..Affirmation and withdrawal:

.... Short-term Bank Deposits, Affirmed NP - ratings will be Withdrawn

..Withdrawals:

.... Adjusted Baseline Credit Assessment, Withdrawn, previously rated b1

.... Baseline Credit Assessment, Withdrawn, previously rated b2

.... Long-term Counterparty Risk Assessment, Withdrawn, previously rated Ba1(cr)

.... Short-term Counterparty Risk Assessment, Withdrawn, previously rated NP(cr)

..Outlook Action:

....Outlook Changed To Stable From Rating Under Review

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.

Petr Paklin
VP - Senior Analyst
Financial Institutions Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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