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Rating Action:

Moody's confirms most Portuguese banks' standalone ratings; maintains review of debt ratings

Global Credit Research - 02 Jun 2010

Madrid, June 02, 2010 -- Moody's Investors Service has today concluded the first part of its review for possible downgrade of ten rated Portuguese banks by confirming the standalone bank financial strength rating (BFSR) of seven Portuguese banks at their respective current levels. At the same time, Moody's is maintaining the ongoing review for possible downgrade of the long-term debt and deposit ratings of nine Portuguese banks and confirmed the ratings of one bank. The rating agency will conclude the review of these debt ratings upon the conclusion of Moody's ongoing review of the Portuguese government's rating.

SUMMARY OF RATING ACTIONS

On 5 May 2010, Moody's had placed the standalone BFSRs of eight banks on review for possible downgrade. (From among the ten rated Portuguese banks, the E+ BFSR with a negative outlook of Banco Portugues de Negocios had not been placed under review; also, the rated Espirito Santo Financial Group does not have a BFSR assigned because it is a holding company.) Of these eight banks, Moody's has today downgraded the BFSR of Caixa Geral de Depósitos (CGD) by one notch to D+ (mapping to the long-term scale of Baa3) and has confirmed the BFSRs of the remaining seven banks.

Today's rating action concludes the review for possible downgrade of the BFSRs of the eight banks which had been initiated on 5 May 2010.

With regard to the long-term debt and deposit ratings of the ten banks, Moody's has today confirmed the long-term debt and deposit ratings of Banco Itaú Europa at Baa1 with a negative outlook, and downgraded the long-term debt and deposit ratings of CGD by one notch to Aa3, maintaining it on review for possible further downgrade. Please see below for a full list of ratings and rating actions.

Moody's is therefore maintaining the review for possible downgrade of the long-term debt and deposit ratings for all Portuguese banks apart from Banco Itau Europa. (This is because the rating of Banco Itau Europa does not benefit from Portuguese government support, but rather benefits from the support of its Brazilian parent, Itau Unibanco (rated Baa3/Prime-3/B-)).The rating agency explains that the rating of the Portuguese government is a key factor in assessing the ability and willingness of Portuguese authorities to support Portuguese banks. Therefore, the conclusion of the review of debt and deposit ratings is dependent on and will take place at the same time as the conclusion of the ratings review of the Portuguese Republic. Any potential downgrade of banks' ratings is likely to be limited to one notch and in a few cases to possibly two notches.

SUMMARY RATING RATIONALE

"Moody's review of the banks' standalone credit profile focused on three aspects: (1) the impact on profitability of higher funding costs; (2) the resilience of banks to different liquidity stresses; and (3) the impact on asset quality and solvency of a challenged operating environment," explains Olga Cerqueira, Assistant Vice President and Moody's lead analyst for Portuguese banks. "Moody's stress-tests of the banks' ratings under these three aspects showed that the current standalone rating levels of most Portuguese banks incorporated a sufficient degree of asset quality and profitability deterioration," adds Ms. Cerqueira.

Apart from Banco Santander Totta, which has a standalone rating of C (mapping to the long-term scale of A3), the standalone ratings of all other reviewed banks range from C- to D- (mapping to Baa2/Baa3 on the long-term scale for the largest domestic banks and to the Ba category for smaller domestic banks). At these levels, the ratings incorporate life-time expected losses in their loan and securities portfolios, ranging from 2.59% to 4.8 % in Moody's base case scenario, based on year-end 2009 figures. (Please refer to Moody's Special Comment entitled "Moody's Approach to Estimating Expected Losses for Portuguese banks", published in September 2009.)

"Moody's analysed the impact of higher funding costs by applying recent spreads to all refinancing needs for 2010 (using Portuguese government CDS spreads for our base case and Greek spreads for our stressed case scenario)," Ms Cerqueira continues. The rating agency also adjusted its liquidity analysis downwards in cases where banks have funding shortfalls over the next 12 months, assuming they have no access to capital or interbank markets and also assuming a deposit outflow of 7.5% for retail deposits and 15% for other deposits. "Together with other conservative revenue and expense assumptions, this analysis did not reveal further weaknesses in the banks' standalone credit profile beyond what had been already incorporated," says Ms. Cerqueira.

Despite the structural dependence of Portuguese banks on wholesale funding, Moody's notes that all Portuguese banks could survive a closure of wholesale funding markets for a period of 12 months by making use of currently available liquid assets and increasing their reliance on European Central Bank funds. During the ongoing financial crisis, Portuguese banks have been able to continue to tap the wholesale markets on several occasions and their recourse to ECB funding has been relatively contained. However, this situation changed in recent weeks as markets have been closed, interbank funding has reduced and ECB funding has increased. Nevertheless, while noting that the ECB is the key backstop for funding needs, Moody's believes that the actual funding costs for Portuguese banks are still significantly below these stressed assumptions.

RATING ACTIONS IN DETAIL

Moody's has taken the following rating actions:

CAIXA GERAL DE DEPOSITOS (CGD)

Moody's has today downgraded CGD's BFSR by one notch to D+ (which maps to the Baa3 on the long-term scale) from C- (which maps to a Baa2). The outlook on the BFSR is stable. The downgrade primarily reflects Moody's concerns about CGD's profitability levels, which have been very pressured since the beginning of the crisis. Additionally, the downgrade reflects the rating agency's expectation that there will not be a reversal in this trend over the short term given the low interest rate environment (which particularly impacts CGD given the long-term nature of its loan book), the increase in its wholesale funding costs, and the ongoing asset quality deterioration. Despite the increase in the bank's wholesale funding dependence in the recent past, CGD continues to display the lowest ratio of loans to deposits among Portuguese banks. In addition, it displays a good liquidity profile and can survive a closure of capital markets for a period of 12 months.

"Although CGD has one of the most stable retail deposit bases and should benefit in its funding from its ownership by the government, Moody's primary concern is that the bank's profitability may come under increasing pressure as its owner, the Portuguese government, is trying to address the challenges of fiscal austerity while ensuring sufficient credit flow," explains Ms. Cerqueira. "Moody's believes that CGD may therefore not be defending its margins at all costs in these economically challenged times, thereby deliberately accepting weaker internal capital generation, but with the implicit backstop of government support to offset some of this standalone weakening."

The stable outlook on the bank's BFSR is underpinned by its good resilience to a liquidity squeeze in wholesale funding which is lower than that of its peers. The stable outlook also reflects Moody's view that the anticipated deterioration in profitability, efficiency and asset quality is sufficiently incorporated within its D+ BFSR. Negative pressure on the BFSR could come about in the event of a faster decline in profitability and a lack of internal capital generation, or the need to incur upfront losses that go beyond Moody's anticipated scenario of low- to mid-single-digit expected losses in its base case scenario.

CGD's LT debt and deposit ratings were downgraded to Aa3 from Aa2, reflecting the weakened standalone credit profile. These ratings remain under review for possible downgrade pending the conclusion of the review for downgrade of the Portuguese sovereign rating. CGD's short-term ratings were affirmed at Prime-1. The uplift for CGD's long-term ratings from its Baa3 BCA continues to reflect Moody's view of its very high probability of systemic support, given its dominant position in Portugal and its 100% government ownership.

Moody's has also downgraded CGD's senior subordinated debt to A1 from Aa3, and is maintaining this rating on review for further possible downgrade. CGD's junior subordinated debt was downgraded to Baa2 with a stable outlook, from Baa1(under review for downgrade). The bank's preferred securities were downgraded to Ba1 with a stable outlook, from Baa3 (under review for downgrade).

BANCO COMERCIAL PORTUGUES (BCP)

Moody's has today confirmed BCP's BFSR at D+ (which maps to a Baa3 on the long-term scale), with a negative outlook. Despite BCP's structural dependence on wholesale funding, with a loan-to-deposit ratio of around 170%, and its net interbank borrowing position, today's confirmation of the rating reflects the bank's sufficient liquid assets to cover all wholesale funding that matures in the next 12 months -- although Moody's notes that BCP has increased its reliance on ECB funding since the beginning of 2010.

Moody's believes that the challenging operating environment in Portugal is sufficiently factored into the bank's current D+ BFSR. BCP's asset quality and profitability deterioration has been deeper than it has been for the other large, privately owned Portuguese banks. However, Moody's expects further declines in BCP's profitability to be more moderate than for some of its peers, as BCP suffered from the decline in interest rates earlier than some of its peers. The reinforcement of its capital over the past year has also increased BCP's risk absorption capacity. Moreover, Moody's notes that the restructuring of the bank's subsidiary in Poland has started to have a positive contribution to profits after a few difficult quarters in late 2008 and beginning of 2009. Despite these positive developments, Moody's believes that BCP's domestic operations will continue to have a very weak performance, given: (i) the low interest rates, the increase in wholesale funding costs and the reduced business activity; and (ii) the ongoing asset quality deterioration, particularly on the corporate loan book, and the related provisioning needs.

With respect to international operations, Moody's believes that these are likely to add some volatility, mainly as result of its exposures to Greece and Turkey, although this should be compensated by the better performance of Polish and African operations. In addition, BCP continues to finance some of its shareholders, a situation inherited from the past. While Moody's acknowledges the current management's intention to reduce this, the rating agency believes that this situation continues to pose a risk for BCP, particularly in the current economic crisis.

The negative outlook is driven by the challenging operating environment the bank faces both in Portugal and in some of its international operations as well as by the negative trend in terms of asset quality, which could position Moody's expected losses closer to the stressed scenario.

Moody's is maintaining BCP's A1/Prime-1 long-term and short-term debt and deposit ratings on review for possible downgrade. The uplift that the debt and deposit ratings receive from the standalone BFSR of D+ (Baa3 on the long-term scale) reflect the key systemic importance of BCP as the largest privately owned Portuguese bank and therefore Moody's assessment of a very high probability of systemic support.

Moody's is also maintaining BCP's A2 senior subordinated debt on review for possible downgrade. BCP's Tier 1 capital instruments were confirmed at Ba3 and assigned a negative outlook.

Furthermore, Moody's has also confirmed the long-term deposit ratings of BCP's subsidiary, Bank Millennium, (BM), at Baa2 with a negative outlook. The confirmation is based on the rating action of the parent bank BCP and concludes the review for possible downgrade initiated on 5 May 2010.

BANCO ESPIRITO SANTO (BES)

Moody's has today confirmed BES's BFSR at C-, but reflected the pressures on the bank by changing the long-term scale equivalent rating (BCA) to Baa2 from Baa1. The outlook on the BFSR is negative. The confirmation of the bank's BFSR reflects the fact that Moody's stress-tests of profitability and liquidity show that they would not jeopardize BES's satisfactory financial fundamentals. In changing the BCA to Baa2, Moody's notes that BES has the highest reliance on wholesale funding among Portuguese banks -- with a loan-to-customer-deposit ratio of almost 200% -- and also the greatest exposure to capital markets activities. Despite the bank's current ability to pay all wholesale funding maturities in the next 12 months with currently available liquid assets, BES's structural dependence on wholesale markets raises some concerns in terms of funding and liquidity. Moody's will therefore continue to monitor the evolution of liquid assets and developments of customer deposits. The negative outlook is underpinned by (i) the challenging operating environment in Portugal where Moody's anticipates a decline in terms of earnings (mostly due to lower net interest income) and an ongoing deterioration in asset quality; (ii) BES's traditional exposure to capital markets, which make it more vulnerable to stress situations and more volatile earnings; and (iii) the bank's higher exposure to wholesale funding and the consequent need to prudently manage its liquidity position under adverse liquidity scenarios.

Moody's is maintaining BES's A1/Prime-1 debt and deposit ratings on review for possible downgrade. The uplift from the Baa2 BCA reflect the key systemic importance of BES for the Portuguese financial system and therefore Moody's assessment of a very high probability of systemic support.

BES's A2 senior subordinated debt remains under review for possible downgrade. BES's junior subordinated debt was downgraded by one notch to Baa3, with a negative outlook, in line with the downgrade by one notch of its adjusted BCA to Baa2. BES's Tier 1 capital instruments were also downgraded by one notch to Ba2, with a negative outlook.

The potential impact of this rating action on BES's rated subsidiary, BES Investimento do Brasil, SA will be discussed in a separate press release.

ESPÍRITO SANTO FINANCIAL GROUP (ESFG)

Moody's is maintaining ESFG's issuer rating of A3 on review for possible downgrade in line with maintaining the review of the A1 long-term debt and deposit rating of BES, which is ESFG's main operating subsidiary and accounted for 78% of ESFG's pre-tax income in 2009. The Prime-2 short-term ratings of ESFG's ECP programme also remain on review for possible downgrade. The senior subordinated debt rated Baa1 was also maintained on review for possible downgrade, while the preferred securities were downgraded to Ba3 with a negative outlook, from Ba2 (under review for downgrade), as result of the downgrade of BES's adjusted BCA to Baa2.

BANCO BPI (BPI)

Moody's has today confirmed BPI's BFSR at C- (mapping to a Baa2 on the long-term scale), with a negative outlook. The confirmation primarily reflects BPI's good liquidity position, with a more limited reliance on wholesale funding than its Portuguese peers, its better-than-average asset quality and its currently satisfactory financial fundamentals. Moody's notes that BPI's profitability and efficiency indicators compare modestly with those of the other large Portuguese banks and that profitability has been largely supported by its international operations (predominantly Angola), which accounted for 62% of net profits in Q1 2010. The negative outlook reflects further profitability pressures (not only at net interest income level, but also due to potential losses on its sizeable fixed income portfolio), which will only be partially compensated by the international activity. The negative outlook also takes account of the pressure on the bank's capitalization under Moody's stressed scenario as tangible common equity -- which excludes minority interests -- would fall below minimum levels.

BPI's A1/Prime-1 debt and deposit ratings remain under review for possible downgrade. Overall, Moody's believes that the probability of systemic support in the event of need is very high, resulting in the debt and deposit ratings receiving a significant uplift from the standalone ratings.

BPI's senior subordinated debt rating also remains on review for possible downgrade. BPI's junior subordinated debt was confirmed at Baa3, with a negative outlook. BPI's preferred securities were confirmed at Ba2, with a negative outlook.

BANCO SANTANDER TOTTA (BST)

Moody's has today confirmed BST's BFSR at C (mapping to a A3 on the long-term scale), with a negative outlook. The confirmation primarily reflects: (i) the bank's strong liquidity position, despite its significant dependence on wholesale funding; and (ii) the good performance of the bank during the crisis and the resilience of its financial fundamentals to a stress-test on profitability, liquidity and asset quality. BST displays the lowest problem loan ratio among Portuguese banks, as well as strong capitalization levels and the best profitability indicators in Portugal. The negative outlook reflects the deteriorating operating environment in Portugal (BST has a negligible international contribution to earnings), which will continue to adversely affect asset quality and profitability. Moody's also notes that BST has a greater-than-average reliance on wholesale funding (with a loan-to-deposit ratio of close to 200%) and therefore a greater exposure to market turmoil, although it is expected to be able to resort to parental funds in case of need.

BST's Aa3 long-term debt and deposit ratings remain under review for possible downgrade. Overall, Moody's assesses the bank's probability of systemic support in case of need to be very high and expects a high probability of parental support from Santander (rated B-/Aa2/Prime-1).

Moody's has also affirmed the bank's short-term ratings Prime-1. BST's A1 senior subordinated debt remains under review for possible downgrade, while BST's junior subordinated debt was confirmed at A3, with a negative outlook.

CAIXA ECONOMICA MONTEPIO GERAL (Montepio)

Moody's has today confirmed Montepio's BFSR at D (mapping to a Ba2 on the long-term scale), with a stable outlook. The confirmation primarily reflects the resilience of Montepio to liquidity stresses, given the modest refinancing needs in the next 12 months, the availability of liquid assets and the relatively moderate reliance on wholesale funding. Although Moody's anticipates a decline in profitability in 2010 -- as a result of pressured net interest income, higher provisioning needs related to its high problem loans ratio and the expected absence of trading revenues -- but this decline should be compatible with a D BFSR. The stable outlook is underpinned by the low risk of ratings transition under a more adverse economic scenario. Moody's believes that the negative operating environment will weaken the bank's financial fundamentals but that they will still be at a level compatible with its D BFSR.

Montepio's Baa1/Prime-2 debt and deposit ratings remain under review for possible downgrade. Moody's expects a high probability of systemic support for the bank, hence the several notches of uplift from the Ba2 BCA.

Montepio's Baa2 senior subordinated debt remains under review for possible downgrade, while the junior subordinated debt was confirmed at Ba3, with a stable outlook, in line with the stable outlook of Montepio's BFSR.

BANIF

Moody's has today confirmed Banif's BFSR at D- (mapping to a Ba3 BCA), with a stable outlook. The confirmation primarily reflects the bank's ability to survive a closure of capital markets for a period of 12 months, because of its low refinancing needs and despite its net interbank borrowing position and a relatively small cushion of available liquid assets. Banif has significantly increased its usage of ECB funding since the beginning of the year, but it also continues to enlarge the pool of assets that can be pledged with the ECB. Banif already displays modest profitability indicators (particularly bottom-line profits) and any stress on the bank's profitability does not change significantly Moody's assessment of the bank's creditworthiness. Banif significantly reinforced its capital position in 2009 and plans to increase capital further in 2010. Despite addressing one of Moody's main concerns -- namely low capitalization levels -- Moody's notes that this institution continues to have high related-party lending and other corporate governance issues that constrain the current BFSR.

Banif's Baa1/Prime-2 debt and deposit ratings remain under review for possible downgrade. Moody's expects a high probability of systemic support for this bank, resulting in several notches of uplift from the Ba3 BCA.

Banif's Baa2 senior subordinated debt remains under review for possible downgrade. Banif's junior subordinated debt was confirmed at B1 with a stable outlook in line with the stable outlook of the BFSR. Banif's preferred securities were confirmed at B3, with stable outlook, in line with the stable outlook on the BFSR.

The potential impact of Banif's ratings confirmation on other rated subsidiaries will be discussed in separate press releases.

BANCO ITAÚ EUROPA (BIE)

Moody's has today confirmed BIE's BFSR at C- (mapping to a Baa2 on the long-term scale), with a negative outlook. The confirmation primarily reflects the resilience of the bank to several liquidity stresses and profitability stress based on an increase in funding costs. BIE has been relatively immune to the liquidity and profitability pressures that Portuguese banks have experienced, as a result of its low exposure to the Portuguese operating environment. Excluding its equity stake of around 9%in BPI, BIE's exposure to Portugal represents less than 5% of its operating income. In addition, BIE has a very comfortable liquidity position as it places funds with Central Banks and displays modest refinancing needs over the next 12 months.

The negative outlook is underpinned by the challenges BIE faces as a result of its very rapid growth in the recent past and the need to consolidate its position in the very competitive worldwide private banking business. As result of several group acquisitions/mergers over the past two to three years, BIE has tripled its assets under management to EUR8.2 billion at the end of March 2010 from EUR2.5 billion at the beginning of 2007. Despite the significant recent volume growth, which makes year-on-year comparisons challenging, BIE's underlying performance remains modest with risk-adjusted profitability measures inflated by the strong increase in commission income from off-balance sheet assets that have not translated into an increase in risk-weighted assets.

Moody's has today confirmed the Baa1 long-term debt and deposit rating of BIE and assigned a negative outlook. The short-term ratings were also affirmed at Prime-2 and the senior and junior subordinated MTN programmes were affirmed at Baa2 and Baa3, respectively.

PREVIOUS RATING ACTIONS

The previous rating actions on Banif, BCP, BES, BPI, ESFG, Itaú Europa and Montepio were implemented on 5 May 2010, when Moody's placed their BFSRs, long-term debt and deposit ratings and short-term ratings under review for possible downgrade. The last rating actions on BST and CGD were implemented on 5 May 2010, when Moody's placed their BFSRs and long-term debt and deposit ratings under review for possible downgrade, and affirmed the short-term ratings. The last rating action on BPN was implemented on 5 May 2010, when Moody's placed its long-term debt and deposit ratings and short-term ratings under review for possible downgrade, and affirmed its BFSR. The last rating action on Banco Millennium was implemented on 5 May 2009, when Moody's placed its long-term debt and deposit ratings under review for possible downgrade, following the review for possible downgrade of the parent bank's ratings.

RATING METHODOLOGIES APPLIED

The principal methodologies used in rating these issuers are Moody's "Bank Financial Strength Ratings: Global Methodology", published in February 2007, "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", published in March 2007, and "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt", published in November 2009, which are available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Rating Methodologies sub-directory on Moody's website.

Banif is headquartered in Funchal, Portugal. At 31 December 2009, it had total unaudited assets of EUR11.6 billion.

BCP is headquartered in Oporto, Portugal. At 31 December 2009, it had total assets of EUR95.6 billion.

BM is headquartered in Warsaw, Poland. At 31 December 2009, it reported IFRS consolidated total assets of PLN44.9 billion (EUR10.9 billion).

BES is headquartered in Lisbon, Portugal. At 31 December 2009, it had total assets of EUR82.3 billion.

BPI is headquartered in Lisbon, Portugal. At 31 December 2009, it had total assets of EUR47.5 billion.

BST is headquartered in Lisbon, Portugal. At 31 December 2009, it had total unaudited assets of EUR45.7 billion.

CGD is headquartered in Lisbon, Portugal. At 31 December 2009, it had total assets of EUR120.9 billion.

ESFG is headquartered in Luxembourg. At 31 December 2009, it had total assets of EUR85.3 billion.

Itaú Europa is headquartered in Lisbon, Portugal. At 31 December 2009, it had total assets of EUR5.1 billion.

Montepio is headquartered in Lisbon, Portugal. At 31 December 2009, it had total assets of EUR17.2 billion.

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

Madrid
Olga Cerqueira
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's confirms most Portuguese banks' standalone ratings; maintains review of debt ratings
No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY’S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.