Ratings are assigned following 6 June 2018 update to Moody's Banks rating methodology
London, 13 June 2018 -- Moody's Investors Service has today assigned Counterparty Risk Ratings
to the rated bank subsidiaries and bank branches of seven large European
banking groups: HSBC Holdings plc (HSBC), Deutsche Bank AG
(DB), BNP Paribas (BNPP), Societe Generale (SG), Credit
Suisse Group AG (CS), UBS Group AG (UBS), and to Barclays
Bank PLC (BBPLC) and its rated branches. Additionally, Moody's
assigned a long-term and short-term Counterparty Risk Assessment
to UBS Limited at Aa3(cr), placed on review for upgrade/Prime-1(cr).
Moody's Counterparty Risk Ratings (CRR) are opinions of the ability
of entities to honor the uncollateralized portion of non-debt counterparty
financial liabilities (CRR liabilities) and also reflect the expected
financial losses in the event such liabilities are not honored.
CRR liabilities typically relate to transactions with unrelated parties.
Examples of CRR liabilities include the uncollateralized portion of payables
arising from derivatives transactions and the uncollateralized portion
of liabilities under sale and repurchase agreements. CRRs are not
applicable to funding commitments or other obligations associated with
covered bonds, letters of credit, guarantees, servicer
and trustee obligations, and other similar obligations that arise
from a bank performing its essential operating functions.
RATINGS RATIONALE
In assigning CRRs to the banks and branches subject to this rating action,
Moody's starts with the banks' Adjusted Baseline Credit Assessment
(BCA) and uses the agency's existing Advanced Loss-Given-Failure
(LGF) approach that takes into account the level of subordination to CRR
liabilities in the bank's balance sheet and assumes a nominal volume of
such liabilities. For these banks, Moody's further
considers the likelihood of government support for CRR liabilities to
be moderate, resulting in one additional notch of uplift from their
respective Adjusted BCAs, reflecting each group's high degree
of interconnectedness and systemic importance to the European and global
financial system, balanced by the current European legal restrictions
on many forms of government support.
As a result, the CRRs for the rated bank subsidiaries and branches
of DB, BNPP, SG, CS, UBS and for BBPLC are four
notches higher than their respective Adjusted BCAs.
The CRRs for HSBC Bank plc and its branches are also four notches above
their adjusted BCAs. In the case of HSBC France, however,
the CRR is only three notches above the Adjusted BCA, given our
assessment of a low probability of support to be forthcoming to HSBC France's
creditors from the French government. As a result, HSBC France's
long term deposit and senior unsecured debt ratings do not benefit from
additional rating uplift from government support.
Although the rated bank subsidiaries whose CRRs receive four notches of
uplift from their Adjusted BCAs could have more than a nominal volume
of CRR liabilities at failure, this has no impact on the ratings
because the significant level of subordination below the CRR liabilities
at each of the seven banking groups already provides the maximum three
notches of uplift allowed under Moody's rating methodology.
In all cases for UK, German and French banks, the CRRs assigned
are equal to or higher than the rated bank subsidiaries' and branches'
senior debt and deposit ratings. This reflects Moody's view that
secured counterparties to banks typically benefit from greater protections
under insolvency laws and bank resolution regimes than do senior unsecured
creditors, and that this benefit is likely to extend to the unsecured
portion of such secured transactions in most bank resolution regimes.
Moody's believes that in many cases regulators will use their discretion
to allow a bank in resolution to continue to honor its CRR liabilities
or to transfer those liabilities to another party who will honor them,
in part because of the greater complexity of bailing in obligations that
fluctuate with market prices, and also because the regulator will
typically seek to preserve much of the bank's operations as a going
concern in order to maximize the value of the bank in resolution,
stabilize the bank quickly, and avoid contagion within the banking
system. CRR liabilities at these banking groups therefore benefit
from the subordination provided by more junior liabilities, with
the extent of the uplift of the CRR from the adjusted BCA depending on
the amount of subordination.
For Swiss banks, the CRRs assigned are positioned between senior
unsecured debt and junior deposits. In Switzerland, we expect
CRR obligations will receive preference relative to other senior creditors
given the desire of government authorities to ensure the continuity of
a failing bank's operations, but will remain junior to depositors
given national depositor preference by law. We also expect that
CRR obligations will occupy a unique place in the waterfall without any
other pari-passu obligations.
The following ratings were assigned:
HSBC Bank plc; HSBC Bank Plc Sydney Branch; HSBC France --
Local currency and foreign currency Long-term Counterparty Risk
Ratings of Aa2
Local currency and foreign currency Short-term Counterparty Risk
Ratings of Prime-1
Barclays Bank PLC; Barclays Bank PLC, Australia Branch;
Barclays Bank PLC, New York Branch; Barclays Bank PLC,
Paris; Barclays Bank PLC, Singapore; Barclays Bank PLC,
Tokyo; Barclays Bank plc Hong Kong --
Local currency and foreign currency Long-term Counterparty Risk
Ratings of A2
Local currency and foreign currency Short-term Counterparty Risk
Rating of Prime-1
Deutsche Bank AG; Deutsche Bank AG, London Branch; Deutsche
Bank AG, New York Branch; Deutsche Bank AG, Paris Branch;
Deutsche Bank AG, Singapore Branch; Deutsche Bank AG,
Sydney Branch --
Local currency and foreign currency Long-term Counterparty Risk
Ratings of A3
Local currency and foreign currency Short-term Counterparty Risk
Rating of Prime-2
BNP Paribas; BNP PARIBAS, DUBLIN BRANCH; BNP Paribas,
Australian Branch; BNP Paribas, New York Branch --
Local currency and foreign currency Long-term Counterparty Risk
Rating of Aa3
Local currency and foreign currency Short-term Counterparty Risk
Rating of Prime-1
Societe Generale, Societe Generale Australia Branch --
Local currency and foreign currency Long-term Counterparty Risk
Rating of A1
Local currency and foreign currency Short-term Counterparty Risk
Rating of Prime-1
Credit Suisse AG; Credit Suisse AG (London) Branch; Credit Suisse
AG (Guernsey) Branch; Credit Suisse AG (Nassau) Branch; Credit
Suisse AG (New York) Branch; Credit Suisse AG (Sydney) Branch;
Credit Suisse AG (Tokyo) Branch; Credit Suisse International --
Local currency and foreign currency Long-term Counterparty Risk
Rating of A1
Local currency and foreign currency Short-term Counterparty Risk
Rating of Prime-1
UBS AG; UBS AG, Australian Branch; UBS AG, Jersey
Branch; UBS AG, London Branch; UBS AG, New York
Branch; UBS AG, Stamford Branch; UBS Limited --
Local currency and foreign currency Long-term Counterparty Risk
Rating of Aa3, placed on review for upgrade
Local currency and foreign currency Short-term Counterparty Risk
Rating of Prime-1
UBS Limited --
Long-term Counterparty Risk Assessment of Aa3(cr), placed
on review for upgrade
Short-term Counterparty Risk Assessment of Prime-1(cr)
What Could Change the Rating Up/Down -- HSBC Bank plc
An upgrade of HSBC Bank plc's deposits and senior unsecured debt
ratings is unlikely: a one notch upgrade of the bank's BCA,
an increase in the volume of debt or deposits, a higher stock of
more junior bail-in-able liabilities, or a reduction
in the tangible banking assets would not result in an upgrade of the bank's
ratings, due to the loss of the current one notch of UK government
support.
HSBC Bank plc's deposits and senior unsecured debt ratings would
be downgraded in any of the following cases: 1) a decrease in the
volume of loss-absorbing capital providing lower protection to
its creditors; 2) a lower stock of more junior bail-in-able
liabilities that would provide smaller protection senior creditors;
(3) a lower assumption of affiliate support than is presently incorporated;
(4) an assumption of "low" government support; and (5)
a multi-notch downgrade of the bank's BCA, deriving,
amongst others, from a significant deterioration in the operating
environment; a material increase in risk appetite or a large risk
management failure, and/or a substantial deterioration in the liquidity
or capital positions. A one notch downgrade of the bank's
BCA would not result in a downgrade of its senior ratings, due to
HSBC Holdings' parental support increasing by one notch.
What Could Change the Rating Up/Down -- HSBC France
An upgrade of HSBC France's BCA would unlikely result in an upgrade
of HSBC France's ratings, given the very high level of affiliate
support and/or a higher amount of long-term, subordinated
debt or junior instruments proving greater creditor protection to bondholders
in the event of HSBC France's failure.
HSBC France's ratings could be downgraded in case of major risk management
failures or if HSBC France's asset risk and or funding profile materially
deteriorates as a result of riskier activities it could receive from HBEU
as a result of Brexit, and in case this is not offset by improved
capital and profitability and/or a rating downgrade of HSBC France's long-term
deposit and senior unsecured debt ratings could also materialise as a
result of a material increase in its tangible banking assets or by a sizeable
reduction in the outstanding liabilities that could be bailed-in.
What Could Change the Rating Up/Down -- Barclays Bank PLC
Barclays Bank's baa3 BCA could be upgraded if the bank were to restore
its profitability on a sustainable basis. Higher capitalisation
levels, lower reliance on confidence-sensitive wholesale
funding and a reduction in the size of capital markets activities would
also be positive for the BCA. An upgrade of the BCA would likely
lead to a ratings upgrade.
Barclays Bank's baa3 BCA could be downgraded in the case of (1) a deterioration
in the operating environment beyond our current expectations, (2)
residual conduct and litigation charges that are materially higher than
our current estimates, (3) a material risk management failure or
increase in risk appetite or leverage, and (4) a material deterioration
in the group's liquidity or capital positions. A downgrade of the
bank's BCA would likely lead to a ratings downgrade. The ratings
for Barclays Bank could be downgraded in the case of a lower degree of
protection for its creditors from the stock of bail-in-able
debt, which we assess through its advanced LGF analysis.
What Could Change the Rating Up/Down -- Deutsche Bank AG
The negative outlook on DB's deposit ratings indicates there is
no imminent upward pressure on DB's ratings. In the longer
term, substantial completion of a strategic plan that results in
improved earnings with a more balanced and stable mix could result in
upward rating pressure.
Failure to make consistent progress toward the long-term strategic
business mix and expense targets could lead to downward pressure on the
ratings. In addition, the ratings could be negatively affected
if the bank experiences a material risk management failure or material
deterioration in the group's liquidity or capital positions. The
ratings could be downgraded due to a lower degree of protection for its
creditors from the stock of bail-in-able debt, which
Moody's assesses through its advanced LGF analysis.
What Could Change the Rating Up/Down -- BNP Paribas
The BCA could be upgraded in case of structural improvements in the bank's
funding profile, significantly higher capitalisation and/or a material
reduction in capital market activities. A higher BCA would likely
lead to a rating upgrade.
The BCA could be downgraded in case of a deterioration in operating conditions
in BNPP's main markets, beyond our current expectations,
a weakening in funding and liquidity, lower regulatory capitalisation
or higher leverage an increase in the bank's conservative risk appetite.
A lower BCA would likely result in rating downgrades.
What Could Change the Rating Up/Down -- Societe Generale
The BCA could be upgraded in case of structural improvement in the bank's
funding profile, strengthened profitability, significantly
higher capitalisation, or a material reduction in capital markets
activity. A higher BCA would likely lead to rating upgrades.
The BCA could be downgraded in case of a deterioration in operating conditions
in SG's main markets, beyond our current expectations,
a weakening in funding and liquidity, lower regulatory capitalisation
or higher leverage, or a material risk management failure or increase
in risk appetite. A lower BCA would likely result in a downgrade
of all ratings.
What Could Change the Rating Up/Down -- Credit Suisse Group AG
Upward pressure on CS's ratings could arise if the group were to successfully
achieve a substantial and sustainable improvement in profitability,
coupled with a meaningful further reduction of its risk profile and a
significantly reduced reliance on earnings from its capital market businesses.
Any upgrade remains further contingent on the group reducing its wholesale
funding dependence to a level commensurate with higher rated peers.
The ratings could be downgraded if CS failed to successfully execute the
planned changes to its business model, or were to suffer from a
significant control or risk management failure, or materially increase
its risk appetite. The ratings may also be downgraded in the event
of a significant decline in the Swiss economy, or an unexpected
and meaningful deterioration in the group's capital or liquidity profile.
The ratings could further be downgraded should there be a significant
and larger-than-anticipated decrease in the banks' existing
bail-in-able debt cushion leading to a higher loss severity
for its different debt classes. Although regarded unlikely at present,
this may lead to fewer notches of rating uplift as a result of our Advanced
LGF analysis.
What Could Change the Rating Up/Down -- UBS Group AG
Upward pressure on UBS AG's baa1 BCA, and thereby its long-term
ratings, could arise if we were to conclude that (1) UBS will be
able to improve, or sustain and defend, its earnings profile
as well as profitability levels even under less benign market conditions;
(2) the risks from UBS's capital markets franchise remain well controlled
and managed and the group's capacity to absorb larger unexpected losses
has achieved a level such that those losses, also including potential
litigation charges, no longer risk diluting UBS's strong capital
position; and (3) UBS will be able to further build on its solid
capital position while still balancing bondholders' and shareholders'
interests. UBS AG's long-term senior unsecured debt ratings
could also be upgraded if the bank were to continue to issue and thereby
maintain the current proportion of bail-in-able liabilities
in relation to tangible banking assets, affording greater protection
to the bank's senior creditors. This may lead to one additional
notch of rating uplift as a result of Moody's Advanced Loss Given Failure
(LGF) analysis. Additional supportive factors to UBS's ratings
may derive from UBS growing and sustaining its solid profitability levels
around a level of 0.75% net income to tangible assets as
well as sustaining a moderate reliance on wholesale funding sources as
indicated by a Market Funding ratio around or below 30%.
The ratings could be downgraded if UBS were to suffer from any material
control or risk management failure or if it were to materially increase
its risk appetite (evidence of which could be a renewed expansion of higher-risk
and more volatile parts of its investment banking franchise). The
ratings could also come under pressure from a significant decline in the
Swiss economy leading to a pronounced deterioration of the bank's and
the group's otherwise solid asset quality metrics or an unexpected and
meaningful deterioration in the group's capital or liquidity profile.
The ratings could further be downgraded should there be a significant
and larger-than-anticipated decrease in the bank's existing
bail-in-able debt cushion leading to a higher loss severity
for its different debt classes. Although regarded unlikely at present,
this may lead to fewer notches of rating uplift as a result of our Advanced
LGF analysis.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
June 2018. 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.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
The relevant office for each credit rating is identified in "Debt/deal
box" on the Ratings tab in the Debt/Deal List section of each issuer/entity
page of the website.
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.
Andrea Usai
Senior Vice President
Financial Institutions Group
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
Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
