Moody's comments on Consortium's acquisition of ABN AMRO following transaction closing
London, 17 October 2007 -- Moody's Investors Service today affirmed the ratings of the members
of the consortium following the closing of their offer for ABN AMRO.
Moody's also affirmed ABN AMRO's Aa2/P-1 debt and deposit
ratings, changing the outlook on the long-term debt ratings
to developing from stable. ABN AMRO's B- bank financial
strength rating ("BFSR") was affirmed but its outlook was
changed to stable from positive. The outlook on all other ABN AMRO
ratings is stable.
The members of the bidding consortium ("the Consortium") include
the Royal Bank of Scotland Group ("RBSG"), Banco Santander
and the Fortis Group. (Please see Moody's press releases
dated 17 July 2007 and 30 May 2007 for previous rating actions on this
RATING AFFIRMATIONS -- OVERVIEW
Moody's affirmed the Aaa/P-1/B+ ratings of the Royal
Bank of Scotland plc and National Westminster Bank plc as well as the
Aa1/P-1 ratings of the Royal Bank of Scotland Group plc.
The outlook on the BFSRs and long-term debt and deposit ratings
remains negative. Moody's also affirmed the ratings of Ulster
Bank Ltd (Aa2/P-1/C+), Ulster Bank Ireland (Aa2/P-1/C+)
and First Active plc (Aa2/P-1/C) with their stable outlook.
Separately, Moody's affirmed the Aa2/P-1/B ratings
of Citizens Financial Group's rated US bank subsidiaries.
The outlook is negative on the long-term deposit and debt ratings
and stable on the BFSR.
The ratings of Banco Santander (senior at Aa1/P-1/B) and all of
the ratings of the Fortis Group and Fortis Bank were affirmed at their
current levels with stable outlook. Fortis SA/NV and Fortis NV
have issuer ratings of Aa3/stable while the main funding holding companies
of the group have senior/subordinated and preferred debt ratings of Aa3/A1/A2/stable.
Fortis Bank is rated Aa2/P-1/B-/stable.
Moody's affirmed the Aa2/P-1 ratings of ABN AMRO Bank N.V.
but changed the outlook on the bank's BFSR of B- to stable
from positive and the outlook on the long-term debt ratings to
developing from stable. The outlook on all of the bank's
other ratings is stable.
The ratings of Banca Antonveneta ("Antonveneta", A1/P-1/C-
stable) and its subsidiary Interbanca (A3/P-2/D+ stable) as
well as Banco ABN AMRO Real (foreign currency ratings of Ba2/NP/C stable)
were also affirmed.
COMMENTARY ON FORTIS RATINGS
In affirming Fortis' ratings, Moody's noted the good
strategic fit with ABN AMRO's businesses to be acquired as well
as the expected reasonable impact of the funding package on the capital
structure, capitalisation and underlying fundamentals of the group.
"With this deal, there is a clear potential for Fortis to
significantly enhance its franchise in the Benelux region,"
said Jose Morago, a Moody's Assistant Vice-President/Analyst.
"Our stable outlook is predicated on the expectation that Fortis
will continue to deliver satisfactory operating results, maintain
its risk profile and restore its capital position and financial flexibility
in the coming months. However, there are material challenges
in the short-to-medium term, given the size,
complexity and amount of resource necessary for Fortis to integrate and
extract value from the new ABN AMRO businesses," Mr Morago
Moody's noted that a key factor supporting the success of this transaction
has been that relevant components of Fortis' approximately EUR24
billion funding package are already in place, despite the current
level of volatility in the capital markets. More particularly,
Fortis successfully placed an approximately EUR13.2 billion rights
issue last week, issued EUR2 billion of Conditional Capital Convertible
Notes (CCENs) over the summer and sold over EUR1.4 billion of non-core
assets (i.e. its stake in BCP and 50% of Caifor).
COMMENTARY ON BANCO SANTANDER, ANTONVENETA AND BANCO ABN AMRO REAL
In its affirmation of the Aa1/P-1/B ratings of Banco Santander,
Moody's cites: (i) the strategic fit of this acquisition,
which is fully consistent with Santander's international strategy;
(ii) the bank's proven strong track-record of integrating
large-scale acquisitions and extracting cost efficiencies from
them, (iii) the limited negative implications for pro-forma
profitability, both pre- and post-provisions;
(iv) the fact that the larger contribution from more volatile markets
(Latin America) does not change the group's existing risk profile
materially; and (v) Santander's proven prudent management of
its economic solvency.
"Although the acquisition will likely increase the group's
leverage -- core capital levels are expected to fall to
5.3% from 6.97% -- we expect
to see leverage levels restored within 12-18 months,"
said Maria Cabanyes, a Moody's Senior Vice President and Regional
Commenting further, Moody's also cautioned about the challenges
of turning around Antonveneta and integrating the Brazilian operations,
which will double its existing size.
With reference to the rating affirmation on Antonveneta, Moody's
said that the ratings already incorporate the expectation of improvements
and that the likely positive impact of the acquisition by Santander will
not be clear for some time. The rating agency added that the positive
effect of expected support from a higher-rated bank appears counterbalanced
by the expectation of an only moderate probability of support from its
new parent. As regards Interbanca, Moody's commented
that there appears to be a degree of uncertainty on the bank's strategic
positioning and that the rating affirmation is based on the assumption
that this entity will remain a subsidiary of Antonveneta.
With regard to the Brazilian subsidiary, Banco ABN AMRO Real,
Moody's decided to affirm the C BFSR and Ba2/NP foreign currency
deposit ratings, which the rating agency believes adequately reflect
ABN Real's current market positioning and the competitive economic
environment in the country.
COMMENTARY ON ABN AMRO RATINGS
In revising the outlook on ABN AMRO's B- BFSR to stable from
positive, Moody's said that this rating action followed the
withdrawal of the bid by Barclays Bank plc to acquire all of the bank
(please see press release of 8 October), as well as the narrower
franchise of ABN AMRO following its sale of LaSalle Bancorp to Bank of
America (see Moody's press release of 1 October). In Moody's
opinion, the sale of LaSalle has weakened the bank's franchise
value in terms of geographic diversification and stability of earnings
and has marginally increased its risk profile. Prospectively ABN
AMRO's franchise will be further narrowed and changed as the break-up
of the bank takes place over a period of up to three years as the Consortium
plans to separate ABN AMRO into three parts once the Dutch regulators,
the DNB, have approved the break-up plan which the Consortium
is expected to submit before year-end 2007.
Nevertheless, Moody's recognises ABN AMRO's generally
solid financial fundamentals and expects its operating efficiency and
quality of earnings to show continued improvement under its new management.
Furthermore, Moody's expects that its core Tier 1 and Tier
1 ratios will be maintained at the bank's stated near-term
target of 6% and 8% respectively and 6.5%
and 8.5% over the medium term, net of the one-time
impact from the proceeds of the sale of LaSalle.
The BFSR outlook change also incorporates Moody's expectation that
remaining regulatory issues with the US regulators stemming from past
weakness in internal controls will be resolved in the near future.
The rating agency notes that the Dutch regulator lifted its regulatory
action in July 2007.
The change in outlook on ABN AMRO's Aa2 long-term debt rating
to developing from stable reflects the lack of clarity regarding the future
allocation of the company's outstanding debt, which has yet
to be announced by the Consortium.
In affirming ABN AMRO's Aa2/P-1 debt and deposit ratings,
Moody's said these are based on the bank's baseline credit
assessment of A1 (which is mapped from the BFSR of B-) but also
on Moody's assessment that the probability of systemic support in
the Netherlands is very high given the bank's importance in its
home market. Moody's expects that this systemic importance
will continue notwithstanding the break-up of the bank's
operations, which will primarily impact its foreign operations --
principally in Italy and Brazil -- and its Global Wholesale and International
Retail client businesses, and the integration of its BU Netherlands
with those of Fortis Bank Nederland (Holding), rated Aa2/P-1/B-,
COMMENTARY ON RBSG RATINGS
With reference to RBSG, Moody's said that the maintained negative
outlook on the ratings reflects the integration challenges in relation
to ABN AMRO's Global Wholesale Businesses and International Retail
Businesses, as well as the negative short-term impact of
the proposed transaction on the quality of RBSG's capital and historically
strong earnings as the bank integrates ABN AMRO's under-performing
Global Clients unit. Moody's commented that, of the
three Consortium banks, the integration challenges are, in
its opinion, greatest for RBSG. The negative outlook also
incorporates the ongoing uncertainty with regard to the performance of
all banks involved in leveraged finance and related capital markets activities
given the recent market turmoil.
Nevertheless, notwithstanding the additional complexities presented
by the integration of parts of ABN AMRO, Moody's recognises
RBSG's strong track record in integrating past acquisitions and
the group's robust core earnings capacity and internal capital generation.
The rating agency also acknowledges other transaction benefits including
enhancing RBSG's presence in Asia-Pacific and diversification
of earnings, as well as expanding the reach of its corporate and
institutional banking franchise, noting that the enlarged group
will have market-leading positions in products such as international
bonds and international cash management. Moody's cautions,
however, that the increased contribution from wholesale banking
operations could introduce a greater element of earnings volatility,
which could have negative rating implications.
Moody's said that progress in integrating ABN AMRO and rebuilding
RBSG's core capital and profitability in line with its current BFSR
within 12-18 months could ultimately lead to the rating outlook
being changed back to stable. Conversely, failure to resolve
these issues within the same timeframe could lead to negative rating actions.
COMMENTARY ON TERMS OF FINAL OFFER
Commenting on the terms of the Final Offer, Moody's said that
the total consideration for the transaction was approximately Eur 70 billion
of which 94% was paid in cash with the balance paid with new RBS
shares. Other features of the transaction remained unchanged from
the previous announcement. Moody's noted that the Consortium
has nominated management from the three banks to the Supervisory and Management
Boards of ABN AMRO.
Moody's noted that the transaction is subject to various conditions
including the following:
1) The Dutch Ministry of Finance, in issuing its 17 September Declaration
of "No Objection" to the transaction, stipulated that
the Consortium maintain the "status quo" with regard to the
bank until it has acquired sufficient control and filed a Transition Plan
with the regulator as well as Capital and Liquidity Plans. It also
imposed measures on Fortis Bank Nederland (Holding). The Consortium
will only be able to begin the formal integration of the bank once the
regulator has approved these plans, which is expected by year-end
2) The European Commission's approval to Fortis to acquire ABN AMRO's
BU Netherlands (BU NL) is subject to the divestment of certain assets
of the BU including Hollandsche Bank Unie NV, 13 advisory branches
and two Corporate Clients departments and the sale of the Dutch factoring
company IFN Finance B.V.
As discussed above, a major uncertainty for ABN AMRO's bondholders
is the future allocation of the company's outstanding debt,
which has yet to be announced by the Consortium. Moody's
will take appropriate rating actions when the details are made public.
Moody's will also comment further on the prospective profile of
ABN AMRO and the implications for the relevant rated legal entities of
the Consortium once the transition plan has been approved by the relevant
authorities. Furthermore, Moody's will monitor any
uncertainties surrounding the due diligence process to be carried out
by the members of the Consortium during 45 days after the closing in terms
of initial asset and liability valuations.
As of 30 June 2007, ABN AMRO Bank NV reported total assets of EUR1,120
billion, while the banking operations of Fortis had total assets
of approximately EUR918 billion, RBSG had total assets of GBP1,011
billion and Banco Santander had total assets of EUR886 billion.
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
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Senior Vice President
Financial Institutions Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454