All ratings of RBS Group plc and subsidiaries affirmed. Action reflects directional effects of "ring-fencing" on ratings.
London, 27 September 2017 -- Moody's Investors Service, ("Moody's") today
changed the outlooks on the long-term deposits and senior unsecured
debt of The Royal Bank of Scotland plc (RBS plc) and The Royal Bank of
Scotland N.V. (RBS NV) to negative from stable. Moody's
also changed the outlook on the long-term deposit rating and issuer
rating of RBS's subsidiary National Westminster Bank PLC (NatWest
Bank) to positive from stable. The agency maintained the stable
outlook on the long-term senior unsecured debt of holding company,
The Royal Bank of Scotland Group plc (RBSG).
Concurrently, the rating agency affirmed all ratings of RBSG and
those of RBS plc, NatWest Bank and RBS NV.
"The change in the outlooks reflects Moody's view on the likely
direction of these subsidiaries' ratings, following the implementation
of forthcoming ring-fencing regulations", said Alessandro
Roccati, Senior Vice President at Moody's. The outlook
change is not driven by fundamental credit pressures deriving from the
exit of the UK from the European Union ("Brexit"), as
Moody's considers that the group benefits from sustainable earnings
from core retail and corporate businesses, which mitigate downward
credit pressures arising from Brexit and provide substantial shock absorbers
relative to the remaining capital markets business.
"Ring-fencing" will come into effect on 1 January 2019
and Moody's expects RBS will complete its material restructuring
by the end of 2018.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
RBS plc will transfer most of its Personal & Business Banking and
Commercial & Private Banking operations to a ring-fenced banking
subgroup (under an intermediate holding company, NatWest Holdings
Ltd, expected to become a direct subsidiary of RBSG in mid-2018),
which will account for around 80% of group risk-weighted
assets. The ring-fenced bank sub-group will include
NatWest Bank, Ulster Bank Ireland DAC (LT deposits Baa2 stable),
Ulster Bank Limited ( LT deposits A2 stable) and Adam & Company PLC
and Coutts & Company.
The group's capital market activities will remain with RBS plc.
At the same time as the legal transfer of assets and liabilities,
RBS plc will be renamed NatWest Markets Plc (NatWest Markets), and
Adam & Company PLC will be renamed The Royal Bank of Scotland plc
(RBS plc).
RBS International (RBSI), a subsidiary of RBSG, will retain
mostly retail and commercial activities in the UK's Crown Dependencies.
RBS NV, currently a subsidiary of RBSG, will likely become
the entity conducting wholesale activities in the European Union outside
the UK.
Moody's currently aligns the ratings of NatWest Bank and RBS NV
with those of the current RBS plc (to be renamed NatWest Markets).
Under ring-fencing, NatWest Markets will have a significantly
weaker credit profile as it will become the entity of the group retaining
capital markets and wholesale activities. As such, it will
be largely market funded, have a sizeable trading and repo book,
and will provide broker-dealer capabilities. RBS NV will
also show a weaker credit profile, because of its largely wholesale
activities. Conversely, NatWest Bank will have a stronger
credit profile as it will retain mostly retail and SME activities,
and have a more deposit-based funding profile.
During the outlook period Moody's will assess the prospective credit
profiles of the new and modified group entities and the expected loss
for each instrument class at each entity under its advanced Loss Given
Failure analysis, once there is greater clarity on the financials
and liability structures of these entities.
WHAT COULD MOVE THE RATINGS UP/DOWN
The implementation of ring-fencing regulations will likely lead
to downgrades in the baseline credit assessments (BCAs), both long-term
and short-term deposit ratings, long-term debt ratings,
and subordinated debt ratings of RBS plc and RBS NV, and to upgrades
in the BCA and ratings of NatWest Bank.
The ratings of RBSG and NatWest Bank could be upgraded if the group were
to return to sustainable profitability in line with that of peers,
generate capital organically and successfully complete its multi-year
restructuring exercise. Other factors being equal, the ratings
could also be upgraded if the volume of loss-absorbing capital
substantially increases during the outlook period, creating greater
protection for its creditors.
The ratings of RBSG, RBS plc (to be renamed NatWest Markets) and
NatWest Bank could be downgraded if the group's restructuring and de-risking
strategy fails to deliver improvements in its credit fundamentals,
weakening its capital, profitability and operational efficiency
levels and raising its asset risk. A significant deterioration
in the operating environment beyond Moody's base case expectations,
and/or regulatory and litigation charges that are substantially higher
than those Moody's currently expects, may also result in a downgrade
of the BCAs. The ratings could also be downgraded as a result of
a sizeable reduction in the outstanding liabilities that could be bailed
in, resulting in a higher loss-given-failure for senior
creditors and hence a lower rating.
LIST OF AFFECTED RATINGS
Issuer: The Royal Bank of Scotland Group plc
..Affirmations:
....Senior Unsecured Regular Bond/Debenture,
affirmed Baa3 Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Baa3
....Senior Unsecured Shelf, affirmed
(P)Baa3
....Subordinate Regular Bond/Debenture,
affirmed Ba1
....Subordinate Regular Bond/Debenture,
affirmed Ba2
....Subordinate Medium-Term Note Program,
affirmed (P)Ba1
....Subordinate Shelf, affirmed (P)Ba1
....Subordinate Shelf, affirmed (P)Ba2
....Junior Subordinated Regular Bond/Debenture,
affirmed Ba2(hyb)
....Junior Subordinate Medium-Term
Note Program, affirmed (P)Ba2
....Junior Subordinate Shelf, affirmed
(P)Ba2
....Preferred Stock, affirmed Ba2(hyb)
....Preferred Stock Non-cumulative,
affirmed Ba3(hyb)
....Preference Shelf, affirmed (P)Ba2
....Preference Shelf, affirmed (P)Ba3
....Other Short Term, affirmed (P)P-3
....Commercial Paper, affirmed P-3
..Outlook Action:
....Outlook remains Stable
Issuer: The Royal Bank of Scotland plc
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Bank Deposits,
affirmed A2, outlook changed to Negative from Stable
....Short-term Bank Deposits,
affirmed P-1
....Senior Unsecured Regular Bond/Debenture,
affirmed A3, outlook changed to Negative from Stable
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed A3, outlook changed to Negative from Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)A3
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)A3
....Backed Senior Unsecured Shelf, affirmed
(P)A3
....Subordinate Regular Bond/Debenture,
affirmed Ba2
....Subordinate Regular Bond/Debenture,
affirmed Ba1
....Subordinate Medium-Term Note Program,
affirmed (P)Ba1
....Backed Subordinate Medium-Term
Note Program, affirmed (P)Ba1
....Backed Subordinate Shelf, affirmed
(P)Ba1
....Junior Subordinated Regular Bond/Debenture,
affirmed Ba2(hyb)
....Backed Junior Subordinated Regular Bond/Debenture,
affirmed Ba2(hyb)
....Junior Subordinate Medium-Term
Note Program, affirmed (P)Ba2
....Backed Junior Subordinate Medium-Term
Note Program, affirmed (P)Ba2
....Commercial Paper, affirmed P-2
....Backed Commercial Paper, affirmed
P-2
....Other Short Term, affirmed (P)P-2
....Backed Other Short Term, affirmed
(P)P-2
....Short-term Deposit Note/CD Program,
affirmed P-1
....Adjusted Baseline Credit Assessment,
affirmed baa3
....Baseline Credit Assessment, affirmed
baa3
..Outlook Action:
....Outlook changed to Negative from Stable
Issuer: RBS Capital Trust B
..Affirmation:
....Backed Preferred Stock Non-cumulative,
affirmed Ba3(hyb)
..No Outlook assigned
Issuer: RBS Capital Trust II
..Affirmation:
....Backed Preferred Stock Non-cumulative,
affirmed Ba3(hyb)
..No Outlook assigned
Issuer: RBS Holdings N.V.
..Affirmations:
....Senior Unsecured Shelf, affirmed
(P)Baa3
....Subordinate Shelf, affirmed (P)Ba1
..No Outlook assigned
Issuer: Royal Bank of Scotland N.V.
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Bank Deposits,
affirmed A2, outlook changed to Negative from Stable
....Short-Term Bank Deposits,
affirmed P-1
....Long-term Issuer Rating,
affirmed A3, outlook changed to Negative from Stable
....Senior Unsecured Regular Bond/Debenture,
affirmed A3, outlook changed to Negative from Stable
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed A3, outlook changed to Negative from Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)A3
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)A3
....Subordinate Medium-Term Note Program,
affirmed (P)Ba1
....Subordinate Regular Bond/Debenture,
affirmed Ba1
....Junior Subordinate Medium-Term
Note Program, affirmed (P)Ba2
....Short-term Deposit Note/CD Program,
affirmed P-1
....Other Short Term, affirmed (P)P-2
....Commercial Paper, affirmed P-2
....Adjusted Baseline Credit Assessment,
affirmed baa3
....Baseline Credit Assessment, affirmed
baa3
..Outlook Action:
....Outlook changed to Negative from Stable
Issuer: Royal Bank of Scotland N.V., London
Branch
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
..No Outlook assigned
Issuer: Royal Bank of Scotland plc, Tokyo Branch
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Commercial Paper, affirmed P-2
..No Outlook assigned
Issuer: National Westminster Bank PLC
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Bank Deposit, affirmed
A2, outlook changed to Positive from Stable
....Short-term Bank Deposits,
affirmed P-1
....Long-term Issuer Rating,
affirmed A3, outlook changed to Positive from Stable
....Senior Unsecured Shelf, affirmed
(P)A3
....Subordinate Regular Bond/Debenture,
affirmed Ba1
....Subordinate Shelf, affirmed (P)Ba1
....Junior Subordinated Regular Bond/Debenture,
affirmed Ba2(hyb)
....Preferred Stock Non-cumulative,
affirmed Ba3(hyb)
....Preference Shelf, affirmed (P)Ba2
....Adjusted Baseline Credit Assessment,
affirmed baa3
....Baseline Credit Assessment, affirmed
baa3
..Outlook Action:
....Outlook changed to Positive from Stable
Issuer: Royal Bank of Scotland plc, Australia Branch
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
..No Outlook assigned
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
September 2017. 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.
Alessandro Roccati
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
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
