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Rating Action:

Moody's concludes rating reviews on 5 Spanish savings banks

05 Aug 2008

Madrid, August 05, 2008 -- Moody's Investors Service has today taken negative rating actions on five Spanish savings banks, thereby concluding the rating reviews initiated on 24 April 2008. The downgrades are based on a combination of some or all of the following factors: (i) high exposure to the real estate and construction sectors in areas with a greater expected deterioration in asset quality, namely Madrid, Catalonia and coastal areas, especially on the Mediterranean; (ii) the rapid deterioration in asset quality indicators, not only among corporate clients -- namely those related to real estate -- but also among households resulting from the increasing decline in their debt servicing capacity on the back of both rising interest rates and the savings banks' past aggressive growth strategies; and (iii) ongoing liquidity constraints as the disruption in access to long-term wholesale funding continues to put pressure on banks' funding costs and liquidity profiles. Along these lines, Moody's noted that all affected banks display manageable contingent liabilities that result from their exposures to the rating triggers associated with their position as swap counterparties on securitisation deals.

Moody's said that its earlier concern about the banks' exposure to rapidly deteriorating asset quality -- which had resulted in several negative rating actions and the review for possible downgrade of the ratings for these 5 banks in April -- had been widely confirmed by the accelerated growth in problem loans that has been observed over the last 6 months.

The negative outlook assigned to three of the savings banks' ratings reflects their greater vulnerability in case that the pace of deterioration observed in H1 2008 should continue during the second half of 2008, thereby having an adverse impact on the overall financial position of the banks in question as they may rapidly erode provisioning cushions and other liquidity buffers such as accumulated capital gains deriving from their equity investment portfolios.

The following rating actions were taken (A full list detailing all affected ratings as well as affected funding vehicles is provided at the end of this press release):

Caixa d'Estalvis de Tarragona, to Baa1/P-2/C-, negative outlook from A2/P-1/C, under review for possible downgrade

Caixa d'Estalvis de Terrassa, to A3/P-2/C-, stable outlook from A2/P-1/C, under review for possible downgrade

Caixa Catalunya to A2/P-1/C, negative outlook from A1/C+, under review for possible downgrade

Caja de Ahorros del Mediterráneo (CAM) to A2/P-1/C, negative outlook from A1/C+, under review for possible downgrade

Caja de Ahorros de Valencia, C y A. (Bancaja) to A2/P-1/C, stable outlook from A1/C+, under review for possible downgrade

Background on our analysis of these banks' exposure to deteriorating asset quality

In view of the significant negative dynamic of the banks' real-estate related loan portfolio allowing only limited recourse to historical performances, Moody's has incorporated a refined analysis approach in order to differentiate the expected further deterioration of a bank's loan portfolio related to the real estate sector (including the exposure both to mortgages as well as to real estate development and non-public construction); in a second step, this expected potential further deterioration is then compared to the loss absorption capacity of the banks and their compatibility with their respective rating categories.

Based on standardised -- but confidential -- regulatory definitions and filings, Moody's has differentiated the exposure along the following asset classes that could either mitigate or, conversely, heighten the associated credit risk:

(i) Residential mortgages by home type: differentiating between first and second residences and by LTV;

(ii) Exposure to real estate developers by type of collateral: secured by first mortgage sold, secured by first mortgage under construction, by other guarantees, unsecured SMEs, unsecured large corporates etc.;

(iii) Land financing, differentiation between urban and rural;

using credit enhancement levels required by Moody's for specific asset classes as the key input to assess the relative riskiness of such a portfolio.

We have further included into our assessment two other analytical factors:

(iv) the top 20 real estate exposures as a percentage of Tier 1 capital and

(v) house price volatility levels according to the geographical distribution of the loan portfolio (in line with Moody's approach to rating Spanish RMBS transactions)

The comparative analyses of these five factors for each bank provided a solid base for differentiating the expected asset quality deterioration and potential impact on the banks' performance. This was then complemented with an assessment of each bank's ability to withstand such a deterioration and its ability to generate capital through core earnings and other capital growth initiatives.

This analysis is consistent with Moody's central macroeconomic scenario of an orderly correction in the real estate market but one that is more pronounced and accelerated by the global credit environment, which is translating into a more severe downturn in the credit cycle for Spain's banking system than initially anticipated.

The request by Martinsa-Fadesa (Spain's largest real estate developer) to be placed under court-supervised administration has once more highlighted the significant difficulties this sector is going through as well as the vulnerability of Spanish banks to the underperformance of the real estate developers and the risks arising from these exposures. Nevertheless, the Martinsa-Fadesa issue also highlights Spanish banks' relatively high risk-absorption capacity as these exposures have been provided -- in most cases against excess provisioning -- without significant impact on banks' earnings. Moody's noted, however, that excess coverage is rapidly declining while the fundamental credit trends in the system remain negative. Hence, the likelihood of further downward rating adjustments has significantly increased for many Spanish banks, and we continue to monitor each bank's exposure and development very closely. These expected negative trends underpinned Moody's statement in April 2008 that the outlook for the direction of credit conditions in the Spanish banking system is negative.

COMMENTARY ON CAIXA TARRAGONA'S RATINGS

The downgrade of Caixa Tarragona's Bank Financial Strength Rating ("BFSR") to C- (BCA of Baa2) from C and the subsequent downgrade of its long-term and short-term debt ratings to Baa1/P-2 from A2/P-1 respectively, reflects the challenges that Caixa Tarragona is facing in light of the negative credit trends in Spain's operating environment coupled with a sharper-than-expected correction in the real estate market. Caixa Tarragona also operates in a region in which Moody's expects higher-than-average house price volatility. Significantly, the savings bank exhibits a more rapid-than-expected deterioration of its loan book -- stemming in particular from a €1.3 billion portfolio of mortgages granted through the APIS brokerage channel -- and presents a relatively low risk-absorption capacity compared to peers. The negative outlook on the savings bank's BFSR and debt and deposit ratings reflects the relative risk indicated by Moody's above described analysis and the probability of rating migration in the event of a higher-than-predicted increase in problem loans, in which Caixa Tarragona presents higher vulnerability than its similarly rated competitors to a weakening of its financial metrics. Moody's will continue to closely monitor Caixa Tarragona's risk exposures and the development of its asset quality and in this regard as further rating pressure could arise from a material acceleration in the rise of problem loans.

COMMENTARY ON CAIXA TERRASSA'S RATINGS

The downgrade of Caixa Terrassa's BFSR to C- (BCA of Baa1) from C and the subsequent downgrade of its long-term and short-term ratings to A3/P-2 from A2/P-1 derives from Moody's concerns over the bank's exposure in a region where Moody's expects higher-than-average house price volatility. It reflects the concerns over the bank's high level of lending exposure to the real estate sector including land exposure as well as top name concentration, of which lending to associate companies is seen by Moody's as an additional source of risk. The stable outlook on the savings bank's ratings incorporates Moody's assessment that the bank would remain well anchored in the C- category even in the event of further deterioration in asset quality. Further rating pressures could nevertheless arise from an acceleration in the rise of problem loans.

COMMENTARY ON CAIXA CATALUNYA'S RATINGS

In downgrading Caixa Catalunya's ratings to A2/C from A1/C+, Moody's cited the very rapid deterioration in asset quality indicators that is putting added pressure on the bank's financial fundamentals, which were already more modest than those of peers as the result of past aggressive growth strategies which are expected continue to shape the bank's balance sheet and subsequent performance for some time.

However, Moody's views positively the new senior management team's refocused strategy, with firm strategic goals set to strengthen Caixa Catalunya's creditworthiness in the longer-term. In this regard, Moody's recognises that in the areas of recurring profitability and liquidity positions, the effects of the measures taken by management are already visible despite the very short period of time these have been in place, having somewhat mitigated the notable downward rating pressure resulting from the deteriorating asset quality.

Nonetheless, the above described analysis has indicated for Caixa Catalunya a higher vulnerability than its similarly rated competitors to a weakening of its financial metrics -- hence, the assigned negative outlook. In this regard, a further downgrade of Caixa Catalunya's ratings could be prompted by any failure to achieve stronger financial fundamentals in a timely fashion, namely (i) core capital in the region of 6%; (ii) recurring profitability more in line with its peers; (iii) less dependence on short-term funding; and (iv) a reduction in the pace of growth of problem loans that is exceeding the system's average coupled with lower credit risk concentrations. Indeed, Moody's cautions that the further rating development is largely driven by the successful execution of its refocused strategic plan being able to increasingly offset the impact of the expected further loan portfolio deterioration.

COMMENTARY ON CAJA DE AHORROS DEL MEDITERRANEO'S (CAM) RATINGS

The downgrade of CAM's ratings to A2/C from A1/C+ reflects its high credit risk concentration, both by borrower and to the real estate industry in geographical areas where Moody's expects a more pronounced adjustment of the real estate sector. The negative outlook on the BFSR and debt and deposit ratings reflects the relative risk indicated by Moody's above described analysis and the probability of rating migration in the event of a higher-than-predicted increase in problem loans. According to Moody's calculations, CAM presents higher vulnerability than its similarly rated competitors to a weakening of its financial metrics in the event of an acceleration in problem loans beyond the growth levels reported during the first half of this year. Moody's will continue to closely monitor CAM's risk exposures and the development of its asset quality, and views very positively the various initiatives taken to reinforce CAM's solvency (issuance of non-voting shares to reinforce capitalisation, allocation of capital gains coming from equity divestments to additional loan loss provisions), which are already incorporated in the rating analysis.

COMMENTARY ON BANCAJA'S RATINGS

In downgrading the ratings of Caja de Ahorros de Valencia, Castellón y Alicante (Bancaja) to A2/C from A1/C+, Moody's said that this rating action reflects the high credit risk concentration to the real estate sector in geographical areas where Moody's expects a more pronounced adjustment of the market. The stable outlook already incorporates the expected deterioration in Bancaja's asset quality indicators resulting from the continued underperformance of the real estate sector and rising household delinquencies. Moody's expects that the entity should have sufficient capacity to withstand even a higher than the system's average increase in problem loans for the current year while maintaining a financial position comparable to that of its C rated peers. Nonetheless, Moody's will continue to closely monitor Bancaja's risk exposures and the pace of growth in problem loans so as to detect any deterioration in the savings bank's credit profile.

Moody's will continue to closely monitor developments in the Spanish market and the savings banks' exposures to these risks, and consider appropriate actions as and when necessary.

Below is the full list of the savings banks and related funding vehicles affected by Moody's rating actions:

Downgrades:

..Issuer: Caixa d'Estalvis de Tarragona

.Bank Financial Strength Rating, Downgraded to C- from C

.LT Bank Deposit, Downgraded to Baa1 from A2

.ST Bank Deposit, Downgraded to Prime-2 from Prime-1

..Issuer: Caixa d'Estalvis de Terrassa

.Bank Financial Strength Rating, Downgraded to C- from C

.LT Bank Deposit, Downgraded to A3 from A2

.ST Bank Deposit, Downgraded to Prime-2 from Prime-1

.Senior Unsecured Debt Rating, Downgraded to A3 from A2

.Subordinate Debt Rating, Downgraded to Baa1 from A3

.Junior Subordinate Debt Rating, Downgraded to Baa1 from A3

..Issuer: Caixa Catalunya

.Bank Financial Strength Rating, Downgraded to C from C+

.LT Issuer Rating, Downgraded to A2 from A1

.LT Bank Deposit, Downgraded to A2 from A1

.Senior Unsecured Debt Rating, Downgraded to A2 from A1

.Senior Unsecured Regular Bond/Debenture, Downgraded to A2 from A1

.Subordinate Debt Rating, Downgraded to A3 from A2

..Issuer: Caixa Catalunya Preferential Issuance Ltd.

.Preferred Stock, Downgraded to Baa1 from A3

..Issuer: Caixa Catalunya International Finance Limited

.Senior Unsecured Debt Rating, Downgraded to A2 from A1

.Senior Unsecured Regular Bond/Debenture, Downgraded to A2 from A1

..Issuer: Caixa Catalunya International Finance B.V.

.Senior Unsecured Debt Rating, Downgraded to A2 from A1

.Senior Unsecured Regular Bond/Debenture, Downgraded to A2 from A1

..Issuer: Caja de Ahorros del Mediterráneo

.Bank Financial Strength Rating, Downgraded to C from C+

.LT Issuer Rating, Downgraded to A2 from A1

.LT Bank Deposit, Downgraded to A2 from A1

.Senior Unsecured Debt Rating, Downgraded to A2 from A1

.Senior Unsecured Regular Bond/Debenture, Downgraded to A2 from A1

.Subordinate Regular Bond/Debenture, Downgraded to A3 from A2

..Issuer: CAM Global Finance

.Senior Unsecured Debt Rating, Downgraded to A2 from A1

..Issuer: CAM Global Finance, S.A. Sociedad Unipersonal

.Senior Unsecured Debt Rating, Downgraded to A2 from A1

.Senior Unsecured Regular Bond/Debenture, Downgraded to A2 from A1

..Issuer: CAM International Issues, S.A. Sociedad Unipers

.Subordinate Debt Rating, Downgraded to A3 from A2

.Subordinate Regular Bond/Debenture, Downgraded to A3 from A2

..Issuer: CAM US Finance, S.A. Unipersonal

.Senior Unsecured Debt Rating, Downgraded to A2 from A1

..Issuer: Caja de Ahorros de Valencia, C y A. (Bancaja)

.Bank Financial Strength Rating, Downgraded to C from C+

.LT Issuer Rating, Downgraded to A2 from A1

.LT Bank Deposit, Downgraded to A2 from A1

.Senior Unsecured Debt Rating, Downgraded to A2 from A1

.Senior Unsecured Regular Bond/Debenture, Downgraded to A2 from A1

.Subordinate Debt Rating, Downgraded to A3 from A2

.Subordinate Regular Bond/Debenture, Downgraded to A3 from A2

.Junior Subordinate Debt Rating, Downgraded to A3 from A2

.Junior Subordinate Regular Bond/Debenture, Downgraded to A3 from A2

..Issuer: Bancaja International Finance

.Senior Unsecured Debt Rating, Downgraded to A2 from A1

.Senior Unsecured Regular Bond/Debenture, Downgraded to A2 from A1

..Issuer: Bancaja Capital, S.A. Unipersonal

.Preferred Stock, Downgraded to Baa1 from A3

..Issuer: Bancaja US Debt, S.A.U.

.Senior Unsecured Debt Rating, Downgraded to A2 from A1

Outlook Actions:

..Issuer: Caixa d'Estalvis Tarragona

.Outlook, Changed to Negative from Rating Under Review

..Issuer: Caixa d'Estalvis Terrassa

.Outlook, Changed to Stable from Rating Under Review

..Issuer: Caixa Catalunya

.Outlook, Changed to Negative from Rating Under Review

..Issuer: Caixa Catalunya Preferential Issuance Ltd.

.Outlook, Changed to Negative from Rating Under Review

..Issuer: Caixa Catalunya International Finance Limited

.Outlook, Changed to Negative from Rating Under Review

..Issuer: Caixa Catalunya International Finance B.V.

.Outlook, Changed to Negative from Rating Under Review

..Issuer: Caja de Ahorros del Mediterráneo

.Outlook, Changed to Negative from Rating Under Review

..Issuer: CAM Global Finance

.Outlook, Changed to Negative from Rating Under Review

..Issuer: CAM Global Finance, S.A. Sociedad Unipersonal

.Outlook, Changed to Negative from Rating Under Review

..Issuer: CAM International Issues, S.A. Sociedad Unipers

.Outlook, Changed to Negative from Rating Under Review

..Issuer: CAM US Finance, S.A. Unipersonal

.Outlook, Changed to Negative from Rating Under Review

..Issuer: Caja de Ahorros de Valencia, C.y A. (Bancaja)

.Outlook, Changed to Stable from Rating Under Review

..Issuer: Bancaja International Finance

.Outlook, Changed to Stable from Rating Under Review

..Issuer: Bancaja Capital, S.A. Unipersonal

.Outlook, Changed to Stable from Rating Under Review

..Issuer: Bancaja US Debt, S.A.U.

.Outlook, Changed to Stable from Rating Under Review

Madrid
Maria Cabanyes
Senior Vice President
Financial Institutions Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Johannes Wassenberg
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's concludes rating reviews on 5 Spanish savings banks
No Related Data.
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