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27 Nov 2008
Moody's downgrades Newcastle's ratings to A3/C-/P-2; Outlook on long-term ratings is negative
London, 27 November 2008 -- Moody's Investors Service today downgraded to A3 from A2 the long-term
bank deposit and debt ratings of Newcastle Building Society ("Newcastle")
and to C- from C the bank financial strength rating (BFSR).
The outlook on the BFSR is stable. The C- BFSR translates
into a baseline credit assessment (BCA) of Baa1. The A3 long-term
bank deposit and debt ratings reflect a one-notch uplift from the
Society's BCA of Baa1, in line with Moody's assessment of moderate
probability of support within the building society sector. The
outlook on the A3 long-term bank debt and deposit rating is negative.
In the same rating action, Moody's also downgraded to Prime-2
from Prime-1 the short-term debt and deposit ratings.
Marjan Riggi, Vice President/Senior Credit Officer and lead analyst
for the building society at Moody's, commented: "the
downgrade primarily reflects Moody's concern that in the rapidly
deteriorating economic environment in the UK, Newcastle's
high concentration of commercial loans will mean that the Society may
be challenged over the medium term to maintain its sound asset quality"
which is a key driver for its Bank Financial Strength Ratings.
Specifically, Newcastle has exposure to both commercial real estate
and buy-to-let loans; excluding housing association
loans these loans make up around 1/5 of the Society's total loan
portfolio. Despite good performance so far, Moody's
believes that these portfolios may expose Newcastle to more severe asset
quality deterioration over the next two years, compared to their
prime residential lending. What's more, Moody's
highlights the concentration risk and the inherent higher volatility of
larger commercial loans relative the Society's current levels of
profitability and capital cushion. That said, Moody's
notes that the Society's prime residential lending arrears (+3
months) remain contained and are performing favourably when compared to
The negative outlook on Newcastle's deposit and senior unsecured ratings
reflects Moody's view on the negative UK economic environment which
remains challenging—this could lead to further deterioration in
the Society's asset quality, particularly in its commercial portfolio.
For the outlook to be returned to stable Moody's would expect to see asset
quality to remain stable throughout next year. If the performance
were to deteriorate substantially further in 2009 then this could put
further downward pressure on the ratings. However, as indicated
by the stable outlook on the BFSR, any weakening of the Society's
debt and deposit ratings would be likely limited to one notch.
Key rating drivers underpinning our current BFSR ratings of C-
for Newcastle are its strong retail funding profile (deposits to loan
ratio of 85%), its solid regional franchise, and currently
sound asset quality. In addition, the Society continues to
display solid capital ratios -- tier 1 stood at 10.1%
(Basel II) as of June 2008.
The following ratings were downgraded:
- Bank financial strength to C- from C
- Long term bank deposits to A3 from A2
- Senior unsecured debt ratings to A3 from A2
- Subordinated debt ratings to Baa1 from A3
- Short-term ratings to Prime-2 from Prime-1
The last rating action on Newcastle was on April 20, 2007 when Moody's
affirmed the Society's ratings of C/A2/P-1 after applying
its refined joint default analysis (JDA).
Newcastle Building Society, headquartered in Newcastle, is
United Kingdom's 12th largest building society with assets of GBP 5.2
billion as of end-June 2008.
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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