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Rating Action:

Moody's changes outlook to negative on UBS AG's and Raiffeisen Schweiz Genossenschaft's supported ratings; affirms Berner Kantonalbank and Banque Cantonale Vaudoise with stable outlooks

29 Jul 2014

Positive outlook assigned on Banque Cantonale Vaudoise's C/a3 bank financial strength rating

Frankfurt am Main, July 29, 2014 -- Moody's Investors Service has today changed the outlook for the supported ratings of UBS AG and Raiffeisen Schweiz Genossenschaft (Raiffeisen Schweiz) to negative while maintaining the stable outlook on Berner Kantonalbank AG (BEKB) and Banque Cantonale Vaudoise (BCV). At the same time, Moody's affirmed the long-term ratings of these four banks.

The rating actions were taken in the context of the evolution of the Swiss bank resolution regime and the accelerating global trend towards the use of burden-sharing with creditors (i.e., bail-in) to resolve failing banks.

We maintained negative outlooks for the long-term senior debt and/or deposit ratings of four other Swiss banks (Credit Suisse AG, Bank Julius Baer & Co. Ltd., Valiant Bank AG and Clientis AG), as well as one bank on review for downgrade (Banque Pictet & Cie SA). Moody's will factor in the implications of the Swiss resolution framework in its ongoing assessment of these ratings.

Moody's Investors Service has today also affirmed and assigned a positive outlook to BCV's standalone bank financial strength rating (BFSR) of C, equivalent to a baseline credit assessment (BCA) of a3.

The BFSRs for all Swiss banks included in this rating action - other than BCV - as well as their junior debt instruments are not affected by this rating action. Moody's has already removed all systemic support from junior instruments of Swiss banks.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_173547 for the List of Affected Credit Ratings. This list is an integral part of this press release and identifies each affected issuer.

For further information, please refer to Moody's special comment entitled "Reassessing Systemic Support for Swiss Banks," published today: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_173495.

RATINGS RATIONALE

--- MOVE FORWARD TO IMPLEMENT A RESOLUTION FRAMEWORK

Today's actions follow Switzerland's (Aaa stable) move forward to implement a resolution framework allowing burden-sharing with creditors (bail-in) to resolve failing banks. Following the accelerating global trend towards the use of burden-sharing tools and, in particular, the European Parliament's adoption of the Bank Recovery and Resolution Directive (BRRD) on 15 April 2014, Moody's believes the likelihood has risen that the Swiss authorities may make use of their legislative powers, if necessary, to protect the Swiss financial system and the economy from shocks that could occur if one of the country's larger banks defaults.

Therefore, Moody's considers that, with the Swiss resolution regime being largely adopted, the likelihood of support for senior creditors from the Swiss government in the event of need is diminishing. Furthermore, the rating agency believes that the efforts on making the larger Swiss banks resolvable by establishing holding company structures and creating a Swiss banking subsidiary are important steps in overcoming the main obstacles to their resolvability; namely their global reach and high interconnection with other parts of the financial system. These factors have resulted in an increased probability of a downward adjustment of Moody's current systemic support assumptions for Swiss banks.

Moody's will continue to assess the implications of the Swiss resolution regime for systemic support as the new framework develops further and there is additional clarity as to how it might be applied in practice. Moody's will take into account considerations including those that could mitigate the credit-negative implications for systemic support assessments. If Moody's believes that the probability of support has materially changed, affected issuers' ratings would be placed under review for downgrade to consider their specific circumstances.

--- NEGATIVE OUTLOOKS ASSIGNED TO UBS AND RAIFFEISEN SCHWEIZ

The assignment of negative outlooks to the supported ratings of UBS AG and its subsidiaries and of Raiffeisen Schweiz reflects the credit-negative developments potentially resulting from the Swiss resolution regime for senior unsecured creditors. The long-term supported ratings of these firms have been affirmed.

With the Swiss resolution regime and related laws having passed legislation over the past two years, Moody's believes that the Swiss Financial Market Authority (FINMA) is equipped with most of the necessary tools to impose losses on senior unsecured creditors to recapitalise banks where needed. Coupled with similar developments in Europe, Moody's believes this marks an important development, with clear (if as yet difficult to measure) credit-negative implications for holders of senior unsecured debt in Switzerland.

--- AFFIRMATION OF BEKB'S AND BCV'S LONG-TERM RATINGS, WITH A STABLE OUTLOOK

Moody's considers the Swiss resolution regime being largely designed for the resolution of the country's two global systemically important banks, but also considers the various banking laws to apply to other (largely domestic) banking groups in the country.

Moody's has today affirmed the supported ratings and maintained the stable outlook on Berner Kantonalbank and Banque Cantonale Vaudoise that are considered domestically important, because Moody's (1) already assesses a low probability of systemic support; and/or (2) does not currently expect the support probability from regional and local governments (cantons) to decline to any material degree, even after full and final implementation of the Swiss resolution regime.

--- POSITIVE OUTLOOK AND AFFIRMATION OF BCV'S C BFSR

Moody's says the positive outlook on BCV's C/a3 BFSR/BCA reflects the bank's sustained improvement in profitability metrics, despite the challenging market environment characterised by persistent low interest-rates. The rating agency believes that the bank's stronger earnings diversification compared with other regional and cantonal banks and its greater focus on maintaining sound efficiency metrics have both prompted the improving bottom-line trend. The positive outlook also takes into account Moody's assessment of BCV's improved risk-management culture, reflected by a substantial decline in problem loans and thereby supporting the bank's standalone financial strength. Furthermore, the bank's capital adequacy metrics are sound, with a meaningful buffer over and above the FINMA's regulatory minimum, and provide substantial cushion against losses potentially arising from adverse developments in its real-estate and/or (relatively small) trade finance books.

WHAT COULD CHANGE THE RATINGS -- UP

Rating upgrades for the supported ratings of Swiss banks are unlikely over the near term in view of today's actions and the negative rating outlooks for some banks. Nevertheless, a limited amount of upward rating pressure could develop if a bank substantially improves its credit profile and resilience to current conditions, for example, if improved standalone strength were to be achieved by bolstering capital and liquidity buffers, by reducing exposures to higher-risk asset classes, or by recording significant growth in earnings.

WHAT COULD CHANGE THE RATINGS - DOWN

The banks' long-term senior debt and deposit ratings could be downgraded if Moody's were to lower the systemic support and/or regional local government support assumptions it currently factors into the banks' long-term ratings.

Several other factors could exert pressure on the banks' standalone credit assessments and thereby lead to a downgrade of the long-term ratings. These include, among other factors, (1) material asset-quality deterioration beyond levels that are consistent with the banks' risk-absorption capacity; (2) deteriorating earnings and capital levels; and (3) increasingly restricted access to the debt capital markets.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Banks published in July 2014. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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 analyst and the Moody's legal entity that has issued the ratings.

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 Rohr
Vice President - Senior Analyst
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's changes outlook to negative on UBS AG's and Raiffeisen Schweiz Genossenschaft's supported ratings; affirms Berner Kantonalbank and Banque Cantonale Vaudoise with stable outlooks
No Related Data.
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