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Global Credit Research - 08 Oct 2010
Madrid, October 08, 2010 -- Moody's Investors Service has today assigned Baa1/Prime-2/D+
ratings with a stable outlook to the new entity called Caja España
de Inversiones, Salamanca y Soria, Caja de Ahorros y Monte
de Piedad (new "Caja España"). The D+ standalone
Bank Financial Strength Rating maps to a Ba1 on the long-term scale.
Moody's rates the subordinated debt of the new entity at Baa2 and
the preferred shares at B2, both with a stable outlook.
This new entity is the result of the merger of Caja España de Inversiones
("Caja España -- old", previously rated
Baa1/Prime-2/E+, negative outlook) with the neighbouring
Caja de Ahorros de Salamanca y Soria (Caja Duero, previously rated
A3/Prime-2/D+, negative outlook). The merger
is effective since 1 October 2010. The deposit and debt obligations
of the two savings banks have been assumed by the new Caja España,
and the two savings banks have ceased to exist upon completion of the
merger on October 1st, so all the other ratings of these individual
entities are subsequently withdrawn.
Moody's views this merger as broadly credit positive for the new Caja
España. (i) The restructuring and streamlining of the new
entity's greater regional presence, (ii) improved provisioning levels
against non-performing assets and (iii) the EUR 525million capital
injection in the form of preferred shares from the Fondo de Restructuración
Ordenada Bancaria (FROB, or Spain's fund for orderly bank restructuring),
are all contributing to strengthening the credit profile of this new entity.
However, at this point in time, Moody's believes that
further positive rating pressure is constrained primarily by the overall
moderate degree of capitalisation, even when taking into account
the capital injection from the FROB (Tier 1 capital is expected to be
at 9.4% at FYE 2010).
RATIONALE FOR THE BFSR OF THE NEW GROUP
In assigning the D+ (Ba1) BFSR to the new savings bank, Moody's
has focused on the assessment of the creditworthiness of the resulting
merged entity, which the rating agency considers to be stronger
on a standalone basis than the sum of its parts, with Caja Duero
and Caja España -- old having been rated D+ and E+
The new entity will receive public funds from the FROB amounting to EUR525
million, equivalent to 1.8% of its risk-weighted
assets, which together with the loan-loss provisioning efforts
and the write-offs carried out by the two savings banks before
the merger, will serve to strengthen the solvency of the new entity.
The new entity will also benefit from the cost savings that will arise
from the restructuring plan that has been approved by the two existing
savings banks, and whose implementation will be closely followed
by the Bank of Spain. The restructuring plan entails a 15%
reduction of the new group's combined workforce, and branch closures
that will affect 23% of the new entity's existing networks.
Notwithstanding the clear benefits of the capital injection and restructuring,
Moody's believes that the new group faces challenges that will have to
be borne with a moderate Tier 1 capital ratio of around 9.4%.
In the rating agency's view, this should be sufficient for
the savings bank to absorb any further losses under its base-case
scenario. However, given the uncertain macroeconomic outlook
as well as remaining uncertainties over its real-estate asset quality,
the recapitalisation may not have sufficiently immunised the bank against
a more conservative scenario. Although the EUR525 million funds
from the FROB are estimated to cover the bulk of loan-loss provisioning
requirements for the next few years, the rating agency notes that
internal capital generation from recurrent sources will be limited by
a very challenging domestic operating environment of subdued growth and
a downward pressure on margins -- on the back of low interest
rates and relatively high non-earning assets. As a result,
Moody's assigned a BFSR of D+, indicating that the new savings
bank may have a remaining marginal vulnerability against more adverse
RATIONALE FOR THE DEBT RATINGS
The new entity's rating of Baa1/Prime-2 incorporates Moody's
assumption of ongoing exceptional systemic support. In this respect,
Moody's believes that the Spanish government is generally both willing
and able to support its banking system and the new entity in particular,
as and when required.
In addition, the Baa1/Prime-2 debt ratings reflect Moody's
long-term view as part of its ongoing stance to "look through"
the current crisis to the specific franchise characteristics of the new
group as it emerges out of this environment. On the one hand,
Moody's believes that the new Caja España has the longer-term
potential for a higher standalone rating to develop over time, which
should support the Baa1 rating even in a future scenario of more uncertain
systemic support. At the same time, Moody's notes that
the assignment of a higher rating has been limited since the materialized
support in form of the FROB capital injection did not result in a significantly
higher standalone strength of the new entity. This reduced likelihood
of a fast reversal of the standalone rating would however have been required
to underpin a higher debt rating.
The stable outlook is commensurate with Moody's favorable view on
the merger process, which will entail significant restructuring,
stronger coverage of problem loans by loan loss provisions and higher
capital adequacy levels following the FROB's capital injection.
In assigning a stable outlook to all of the savings bank's ratings
Moody's has taken into account the execution risks associated with
the merger process as well as the operating environment in Spain,
which will remain challenging throughout 2011. Notwithstanding,
Moody's will closely monitor the accomplishment of the financial plan
that has been presented following the merger process. Any significant
negative deviation from this plan could exert downward pressure on the
BFSR, and thus on its debt ratings.
The principal methodologies used in rating Caja España de Inversiones,
Salamanca y Soria, Caja de Ahorros y Monte de Piedad were 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 . Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found on Moody's website.
The last rating action on Caja Duero was on 7 October 2010, when
Moody's downgraded Caja Duero's government-backed debt ratings
to Aa1 with stable outlook from Aaa.
Moody's implemented the previous rating action on Caja España
- old on 15 June 2009, when it downgraded the BFSR to E+
(mapping to a BCA of B1) from C- (mapping to a BCA of Baa2),
and changed the outlook to negative. The bank's long-term
debt and deposit rating was downgraded to Baa1 from A3, and the
outlook changed to negative. Its senior subordinated debt was lowered
to Baa2 from Baa1, and the outlook changed to negative, while
the short-term debt and deposit ratings were affirmed at P-2.
At that time, Caja Duero's ratings were also downgraded to
A3/Prime-2/D+ (Ba1) with a negative outlook from A2/Prime-1/C.
Headquartered in Salamanca, Spain, Caja Duero reported total
consolidated assets of EUR21.4 billion as at 31 December 2009.
Headquartered in Leon, Spain, Caja España -
old reported total assets of EUR24.7 billion as at 31 December
The combined entity will be headquartered in Leon and will have combined
assets ofEUR46.4 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
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MOODY'S adopts all necessary measures so that the information it uses
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MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
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Please see ratings tab on the issuer/entity page on Moodys.com
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The date on which some Credit Ratings were first released goes back to
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Maria Jose Mori
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Espana, S.A.
Moody's assigns Baa1/P-2/D+ ratings to Caja España de Inversiones, Salamanca y Soria, Caja de Ahorros y Monte de Piedad
Barbara de Braganza, 2
No Related Data.
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