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Rating Action:

Moody's downgrades Banco de Valencia to Ba2; all ratings on review for downgrade (Spain)

28 Oct 2011

Madrid, October 28, 2011 -- Moody's Investors Service has today downgraded Banco de Valencia's senior debt and deposit ratings to Ba2 from Ba1 and the dated subordinated debt to Ba3 from Ba2. The downgrade follows the new majority ownership of Banco de Valencia by Banco Financiero y de Ahorro (BFA, Ba2/ negative outlook); and the review assesses the degree of ongoing support from either BFA or Bankia (Baa2/D+ (mapping to Ba1 on the long-term scale)/Prime-2, negative), BFA's operating company.

The Not-Prime short-term ratings and standalone bank financial strength rating (BFSR) of D- (Ba3) remain unchanged. All of Banco de Valencia's ratings are now on review for downgrade.

Moody's initially placed Banco de Valencia's ratings on review for downgrade on 24 March 2011 due to the review for downgrade on the ratings of its former parent Caja de Ahorros de Valencia, Castellón y Alicante (Bancaja, unrated). Bancaja, which at that time had been involved in a consolidation process with Caja Madrid (unrated) and five other Spanish savings banks, had held a 38.6% stake in Banco de Valencia. After this process had completed earlier this year, Bancaja transferred all its assets and liabilities to BFA, Banco de Valencia's current parent bank. For further details please see Moody's press release "Moody's assigns ratings to Bankia and Banco Financiero y de Ahorro" published on 6 July 2011.

RATINGS RATIONALE

DOWNGRADE OF BANCO DE VALENCIA'S DEBT AND DEPOSIT RATINGS

As a result of the completion of the transfer of Bancaja's assets and liabilities, BFA assumed control over the shares of Banco de Valencia. BFA is now the majority shareholder, with 38.6% of the bank's capital.

Moody's decision to downgrade Banco de Valencia's debt and deposit ratings by one notch to Ba2 reflects the change in ownership.

Banco de Valencia has been integrated into BFA at the level of the holding company and not at the commercial bank level (Bankia). However, given the weak credit profile of BFA and limited capacity to raise funds, Moody's expects that support for Banco de Valencia will be forthcoming from Bankia, which has broader ability to provide capital or liquidity to the bank Therefore at this stage, Moody's also still incorporates an assumption of a moderate probability of support from Bankia into Banco de Valencia's ratings. Overall, this provides a one-notch uplift to Banco de Valencia's standalone ratings of D-/Ba3.

Banco de Valencia is currently working on a recapitalization plan that will be implemented before year-end 2011. The plan will include some measures that will require support from Bankia to implement these successfully.

The D- BFSR reflects its high credit-risk concentration, as well as its very modest financial fundamentals. Its capital adequacy ratios are weak compared with the portfolio's expected losses, whilst the liquidity position is significantly reliant on short-term funding with sizable refinancing requirements in 2012.

FOCUS OF THE REVIEW

The review of Banco de Valencia's standalone ratings will focus on the following factors:

(i) The bank's liquidity position and Moody's expectations for Bankia to provide alternative funding. In Moody's view, Banco de Valencia will only be able to address its debt maturities in 2012 if Bankia provides sufficient support to the bank;

(ii) Performance of the bank's financial metrics if the recapitalisation plan is not accomplished in the short term, given its very weak risk-absorption capacity and deteriorating asset quality, and;

(iii) A reassessment of the bank's franchise value if Bankia fails to provide expected support. This would raise questions regarding the strategic fit of the bank within the group and its future viability if its credit profile continues to deteriorate.

The senior debt and deposit ratings are on review for downgrade, reflecting the review for downgrade of Banco de Valencia's standalone BFSR. The review will also assess the degree of support provided by Bankia. Any failure to provide expected support to the bank to restore its capital and liquidity position will lead to a decline of current support assumptions from Bankia and could result in Banco de Valencia's debt and deposit ratings being aligned to its standalone rating.

POTENTIAL TRIGGERS FOR A DOWNGRADE/UPGRADE

Downward pressure would be exerted on Banco de Valencia's standalone credit strength because of (i) further weakening of its liquidity position; (ii) greater-than-expected deterioration in its risk-absorption capacity and a depletion of its capital levels; and/or (iii) deterioration of the bank's franchise, particularly if Bankia fails to provide sufficient support.

The bank's debt and deposit ratings are linked to the standalone BFSR, and any change to the BFSR would likely also impact these ratings.

An upgrade of Banco de Valencia's standalone rating is currently very unlikely given the review for downgrade of the rating. An improvement of the bank's BFSR could be driven by (i) the benefits of the planned recapitalization and deleveraging measures; (ii) improved liquidity position with normalized access to wholesale funding and broader diversification of its funding sources; (iii) reduction of its real-estate and related assets; and (iv) better access to capital. An improvement in the economic and overall operating environment could also positively affect Banco de Valencia's BFSR and its senior debt and deposit ratings.

PRINCIPAL METHODOLOGIES

The methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Valencia (Spain), Banco de Valencia had EUR24 billion assets at end-June 2011.

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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating 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 entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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.

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 special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Maria Jose Mori
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Johannes Wassenberg
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Banco de Valencia to Ba2; all ratings on review for downgrade (Spain)
No Related Data.
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