Negative outlook on the senior rating; stable outlook on the standalone credit assessment
London, 25 October 2012 -- Moody's Investors Service has today confirmed the A2/Prime-1
debt and deposit ratings of Santander UK Plc. The outlook on the
A2 senior debt and deposit rating is negative, reflecting Moody's
medium-term view of lower systemic support for large UK banks.
Moody's has also confirmed Santander UK's C- bank financial
strength rating (equivalent to a baa1 standalone credit assessment) with
a stable outlook. In line with the confirmation of the standalone
credit assessment, the Baa2 subordinated debt rating, Baa3(hyb)
junior subordinated debt rating and the Baa3(hyb)/Ba1(hyb) preference
share ratings have been confirmed with a stable outlook.
This action concludes the review on Santander UK's ratings which
was initiated on 27 June 2012.
For additional information on bank ratings, please refer to the
webpage containing Moody's related announcements http://www.moodys.com/eusovereign
RATINGS RATIONALE
The confirmation of the bank's C-/baa1 standalone credit
assessment reflects Moody's view that Santander UK is relatively
insulated from any potential rating pressure on its parent, Banco
Santander S.A. (Baa2 /P-2 negative; C-/baa2
negative). Moody's can therefore rate Santander UK,
on a standalone basis, higher than Banco Santander.
Santander UK is lead-regulated by the UK Financial Services Authority
(FSA), and is managed on an autonomous basis with limited financial
and direct operational connections to Banco Santander. As a result,
Santander UK generally funds on an independent basis from Banco Santander
and it has no direct exposure to the Spanish government (or regional governments).
Santander UK's operational ties to the group are generally to separate
legal entities within the Santander group (e.g., with
respect to its widespread use of the group's IT infrastructure in
many areas), which operate independently of its parent.
In addition, Santander UK is a systemically important bank in the
UK. Therefore, Moody's believes there is a very low likelihood
that the FSA would allow Santander UK to substantially weaken itself in
order to support the parent. The baa1 standalone credit assessment
also continues to reflect its solid and improving franchise in the UK
as well as its robust, albeit weakening, earnings and strong
cost efficiency. The baa1 standalone credit assessment also incorporates
the relatively good credit performance of Santander UK's mortgage portfolio,
as well as its sound liquidity profile and good capital ratios.
As a result of these characteristics that insulate the bank from pressures
on its parent, the standalone credit assessment of Santander UK
has the potential to be up to two, potentially even three notches
higher than its parent (depending on the circumstances of such a potential
gap opening). This reflects that although Moody's views the
bank as being relatively insulated from Banco Santander, linkages
remain, such as some shared businesses and the fact that the banks
share the same branding.
The confirmation of the bank's A2/P-1 bank deposit and senior
debt ratings is a result of the confirmation of the baa1 standalone credit
assessment and the incorporation of two notches of UK systemic support
uplift. Previously, the two-notch uplift of Santander
UK's debt ratings comprised one notch of parental and one notch
of systemic support. The ongoing two notches of support uplift
from the standalone credit assessment is underpinned by Moody's
assumption of a high likelihood of systemic support for the bank from
the UK authorities. This is a result of the importance of Santander
UK as one of the major UK banks, with a large market share of nationwide
deposits and loans. The negative outlook on the A2 long-term
ratings captures the likelihood of a reduction in the availability of
systemic support over the medium to long term.
What Could Change the Rating -- Up/Down
Positive pressure on the standalone credit assessment could develop,
if Santander UK (1) maintains its good asset quality even in the face
of deteriorating economic conditions; or (2) further improves its
profitability and capital. However, given the challenging
economic conditions an upgrade is unlikely in the short to medium term.
The negative outlooks on both the standalone credit assessment of Banco
Santander SA and on the UK government bond rating imply that an upgrade
of Santander UK's senior ratings is also unlikely.
Negative pressure on the standalone credit assessment would likely be
driven by a worse-than-expected deterioration of Santander
UK's loan-book asset quality. In addition, a
significant decline in pre-provision income (beyond Moody's
expectations) or a deterioration in the bank's funding and liquidity position
could also lead to negative rating pressure.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Moody's Consolidated
Global Bank Rating Methodology published in June 2012. 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 relevant 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 relevant 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 relevant 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.
The ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated entities,
obligations or credits satisfactory for the purposes of issuing these
ratings
Moody's adopts all necessary measures so that the information it uses
in assigning the ratings is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not an auditor
and cannot in every instance independently verify or validate information
received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entities or their related third parties within
the two years preceding the credit rating action. Please see the
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to entities rated by MIS's EU credit rating agencies" on the
ratings disclosure page on our website www.moodys.com for
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for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%)
and for (B) further information regarding certain affiliations that may
exist between directors of MCO and rated entities as well as (C) the names
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Consequently, Moody's provides a date that it believes is
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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.
Ross?Abercromby
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
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Johannes Wassenberg
MD - Banking
Financial Institutions Group
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Releasing Office:
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Moody's confirms Santander UK's A2/P-1/C- ratings
