Short-term ratings confirmed at P-1
Paris, January 19, 2009 -- Moody's Investors Service has today downgraded the long-term
debt and deposit ratings of Dexia Group's main banking entities,
Dexia Credit Local (DCL), Dexia Bank Belgium (DBB), Dexia
Banque Internationale à Luxembourg (DBIL) to A1 from Aa3.
In addition, the Bank Financial Strength Ratings (BFSRs) of DCL,
DBB and DBIL have been downgraded to D+ (mapping to a Baseline Credit
Assessment of Ba1) from C- (which mapped to a Baseline Credit Assessment
of Baa2). Ratings of subordinated and junior subordinated debts
issued by those entities and/or Dexia SA are also downgraded as described
in more detail below. All long-term ratings and BFSRs have
been assigned a negative outlook. The short-term debt and
deposit ratings have been confirmed at Prime-1. This rating
action concludes a review for possible downgrade that was initiated on
1 October 2008. Subsequently, the backed short-term
rating of Prime-1 assigned on 13 January 2009 has been withdrawn
following the confirmation of the Prime-1 short-term rating
of the Group's main entities. Indeed, Moody's
does not assign backed Prime-1 rating for issuers that already
have a Prime-1 rating.
Moody's acknowledges the support by the national governments of
Belgium, France and Luxembourg, as well as by the Belgian
local governments, evidenced by the capital increase and guarantee
agreements that have been provided to Dexia Group and are described in
more detail below. Public sector ownership within Dexia is now
above 50% and support from those key shareholders will continue
to be a major rating factor going forward. Moody's anticipates
that systemic support for the Dexia group will continue and has incorporated
this support by providing a six-notch uplift to the BFSR.
At the same time, Moody's took into account the significant
imbalances in Dexia's balance sheet and the challenging funding
profile of the group, which are expected to impact the group's
performance over the medium term.
The rating actions reflect the risks associated with significant imbalances
in Dexia's balance sheet, which have been exacerbated during
periods of liquidity stress, as well as the increasing credit losses
and provisioning required over the past quarters. Dexia's
over-reliance on short-term financing and its very limited
access to both unsecured and secured funding in the interbank market since
September 2008 have required strong State and central bank support in
order to meet the group's funding needs. In addition,
increasing writedowns have negatively weighed on profitability levels
while the group also recorded significant negative reserves in its Available
for Sale (AFS) portfolio. These factors remain a matter of concern
that has led to today's rating action.
On 30 September 2008, the Governments of Belgium and France announced
a total capital injection of EUR6 billion in exchange for stakes in Dexia
SA, and the Luxembourg Government announced it would invest a further
EUR376 million in convertible bonds in DBIL. Effective 9 October
2008, the governments of Belgium, France and Luxembourg provided
a temporary joint guarantee up to a maximum of EUR150 billion, to
support Dexia Group's short-to medium-term refinancing
on the wholesale markets. In addition, a guarantee by the
Belgian and French States on the portfolio of Dexia's US subsidiary
FSA Financial Products, in excess of a USD4.5 billion first-loss
covered by Dexia, aims at facilitating the sale of FSA's financial
guaranty business planned in the first half of 2009. Moody's
notes that these strong statements of support from the public authorities,
strengthening Dexia's capital protection and financial flexibility
in the short term, represent a positive element factored in the
long-term debt and deposit ratings and are mirrored in a six-notch
uplift from Dexia's Baseline Credit Assessment of Ba1.
Moody's views positively the new management team's objective
to address the balance sheet's mismatches in order to ensure the
long-term viability of Dexia's franchises and business model,
by, inter-alia, rebalancing the funding base from central
banks and short-term wholesale markets to more steady long-term
debt and retail deposits, and by re-focusing on two core
activities -- public finance and retail banking -- in main geographical
areas. Moody's notes in particular management's strong
resolve to preserve the group's core public and project finance
franchise, clearly embedded in its business model, in which
Dexia exhibits leading positions in Belgium, France and Italy.
Moody's expects that this strategic refocus, along with a
more robust and long-term funding base that is less dependent on
central banks, will result in a less volatile and more sustainable
business model over the medium term. Moody's notes,
however, that room for manoeuvre for de-risking will be constrained
by the magnitude of Dexia's securities portfolio-- in absolute
terms as well as relative to the group's total assets -- which
is currently costly to downsize. This, along with higher
funding costs, might result in an erosion of the group's overall
market share over time.
Looking ahead, Moody's expects that potential losses in the
EUR174 billion securities and banking portfolios -- especially structured
finance, exposures to monolines and debt issued by financial institutions
-- higher funding costs and the likely increase in provisioning,
will continue to damage the group's profitability in the coming
quarters. In addition, the completion of the sale of FSA's
insurance activities and direct consolidation of FSA Financial Products
are expected to erode Dexia's regulatory capital metrics,
although Moody's anticipates these to remain at satisfactory levels
given the headroom provided by the recent capital injection. Moody's
also comments that the Tier 1 ratio of 14.5% as reported
at end of September 2008, does not fully reflect the potential forthcoming
pressure on the group's capital, as it does not incorporate
the AFS reserve of minus EUR11 billion as of end-September 2008.
The negative outlook reflects Moody's expectations of weakening
profitability metrics and reduced capital headroom going forward.
It also incorporates the uncertainty related to the successful de-risking
strategy while preserving the group's core public/project finance
and retail banking franchises, as well as to Dexia Group's
ability to achieve a more steady funding base that is less dependent on
outside support.
Moody's acknowledges the very high level of integration and mutual
support that prevail within the centrally managed Dexia Group.
This high level of integration will continue to be reflected in Moody's
approach of assigning BFSR and debt and deposit ratings at the same level
for the three main Group companies (DCL, DBB and DBIL), unless
significant changes in the group's structure motivate the need to
adjust the current approach.
In respect of the Group's main operating units, the following
ratings actions have been taken:
- Dexia Credit Local's BFSR downgraded to D+ from C-,
deposit and senior unsecured debt ratings downgraded to A1 from Aa3,
subordinated debt rating downgraded to A2 from A1, and preferred
stock rating downgraded to Baa1 from A2; a three-notch differential
below senior unsecured rating applies to preferred stock's rating
due to Dexia Credit Local's BFSR being downgraded in the D category;
all ratings have a negative outlook. The Prime-1 short-term
rating is confirmed.
- Dexia Bank Belgium's BFSR downgraded to D+ from C-,
deposit and senior unsecured debt ratings downgraded to A1 from Aa3,
and subordinated debt and junior subordinated debt ratings downgraded
to A2 and A3, respectively, from A1; a two-notch
differential below senior unsecured rating applies to junior subordinated
debt rating due to Dexia Banque Belgium's BFSR being downgraded
in the D category; all ratings have a negative outlook. The
Prime-1 short-term rating is confirmed.
- Dexia Banque Internationale à Luxembourg's BFSR
downgraded to D+ from C-, deposit and senior unsecured
debt ratings downgraded to A1 from Aa3, subordinated debt ratings
and junior subordinated debt ratings downgraded to A2 and A3, respectively,
from A1, and preferred stock rating downgraded to Baa1 from A2;
a two-notch and three-notch differential, respectively,
below senior unsecured rating applies to junior subordinated debt and
preferred stock's ratings due to Dexia Banque Internationale à
Luxembourg's BFSR being downgraded in the D category; all ratings
have a negative outlook. The Prime-1 short-term rating
is confirmed.
- Dexia Funding Luxembourg's backed preferred stock downgraded
to Baa1 from A2 with negative outlook.
The covered bonds issued by Dexia Crédit Local, Dexia Municipal
Agency and Dexia Sabadell SA are not covered by this press release.
In respect of the Group's other subsidiaries, the following
ratings actions have been taken:
- Dexia Kommunalkredit Bank's BFSR is affirmed at C-,
long-term deposit and senior unsecured debt ratings was downgraded
to Baa2 from A2, and subordinated debt rating was downgraded to
Baa3 from A3; the short-term Prime-1 rating was downgraded
to Prime-2; all ratings, including Prime-2 short-term
deposit rating, remain on review for possible downgrade.
These rating actions are subsequent to the rating actions taken on Dexia
Kommunalkredit Bank's parent company:
- Dexia Crediop S.p.A.'s Prime-1
short-term rating is confirmed.
- Crediop Overseas Bank Limited's short-term Prime-1
rating is confirmed.
- Dexia CLF Finance's backed long-term senior unsecured
rating downgraded to A1 from Aa3; this rating carries a negative
outlook.
- Dexia Delaware LLC's Prime-1 backed CP rating is
confirmed.
- Dexia Public Finance Norden's backed long-term bank
deposit rating downgraded to A1 from Aa3; this rating carries a negative
outlook. The Prime-1 short-term deposit rating is
confirmed.
- Dexia Credit Local, Stockholm Branch's Prime-1
short-term deposit rating is confirmed.
- Dexia Credit Local New York Branch's long-term bank
deposit rating downgraded to A1 from Aa3 with a negative outlook;
the Prime-1 short-term deposit rating is confirmed.
- Dexia Credit Local Tokyo Branch's long-term bank
deposit rating downgraded to A1 from Aa3; this rating carries a negative
outlook. The Prime-1 short-term deposit rating is
confirmed.
- Dexia Funding Netherlands' backed long-term senior
unsecured rating downgraded to A1 from Aa3 and backed subordinated debt
rating downgraded to A2 from A1; all ratings carry a negative outlook.
The Prime-1 short-term deposit rating is confirmed.
- Dexia Overseas Limited's long-term backed senior
unsecured rating downgraded to A1 from Aa3, backed subordinated
debt rating and backed junior subordinated debt ratings downgraded to,
respectively, A2 and A3, from A1; all ratings carry a
negative outlook.
- Dexia Financial Products' Prime-1 backed CP rating
is confirmed.
No ratings action has been taken on the following ratings of the Group's
other subsidiaries:
- Dexia Crediop S.p.A.'s BFSR at C,
long-term deposit and senior unsecured debt ratings at A1,
and subordinated debt rating at A2 remain on review for possible downgrade;
- Crediop Overseas Bank Limited's backed long-term
senior unsecured rating at A1, and backed subordinated debt rating
at A2 remain on review for possible downgrade.
- Dexia Sabadell S.A.'s BFSR at C+,
long-term deposit rating at A2 and Prime-1 short-term
deposit rating remain on review for possible downgrade.
- The ratings of the group's Turkish subsidiary DenizBank
remain unchanged as it also benefits from systemic support within Turkey:
DenizBank's local currency long-term deposit and senior unsecured
debt ratings of Baa1; the foreign currency long-term deposit
rating of B1; the BFSR of C- mapping to a Baseline Credit
Assessment of Baa2; all ratings carry a stable outlook; the
local currency and foreign currency short-term deposit ratings
of Prime-2 and Non-Prime, respectively.
The last rating action on Dexia Group's main banking entities was
on 1 October 2008, when Moody's downgraded the BFSRs of Dexia
Credit Local, Dexia Bank Belgium and Dexia Banque Internationale
à Luxembourg to C- from B+, C- from B-
and C- from B-, respectively. In addition,
the three entities' long-term debt and deposit ratings were
downgraded to Aa3 from Aa1. All ratings, including BFSRs,
long-term debt and deposit ratings and short-term ratings,
were placed on review for possible further downgrade.
The principal methodologies used in rating the issuers affected by this
press release are "Bank Financial Strength Ratings: Global
Methodology" and "Incorporation of Joint-Default Analysis
into Moody's Bank Ratings: A Refined Methodology",
which can be found at www.moodys.com in the Credit Policy
& Methodologies directory, in the Ratings Methodologies sub-directory.
Other methodologies and factors that may have been considered in the process
of rating these issuers can also be found in the Credit Policy & Methodologies
directory.
Headquartered in Brussels, Dexia SA had total assets of EUR636.9
billion at end September 2008. For the first nine months of 2008,
the group reported a net loss, group share, of EUR723 million,
down from a net income of EUR1.9 billion during the same period
in 2007.
Paris
Helene Sere
Vice President - Senior Analyst
Financial Institutions Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Reynold R. Leegerstee
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades Dexia's main operating units to A1 from Aa3
