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Rating Action:

Moody's confirms SNS REAAL group entities' ratings

12 Sep 2013

SNS Bank's BFSR upgraded to D-/ba3; actions conclude review

London, 12 September 2013 -- Moody's Investors Service (Moody's) has today confirmed SNS Bank N.V.'s Baa3 long-term and Prime-3 short-term debt and deposit ratings. At the same time, Moody's upgraded the bank's standalone bank financial strength rating (BFSR) to D-, equivalent to a baseline credit assessment (BCA) of ba3 (from E/ca). Concurrently, Moody's has upgraded the provisional (P) rating for SNS Bank's subordinated MTN programme to (P)B1 from (P)C.

The confirmation of debt and deposit ratings reflects the bank's improved standalone credit profile and Moody's assumption of a high likelihood that the Dutch government (Aaa, negative) would provide support to SNS in case of need. The upgrade of the BFSR reflects the material improvement in the bank's solvency position and the drastic reduction of credit risk on its loan portfolio. The outlook on the BFSR is positive and the outlooks on the long-term debt and deposit ratings are stable.

Moody's has also confirmed the Baa2 (stable) insurance financial strength ratings (IFSRs) of SRLEV N.V. and REAAL Schadeverzekeringen N.V., and the B1(hyb) ratings, with a developing outlook, of SRLEV's hybrid instruments. The rating agency also confirmed the (P)Ba2 senior debt rating and upgraded to (P)B2 from (P)C the subordinated debt rating of SNS REAAL N.V., the holding company of the group.

Moody's also withdrew ratings on the dated subordinated debt and hybrid instruments, previously rated C and C(hyb), respectively, issued by SNS Bank and the holding company, SNS REAAL which have ceased to exist following the expropriation as part of the rescue and nationalisation of the group.

Today's actions conclude the review of SNS REAAL entities' ratings that Moody's initiated on 21 November 2012 and extended on 30 April 2013.

The backed Aaa ratings assigned to notes issued by SNS Bank under the guarantee of the Kingdom of the Netherlands are unaffected by today's action.

A list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

--- CONFIRMATION OF LONG- AND SHORT-TERM DEBT AND DEPOSIT RATINGS OF SNS BANK

The confirmation of SNS Bank's senior unsecured debt and deposit ratings at Baa3/Prime-3 was driven by (1) the achieved improvement in the institution's standalone financial strength with further recovery potential over the medium-term; and (2) Moody's assessment of the Dutch state's high willingness and ability to provide public support to SNS in case of need.

Moody's bases its view on (1) the bank's state ownership -- albeit provisional -- implying the Dutch government would actively protect its own investment and see the bank through the process of regaining its standalone independence; (2) Moody's sovereign rating for the Netherlands of Aaa (negative), reflecting the government's financial flexibility to do so; and (3) the bank's systemic importance for the domestic banking sector as the fourth largest bank in the country, which the government intended to preserve through the rescue measures and nationalisation of the group earlier this year.

The Baa3 rating currently incorporates three notches of systemic support uplift, which also factors the current temporary extraordinary support until SNS Bank has recovered more fully and prospects for a re-privatisation become more likely.

--- UPGRADE OF SNS BANK'S BFSR TO D-

The upgrade of SNS Bank's standalone BFSR to D-/ba3 is primarily driven by (1) the material improvement in the bank's solvency position following the measures announced at the time of the institution's nationalisation; and (2) the drastic reduction of credit risk on its loan portfolio following the recognition of a EUR2 billion provision on its legacy Commercial Real Estate (CRE) portfolio.

At end-June 2013, SNS Bank reported a core Tier 1 ratio of 12.2%, significantly above the level reported at year-end 2012 (6.1%). The material improvement of SNS Bank's nominal capital base was due to (1) the expropriation of capital (as decreed); (2) the losses imposed on hybrid instruments; and (3) subsequent EUR1.9 billion capital injection by the Dutch state. Against this background, the risks on the legacy CRE portfolio, which SNS Bank still holds until its transfer to the state-owned Real Estate Management Company (REMC), have also materially abated following the recognition of the aforementioned EUR2 billion provision. Although Moody's expects further deterioration in the domestic CRE sector, the rating agency does not anticipate that SNS Bank would incur additional losses on this portfolio until its transfer to the REMC, as the EUR2 billion provision and existing loan loss provisions provide a substantial cushion against further impairments (total provisions represent around 45% of outstanding legacy exposures according to data disclosed in SNS Bank's June 2013 interim report).

The upgrade of SNS Bank's BFSR also reflects Moody's view that (1) SNS Bank's risk profile will be considerably lower as the bank will focus solely on its core domestic retail banking activities; (2) profitability will materially improve, as the bank no longer incurs credit losses on its legacy portfolio and the core activities generate sound recurring earnings; and (3) the bank's liquidity profile will remain a credit strength. The bank has quickly compensated for the deposit outflows that preceded nationalisation and its structural reliance on wholesale funding will decline after the transfer of the legacy CRE exposures.

--- RATING OUTLOOKS ON SNS BANK'S LONG-TERM RATINGS AND BFSR

The outlook on SNS Bank's BFSR is positive, reflecting our expectation that the bank's standalone financial strength is likely to improve further if (1) the final restructuring plan is approved by the EC; (2) tail risks within the legacy CRE portfolio are addressed; and (3) the bank successfully restores its domestic retail franchise.

The outlook is stable on SNS Bank's long-term debt and deposit ratings. The outlook reflects Moody's view that an improvement of the bank's standalone financial profile would not automatically result in an improvement of its long-term creditworthiness. This stance is consistent with Moody's assessment that, if SNS Bank required a third state-support package (1) the European Commission (EC) would likely seek to impose burden sharing, in line with its restructuring plan guidelines; and (2) burden sharing could impact senior instruments, given the current state ownership and in the absence of junior instruments in the liability structure.

--- CONFIRMATION OF THE RATINGS OF SNS REAAL'S INSURANCE OPERATIONS

Following the group's announcement that it will separate its banking and insurance operations, Moody's believes that the contagion risks between SNS REAAL's insurance operations and SNS Bank have abated. Therefore, SRLEV and REAAL Schadeverzekeringen's IFSRs now reflect the standalone financial profile of SNS REAAL's insurance operations.

The Baa2 IFSRs and the stable outlook assigned to SRLEV and REAAL Schadeverzekeringen take into account Moody's expectation of continuous pressures on the profitability, solvency and financial flexibility of SNS REAAL's insurance operations because of (1) the low interest-rate environment; (2) the challenging Dutch insurance market; and (3) the weak economic environment in the Netherlands.

Moody's says that the insurance operations' leverage has increased to 45% at year-end 2012, notably as a result of a decline in shareholders' equity. Total shareholders' equity decreased by 34% between year-end 2011 and year-end 2012, following significant impairment of intangible assets. Earnings coverage (0.7x on a five-year average basis) is also pressurised by weakening profitability.

The Baa2 IFSRs also reflect the uncertainties on the franchise of the insurance group. In Moody's opinion, the period preceding the nationalisation had a negative impact on SNS REAAL's insurance operations franchise. The rating agency notes the continued uncertainty regarding SNS REAAL's ability to maintain its historically strong market positions, especially in the rapidly evolving Dutch life insurance market, where insurance savings are falling and competition in the pensions segment is growing. These uncertainties are reinforced by potential remedies that the EC could impose on SNS REAAL's insurance operations, as part of the approval of the Group's restructuring plan.

--- CONFIRMATION OF SRLEV'S HYBRID RATINGS

The B1(hyb) ratings on the hybrid securities issued by SRLEV are five notches below its IFSR, which is wider than Moody's standard notching practices for debt issued by operating insurance companies. This wider notching reflects the deferral of coupons on these securities imposed by the EC under the authority granted by its temporary approval on 22 February 2013, following the state aid granted to SNS REAAL.

At the same time, Moody's says that the B1(hyb) ratings and the developing outlook attached to these ratings incorporate a variety of positive and negative credit scenarios.

In particular, Moody's notes that the EC's approval of the state aid was only temporary and the EC will shortly give its final decision on the basis of the restructuring plan submitted by SNS REAAL. At this stage, it remains uncertain whether the EC's final approval will lift or prolong the coupon ban on SRLEV's hybrid debts.

Moody's says that the B1(hyb) ratings could be downgraded if the coupon ban persists, thereby deferring coupons for a prolonged period of time. On the contrary, the B1(hyb) ratings may be upgraded if the coupon ban is lifted rapidly, and if the risks of a liability exchange exercise, undertaken by SNS REAAL, diminished.

--- CONFIRMATION OF THE HOLDING COMPANY'S SENIOR DEBT RATING

The confirmation of SNS REAAL's senior debt rating at (P)Ba2 follows the confirmation of SNS Bank's deposit rating and of SRLEV and REAAL Schadeverzekeringen's IFSRs. The (P)Ba2 rating reflects the combination of (1) the relative credit strengths of the banking and insurance operations of SNS REAAL; (2) the structural subordination of the revenues that the Group receives in the form of dividends from operating companies; and (3) Moody's current assessment of systemic support for the banking unit, and the resulting benefits attributable to creditors at the holding operations.

SNS REAAL's (P)B2 subordinated debt rating reflects the subordinated position of these creditors at the holding company, and, consistent with Moody's approach for rating subordinated debts issued by a bank's holding company, is anchored by the standalone financial profiles of the bank and the insurance operations.

Moody's does not factor diversification benefits into SNS REAAL's ratings given the group's intention to separate its banking and insurance operations.

--- WITHDRAWAL OF TIER 1 AND DATED SUBORDINATED DEBT RATINGS

Moody's withdrew the C(hyb) ratings on all Tier 1 instruments and the C ratings on all dated subordinated debt instruments issued by SNS REAAL and SNS Bank. These instruments were expropriated on 1 February 2013 by the Dutch government as part of the nationalisation of the SNS REAAL group and have therefore ceased to exist.

--- UPGRADE OF SNS BANK'S SUBORDINATED DEBT PROGRAM RATING

The upgrade to (P)B1 from (P)C of SNS Bank's provisional subordinated MTN programme rating is driven by the improvement in the institution's standalone credit profile and the resulting lower risks for subordinated bondholders. The provisional programme rating is one notch below SNS Bank's BCA of ba3, reflecting the subordinated claim in liquidation of the instruments that the bank could issue in the future under this programme.

WHAT COULD MOVE THE RATING UP/DOWN

--- SNS BANK

SNS Bank's BFSR may be upgraded following a combination of the following: (1) a successful restoring of the bank's franchise with no material restriction from the EC on its business activities; (2) the approval of the final restructuring plan and a complete removal of tail risk on the legacy CRE portfolio; and (3) the bank maintaining a sound financial position against the current domestic economic backdrop.

The outlook is stable on SNS Bank's long-term senior unsecured and deposit ratings, consistent with Moody's view that the bank's long-term creditworthiness would not automatically strengthen as a result of an improvement of the bank's standalone financial profile.

The positive outlook on SNS Bank's BFSR indicates that Moody's does not anticipate a downgrade in the foreseeable future. However, the BFSR could be downgraded in the event of any further deterioration of the macroeconomic environment that affects the bank's financial position beyond Moody's expectations, notably as a result of higher-than-anticipated risks on domestic mortgage loans. The bank's BFSR may also be downgraded if the bank fails to restore its franchise or if the EC were to attach material conditions to (or materially alter) its restructuring plan. More generally, any deterioration in the bank's solvency or liquidity profile or in its recurring earnings generation capacity, may lead to a downgrade of its BFSR.

SNS Bank's long-term senior unsecured and deposit ratings could be downgraded as a result of a similar action on its BFSR, or if Moody's lowers its probability of systemic support assumptions for SNS Bank's senior creditors or depositors. This reassessment may result notably from lower systemic importance for the institution, or from developments on the willingness to support senior creditors in the Netherlands.

--- SRLEV AND REAAL SCHADEVERZEKERINGEN

According to Moody's, the IFSRs of the insurance companies could be downgraded if their franchises were to deteriorate, with a negative impact on the profitability of these operations, or if their solvency continued to deteriorate significantly. Conversely, the IFSRs could be upgraded if SRLEV and REAAL Schadeverzekeringen were able to maintain strong market positions, while restoring good levels of profitability and capitalisation.

Moody's adds that SRLEV's B1(hyb) debt ratings could be downgraded if the rating agency believes that the probability of a prolonged coupon deferral has increased for those instruments, for example if the EC maintained a coupon ban for these instruments. On the contrary, the B1(hyb) ratings could be upgraded if the EC lifted its coupon ban and if Moody's considered that the risks of a liability exchange exercise on these instruments -- implying losses for bondholders -- were remote.

--- SNS REAAL

The rating agency says that as long as SNS REAAL remains the holding company of both the banking and the insurance operations, a change in the bank's long-term ratings or of the insurance entities' IFSRs could result in a change of the holding company's ratings. Furthermore, the provisional senior debt rating of SNS REAAL could be downgraded if Moody's lowers its assessment of the probability of systemic support available to SNS REAAL's creditors.

LIST OF AFFECTED RATINGS

The following ratings were upgraded:

- SNS Bank's bank financial strength rating upgraded to D-/ba3 from E/ca, and outlook revised to positive

- SNS Bank's provisional subordinated programme rating upgraded to (P)B1 from (P)C

- SNS REAAL N.V.'s provisional subordinated programme rating upgraded to (P)B2 from (P)C

The following ratings were confirmed:

- SNS Bank's long-term senior unsecured and deposit ratings confirmed at Baa3, and outlook revised to stable

- SNS Bank's provisional MTN programme rating confirmed at (P)Baa3

- SNS Bank's short-term senior unsecured and deposit ratings confirmed at Prime-3

- SNS Bank's provisional short-term programme rating confirmed at (P)Prime-3

- SRLEV N.V.'s insurance financial strength rating confirmed at Baa2, and outlook revised to stable;

- REAAL Schadeverzekeringen N.V.'s insurance financial strength rating confirmed at Baa2, and outlook revised to stable;

- SRLEV N.V.'s dated subordinated debt rating confirmed at B1(hyb), and outlook revised to developing;

- SRLEV N.V.'s perpetual junior subordinated debt rating confirmed at B1(hyb), and outlook revised to developing;

- SNS REAAL N.V.'s provisional senior unsecured programme rating confirmed at (P)Ba2

The following ratings were affirmed:

- SNS REAAL N.V. commercial paper affirmed at Not Prime

- SNS REAAL N.V. provisional short-term programme rating affirmed at (P)Not Prime

The following ratings were withdrawn:

- SNS Bank's and SNS REAAL's subordinate notes previously rated C, no outlook

- SNS Bank's and SNS REAAL's pref stock non-cumulative instruments, previously rated C(hyb), no outlook

PRINCIPAL METHODOLOGIES

The principal methodology used in rating SNS Bank N.V. was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The methodologies used in rating REAAL Schadeverzekeringen N.V. and SRLEV N.V. were Moody's Global Rating Methodology for Property and Casualty Insurers Published in May 2010, Moody's Global Rating Methodology for Life Insurers published in May 2010, and Moody's Guidelines for Rating Insurance Hybrid Securities and Subordinated Debt Published in January 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

The methodologies used in rating SNS REAAL NV were Global Banks published in May 2013, Moody's Global Rating Methodology for Property and Casualty Insurers Published in May 2010, and Moody's Global Rating Methodology for Life Insurers published in May 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

List of affected Issuers by Releasing Office France:

Releasing Office:

Moody's France SAS

96 Boulevard Haussmann

75008 Paris

France

Issuer : SNS Reaal N.V.

Issuer : SRLEV NV

Issuer : REAAL Schadeverzekeringen NV

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 person who approved SNS Bank N.V. credit ratings is Carola Schuler, MD - Banking, Financial Institutions Group, JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS: 44 20 7772 5454

The person who approved SNS Reaal NV, REAAL Schadeverzekeringen NV and SRLEV NV credit ratings is Simon Harris, MD - Financial Institutions, Group, Financial Institutions Group, JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS: 44 20 7772 5454

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.

Stephane Herndl
Asst Vice President - Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
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 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 confirms SNS REAAL group entities' ratings
No Related Data.
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