London, 17 January 2014 -- Moody's Investors Service has today affirmed the A3/Prime-2
bank debt and deposit ratings of Close Brothers Limited (CBL) and changed
the outlook to stable from negative on all ratings. CBL's
Bank Financial Strength Rating (BFSR) of C, which maps to an a3
Baseline Credit Assessment (BCA), was also affirmed and the outlook
changed to stable. Concurrently, Moody's has also affirmed
and changed to stable from negative the outlook on Close Brothers Group
plc's (CBG) Baa1/P-2-rated senior unsecured debt and
long-term issuer rating.
RATINGS RATIONALE
The affirmation and change in outlook of CBL's ratings to stable
from negative reflects our expectation for
(i) CBL's capital ratios to remain relatively strong, provided
CBL maintains its underwriting standards, underpinned by an emphasis
on secured, short-term lending.
(ii) CBL's loan book growth to continue to moderate from recent
super cycle growth as a result of increased competition on the back of
the UK's improving macroeconomic environment, improved capital
position of CBL's peers and Government-led initiatives to
foster lending to the SME sector.
(iii) improving asset quality trends to continue, in line with an
improving UK economy, with further reductions in the bank's
legacy property portfolio.
(iv) CBL maintaining its adequate liquidity profile, with sufficient
buffers in place to address potential for risks arising from confidence
sensitive funding sources.
The affirmation of the ratings also reflects CBL's relatively high
lending margins, which support the firm's robust profitability,
and serve to absorb potential shocks from a deterioration in asset quality.
While the firm's lending is predominantly to higher-risk
SME and motor finance, CBL's emphasis on secured lending with
relatively short maturities helps to minimise the potential for the shocks
to arise.
The one notch differential between CBL (the operating bank) and CBG reflects
(i) the structurally subordinated position of CBG's creditors at
the group level; and (ii) the additional operational risks from Winterflood
(its main securities division subsidiary) and the asset management business,
which are not fully offset by the additional contributions from these
two businesses. As a result, the ratings of CBG are likely
to move in line with those of CBL.
WHAT COULD CHANGE THE RATING - UP
Given the bank's high rating level relative to UK peers, higher
risk and turnover of CBL's loan book and confidence sensitive customer
and funding base we do not expect significant upward pressure on the bank's
ratings.
WHAT COULD CHANGE THE RATING - DOWN
Downward pressure on the ratings could come from continued above average
loan book growth combined with a weakening of CBL's underwriting
standards. In addition, a significant reversal of the improving
trend in asset quality, or an increased reliance on market funding,
due to lending growth outpacing deposit growth, could lead to negative
rating pressure.
LIST OF AFFECTED RATINGS
The following ratings have been affirmed:
CLOSE BROTHERS LTD
- Bank Financial Strength Rating (BFSR) at C, which maps
to a baseline credit assessment (BCA) of a3.
- Long-term and Short-term Bank Deposit Ratings at
A3/P-2
CLOSE BROTHERS GROUP
- Senior Unsecured Rating at Baa1
Long-term and Short-term Issuer Rating at Baa1/P-2
CLOSE BROTHERS FINANCE PLC
- BACKED Senior Unsecured Rating at A3
- BACKED Senior Unsecured MTN Programme Rating at (P)A3
- BACKED Other Short-term Rating at (P)P-2
The principal methodology used in these ratings was Global Banks published
in May 2013. 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.
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 Charles Eberhardt
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Johannes Felix Wassenberg
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454
Moody's changes outlook to stable from negative on all ratings of Close Brothers Limited and Close Brothers Group