Standalone BFSR affirmed at D with a stable outlook
Frankfurt am Main, April 19, 2011 -- Moody's Investors Service has today downgraded the long-term senior
debt and deposit ratings of BAWAG P.S.K. (Bawag)
by one notch to Baa2 from Baa1 following Moody's re-assessment
of its future extraordinary systemic support assumptions. Concurrently,
the bank's senior subordinated debt was downgraded to Baa3 from
Baa2.
Moody's has affirmed Bawag's standalone bank financial strength
rating (BFSR) at D, which maps at Ba2 on the long-term scale,
as well as its Prime-2 short-term rating. Moody's
also affirmed the ratings on the hybrid instruments at B2(hyb) of Bawag
and its subsidiaries (BAWAG Capital Finance (Jersey) Ltd, BAWAG
Capital Finance (Jersey) II Limited and BAWAG Capital Finance (Jersey)
III Limited as detailed further below.
The outlook on all ratings is stable.
Any subsequent short-term debt, long-term senior debt,
and subordinated debt issued by Bawag will be rated P-2,
Baa2, Baa3. Any subsequent non-cumulative preferred
securities will be rated B2 (hyb).
For a detailed list of ratings affected, refer to the end of the
press release.
RATINGS RATIONALE
FINANCIAL STRENGTH RATING AFFIRMED AT D WITH A STABLE OUTLOOK
The affirmation of Bawag's BFSR at D with a stable outlook reflects
the bank's progress in the strategic repositioning of its activities
and the stabilisation of its overall financial performance during 2010.
However, Moody's also notes that management's restructuring
programme (named "Bolero") and its increased focus on retail
activities through the cooperation with the Austrian Post AG will only
gradually contribute to the bank's pre-tax profitability
.
Those factors constraining the D BFSR at its current level include (i)
the challenges in maintaining the bank's profitability and efficiency
at a sustainable level, especially in its core retail business;
(ii) the measured control of future risk-taking activities in its
lending and capital markets business in view of its historic earnings
volatility, risk concentrations and ongoing impairments and charges
recorded for its legacy risks in 2010; (iii) the continued development
of the bank's risk culture towards a solid track record through
the credit cycle; and (iv) weaker asset quality, largely reflecting
its legacy assets which includes equity participations that are expected
to be further reduced over time.
Moody's positively notes that Bawag's Tier 1 ratio of 9.9%
at year-end 2010 represents a satisfactory capital cushion for
its risk profile. Moreover, the repayment of the EUR550 million
in government participation capital is currently not included in Moody's
central assumptions and the rating agency expects the bank to further
bolster its capital through internal capital generation to maintain its
financial flexibility in future years, which should allow for a
full repayment of the participation capital.
The stable outlook on the BFSR reflects Moody's expectation that the bank's
financial profile will be preserved at the current level and improve over
time. The rating agency also notes that the current BFSR should
enable the bank to absorb some degree of earnings volatility and pressure
on its asset quality based on its current risk profile.
SENIOR DEBT AND DEPOSIT RATINGS DOWNGRADED TO Baa2 GIVEN LOWER EXTRAORDINARY
SUPPORT ASSUMPTIONS
The downgrade of Bawag's senior debt ratings to Baa2 reflects the
reduction in the extraordinary systemic support assumptions for the bank
previously assessed as high during the financial crisis.
However, Bawag's Baa2 long-term debt and deposit ratings
continue to benefit from Moody's assessment of a very high probability
of systemic support providing a three-notch uplift from its BFSR,
which maps on the long-term scale at Ba2.
Moody's notes that Bawag already returned its EUR400 million guarantee
on risky assets during 2010 and continues to rely on EUR550 million in
participation capital provided by the Government of Austria (Aaa,
stable). As the bank has a meaningful market share of national
deposits and payment functions, Moody's anticipates that Bawag
will continue to benefit from systemic support in the future.
WHAT COULD CHANGE THE RATING UP/DOWN
A further strengthening of BAWAG's standalone financial and business
profile could result in upward pressure on the BFSR. Furthermore,
substantial, sustained and transparent improvements in risk culture
and management could positively affect the BFSR over the medium term.
The bank's long-term debt and deposit ratings could principally
benefit from material and sustainable improvements in the bank's intrinsic
strength. However, modest upward ratings pressure is unlikely
to immediately trigger upward pressure on the long-term ratings
in view of the very high support assumptions already factored into the
bank's senior debt and deposit ratings.
Negative pressure on the standalone profile could result from a weakening
of the bank's financial strength or risk position. Individual
factors representing adverse implications over the medium term include
(i) persistent losses; (ii) a lack of improvement in the risk profile;
and (iii) an inability to maintain its franchise value, particularly
in its retail activities.
The bank's long-term ratings could suffer from a persistent weakening
in its intrinsic strength, as well as adverse changes in the systemic
support assumptions currently factored into Bawag's ratings.
HYBRID RATINGS AFFIRMED AT B2; OUTLOOK ON ALL INSTRUMENTS STABLE
As part of the rating action Moody's affirmed Bawag's noncumulative preferred
securities at B2 (hyb). The hybrid ratings incorporate the instruments'
deeply subordinated claim in liquidation and non-cumulative coupon
skip mechanism tied to the breach of a balance sheet loss trigger.
The outlook on these ratings is stable, reflecting the stable outlook
on the BFSR.
DETAILED LIST OF RATING ACTIONS
BAWAG P.S.K.
- BFSR: (Ba2 on the long-term scale): affirmed
at D, outlook stable
- senior debt and deposit ratings: downgraded to Baa2,
outlook stable
- subordinated debt ratings: downgraded to Baa3, outlook
stable
- short-term rating: affirmed at Prime-2
- non-cumulative preferred securities: affirmed at
B2 (hyb), outlook stable
BAWAG Capital Finance (Jersey) Ltd (XS0119643897)
BAWAG Capital Finance (Jersey) II Limited (DE0008600966)
BAWAG Capital Finance (Jersey) III Limited (GB00B00GQ100)
PRINCIPAL METHODOLOGIES
The principal methodologies used in this rating were "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.
Headquartered in Vienna, BAWAG P.S.K. reported
consolidated total assets of EUR39 billion as at year-end 2010
and a pre-tax profit for 2010 of EUR138 million.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating 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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
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Frankfurt am Main
Claude Raab
Analyst
Financial Institutions Group
Moody's Deutschland GmbH
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Frankfurt am Main
Carola Schuler
MD - Banking
Financial Institutions Group
Moody's Deutschland GmbH
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Moody's downgrades BAWAG's long-term senior debt and deposit ratings to Baa2; outlook stable (Austria)