Actions follow Spain's downgrade to Baa3, on review for downgrade
NOTE: On July 4 2012, the press release was revised as follows: Corrected the unsolicited disclosure in the second paragraph of the Regulatory Disclosures section from:
"The ratings of rated entity Banca March S.A. were initiated by Moody's and were not requested by this rated entity."
to:
"Ratings for the Medium-Term Note Program issued by Banca March S.A. were initiated by Moody's and were not requested by this rated entity." Revised release follows:
Madrid, June 25, 2012 -- Moody's Investors Service has today downgraded by one to four notches
the long-term debt and deposit ratings for 28 Spanish banks and
two issuer ratings.
Today's actions follow the weakening of the Spanish government's
creditworthiness, as captured by Moody's downgrade of Spain's government
bond ratings to Baa3 from A3 on 13 June 2012, and the initiation
of a review for further downgrade. For more details on the rationale
for the sovereign downgrade, please refer to the press release (http://www.moodys.com/research/Moodys-downgrades-Spains-government-bond-rating-to-Baa3-from-A3--PR_248236).
Moody's adds that today's downgrades of the long-term
debt and deposit ratings also reflect the lowering of most of these banks'
standalone credit assessments.
The debt and deposit ratings declined by one notch for three banks,
by two notches for 11 banks, by three notches for ten banks and
by four notches for six banks. The short-term ratings for
19 banks have also been downgraded between one and two notches,
triggered by the long-term ratings changes.
Today's actions reflect, to various degrees across these banks,
two main drivers:
(i) Moody's assessment of the reduced creditworthiness of the Spanish
sovereign, which not only affects the government's ability
to support the banks, but also weighs on banks' standalone credit
profiles, and
(ii) Moody's expectation that the banks' exposures to commercial
real estate (CRE) will likely cause higher losses, which might increase
the likelihood that these banks will require external support.
This notwithstanding, Moody's views positively the broad based
support measures being introduced by the Spanish government to support
the Spanish banking system as a whole. Moody's will assess
the impact of the upcoming recapitalization on banks' creditworthiness
and bondholders once the final amount, timing and form of funds
flowing to each individual bank are known.
The ratings of both Banco Santander and Santander Consumer Finance are
one notch higher than the sovereign's rating, due to the high
degree of geographical diversification of their balance sheet and income
sources, and a manageable level of direct exposure to Spanish sovereign
debt relative to their Tier 1 capital, including under stress scenarios.
All the rest of the affected banks' standalone ratings are now at
or below Spain's Baa3 rating.
In addition, Moody's has also downgraded (i) the ratings for senior
subordinated debt and hybrid instruments of affected entities; (ii)
all rated government-backed debt issuances from Spanish banks;
and (iii) the long-term debt ratings of Instituto de Credito Oficial
(ICO), which are based on an unconditional and irrevocable guarantee
from the Spanish Government.
Please click this link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_143393
for the list of Affected Credit Ratings. This list is an integral
part of this press release and identifies each affected issuer.
For additional information on bank ratings, please refer to the
webpage containing Moody's related announcements: http://www.moodys.com/bankratings2012.
RATINGS RATIONALE -- STANDALONE BFSRs
Moody's has today downgraded the standalone BFSRs of 25 Spanish
banks out of a total of 33 rated institutions, three BFSRs were
maintained, and five institutions do not have a BFSR assigned to
them.
FIRST DRIVER --- REDUCED CREDITWORTHINESS OF THE
SPANISH SOVEREIGN
Moody's said that the reduced creditworthiness of the Spanish sovereign,
as captured by the agency's three-notch downgrade of Spain's
government bond rating, implies a weaker credit profile for Spanish
banks. This results from the banks' multiple linkages with
the sovereign, including (i) the impact of the government's financial
position on the domestic economy; and (ii) the large exposures of
most banks to their domestic government and to other counterparties that
depend on the credit strength of the government.
After today's rating actions, only the standalone ratings
of Banco Santander and Santander Consumer Finance are higher than Spain's
Baa3 rating in light of their geographical diversification when measured
by lending activities, revenues, and earnings. In addition,
Moody's believes that Banco Santander's Tier 1 capital ratio
would be resilient to applying conservative haircuts to not only the sovereign
exposures but also loans to sub-sovereigns. Santander Consumer
Finance does not hold any domestic government securities on its books.
Moody's believes that the very diversified portfolios of these entities
reduce their direct linkage to the sovereign risk profile, and they
are therefore rated one notch above the sovereign (see Moody's Sector
Comment "How Sovereign Credit Quality May Affect Other Ratings"
published 13 February, 2012).
SECOND DRIVER --- BANKS' CREDIT PROFILES VULNERABLE
TO HIGHER LOSS ASSUMPTIONS, PARTICULARLY ON COMMERCIAL REAL ESTATE
EXPOSURES
Several Spanish banks' balance-sheet clean-up exercises
have illustrated the difficulties involved with establishing credible
CRE asset valuations, because of the lack of market liquidity.
Furthermore, the required extended period of fiscal consolidation,
both at central and regional government levels, is likely to maintain
negative pressure on banks' balance sheets. As such,
Moody's stressed loss assumptions on the banks' CRE exposures
as well as its other credit exposures now anticipate outcomes ranging
from its more adverse scenario to more highly stressed scenarios typical
of countries that have experienced severe market disruptions in their
CRE sectors (e.g., Ireland). Many banks don't
have sufficient shock absorbers (earnings and capital) to withstand such
potential stresses. The downgrade of the banks' standalone
credit assessments and their new levels mostly in sub-investment
grade directly reflect the banks' relative vulnerability in such
a stress scenario as well as the heightened likelihood that they may need
further external support.
Nevertheless, Moody's views positively the Spanish government's
efforts to stabilize the entire banking system as well as Bankia (Ba2,
b2, all ratings under review with uncertain direction), which
have culminated with the announcement made on 9 June to seek financial
assistance from euro area Member States of up to EUR 100 billion to recapitalize
Spanish banks. The support will be provided by the EFSF or ESM
in the form of a loan granted to the FROB. This amount is intended
to cover the capital needs that will be revealed by the two valuation
processes currently underway plus an additional "safety margin".
The Spanish government has not revealed yet the amount that will be finally
requested and individual capital needs will be made public once the last
phase of the valuation is completed.
Moody's will assess the impact of such support on banks' creditworthiness
and on bondholders - including the conditionalities that are likely
to be imposed on restructured or recapitalized banks along the EU framework
for banks' bailouts -- once the amount, timing
and form of funds flowing to each individual bank are known. Moody's
will also assess to what extent the funding of Spanish government debt
by the banks may be curbed to reduce the risk of contagion between the
banks and the government.
With regards to Bankia, the b2 standalone credit assessment and
the three notch uplift for its debt and deposit ratings to Ba2 incorporate
the expectation of significant capital inflows along the lines of the
government's announcements dated 25 May 2012; at the same time,
the ratings reflect, among considerations, the uncertainty
about the exact form of the capital injection, as well as the conditionalities
that may be imposed by the EU in return for the receipt of state aid.
For the three other banks that are currently under administration of the
FROB, NCG Banco and Catalunya Banc (both rated B1/b2/Not Prime)
and Banco de Valencia (B3/caa1), in Moody's view these banks
may be the most likely next recipients of further capital in addition
to any capital they have already received. However, since
the FROB's approach up to now had been to sell these banks via auction
processes, there is no clarity yet about any further capital injections
in the event that these auctions are not successful. Therefore,
the ratings do not yet reflect the potential for further capital injections.
A primary driver of the rating actions on CECA, Banco Cooperativo
Espa?ol and Ahorro Corporacion is the rating adjustment applied
to their main counterparts (i.e., Spanish savings
banks and rural credit cooperatives).
Moody's has maintained the standalone ratings of Banco Pastor and
Banco CAM at current levels, based on the fact that these banks
are already fully-owned by Banco Popular and Banco Sabadell,
respectively, and that they will cease to exist as independent legal
entities by year--end 2012.
Furthermore, in the specific case of Banco Sabadell, which
has recently acquired Banco CAM, Moody's has factored in the
more ample risk-absorption capacity of the combined entity as a
consequence of the acquisition and the way it was structured, which
has limited the magnitude of the downgrade of Banco Sabadell's standalone
BFSR.
The review status and outlooks of the standalone BFSRs of 28 affected
banks are as follows:
--- 16 standalone ratings remain on review for downgrade
reflecting the continuing review for downgrade of the Spanish government's
Baa3 bond rating.
--- The ratings of nine institutions that are involved
in merger transactions are also on review, as Moody's continues
to assess the impact of such transactions on their credit profiles.
This explains the review status of CaixaBank, Unicaja and Banco
Ceiss, Banco Popular and Banco Pastor, Banco Sabadell and
Banco CAM, and Ibercaja Banco and Liberbank. In all these
cases, the standalone ratings are on review for downgrade,
with the exception of those of Banco CEISS (E+/b2) and Banco CAM
(E+/b3) that are on review with direction uncertain. These
review placements reflect the likelihood that the rating of the resultant
combined entity might be higher than their current ratings.
--- Bankia's (E+/b2) standalone ratings
remain on review with direction uncertain, given the uncertainties
regarding the impact on its credit profile of any conditionality that
may accompany its' recapitalisation, the terms and conditions
of instruments that will be used to recapitalise the bank, and the
precise timing of its recapitalisation.
--- The remaining two banks (Banco de Valencia and
Dexia Sabadell) have stable outlooks assigned to their E BFSRs.
However, the corresponding standalone credit assessments could face
some pressure to be remapped to a lower level within the E BFSR category
from the current caa1 level.
RATINGS RATIONALE -- SENIOR DEBT RATINGS
Today's downgrades of 28 debt and deposit ratings reflect both (i) Moody's
assessment that the ability of the Spanish government to provide future
support to Spanish banks has declined; and (ii) the banks'
reduced standalone credit profiles. The downgrades of 19 banks'
short-term ratings followed the downgrades of their long-term
ratings, consistent with Moody's standard mapping of short-term
to long-term ratings.
Moody's has also lowered its systemic support assessment for NCG
Banco, Catalunya Banco and Banco de Valencia to levels that are
consistent with their nationwide market shares, in line with the
criteria applied to the rest of the banking system as per Moody's
methodology (see "Incorporation of Joint-Default Analysis
into Moody's Bank Ratings: Global Methodology" published on
30 March, 2012).
Moody's had increased the uplift factored into the senior debt ratings
of these three banks as a result of their ownership by FROB (Fondo de
Restructuracion Ordenada Bancaria). These banks were intended to
benefit from an Asset Protection Scheme by the Deposit Guarantee Fund
-- which is funded by annual contributions from member banks.
However, Moody's assigns a very low probability to the completion
of a swift auction process, given the system-wide pressures
and the uncertainties regarding the size, terms and schedule of
the recapitalisation of the system by the EFSF or ESM.
Furthermore, Moody's has downgraded the issuer ratings of
La Caixa and Banco Financiero y de Ahorro (BFA), triggered by the
downgrade of the debt ratings of their operating companies, CaixaBank
and Bankia, respectively. The issuer ratings of La Caixa
and BFA are positioned two and three notches, respectively,
below the long-term ratings of their operating companies.
The issuer rating of La Caixa is on review for downgrade, whilst
BFA's is on review direction uncertain. Both outlooks reflect
the outlooks on their operating companies' ratings.
Moody's has maintained the debt and deposit ratings of three entities
at their current levels (Banco Pastor, Banco CAM and Lico Leasing).
The debt ratings of Banco Pastor and Banco CAM incorporate their full
ownership by Banco Popular and Banco Sabadell, respectively,
and our expectation that their debt will be legally assumed by their owners
during the current year as they will cease to exist as independent legal
entities. To reflect this situation, Moody's has assigned
a very high probability of parental support to these banks' debt
ratings.
The review status and outlooks on the debt and deposit ratings of 33 publicly
rated institutions are as follows:
--- 30 are on review for downgrade, reflecting
the review for downgrade of the Spanish government's Baa3 bond rating
and the review for downgrade on the banks' standalone BFSRs.
--- The debt and deposit ratings of Banco CEISS and
Bankia are on review with direction uncertain, reflecting the review
with direction uncertain of these banks' standalone BFSRs.
--- The issuer rating of BFA is on review with direction
uncertain reflecting the review with direction uncertain of Bankia's
standalone BFSR
RATINGS RATIONALE -- SENIOR SUBORDINATED DEBT AND HYBRID
INSTRUMENTS
Moody's has downgraded the senior subordinated debt and hybrid ratings
of 24 Spanish banks in line with the lowering of their standalone credit
assessments. Moody's had previously removed government support
assumptions from its ratings of subordinated debt and hybrid instruments
of Spanish banks on 12 December 2011, see "Rating Action:
Moody's reviews Spanish banks' ratings for downgrade; removes systemic
support for subordinated debt" (http://www.moodys.com/research/Moodys-reviews-Spanish-banks-ratings-for-downgrade-removes-systemic-support--PR_232353).
RATINGS RATIONALE -- GOVERNMENT-GUARANTEED DEBT
Following the downgrade of the Spanish government's bond rating,
Moody's has also downgraded to Baa3, on review for downgrade,
from A3, and with a negative outlook the backed senior debt of 17
institutions. The backed-Baa3 ratings assigned are based
on the unconditional guarantee, which directly links these ratings
to the Spanish government. (See "Moody's to assign backed Aaa ratings
to new euro-denominated long-term debt securities covered
by Spanish government's guarantee," published on 22 January 2009.)
RATINGS RATIONALE -- THE DOWNGRADE OF ICO's RATINGS
Moody's has downgraded to Baa3, on review for downgrade, from
A3 (negative outlook) all of ICO's rated debt. Since ICO's
liabilities are explicitly, irrevocably, directly and unconditionally
guaranteed by the government of Spain, the rating action on ICO
is triggered by the three-notch downgrade of the sovereign's ratings.
WHAT COULD MOVE THE RATINGS UP/DOWN
Downward pressure on Spanish banks' ratings primarily arises from
the current review for downgrade process of the Spanish sovereign rating,
given the negative implications of the weaker creditworthiness of the
sovereign on banks' credit risk profiles. Further downward
pressure on the banks' ratings might in addition develop if (i) operating
conditions worsen beyond Moody's current expectations; (ii) asset-quality
deterioration exceeds Moody's current expectations; and/or (iii)
pressures on market-funding intensify.
Upward pressure on the ratings may arise upon the implementation of the
government's plan to stabilize the banking system, to the
extent that banks' resilience to the challenging prevailing conditions
improve. Likewise, any improvement in the standalone strength
of banks arising from stronger earnings, improved funding conditions
or the work-out of asset-quality challenges could result
in rating upgrades.
The methodologies used in these ratings were Bank Financial Strength Ratings:
Global Methodology published in February 2007, and Incorporation
of Joint-Default Analysis into Moody's Bank Ratings:
Global Methodology published in March 2012. Please see the Credit
Policy page on www.moodys.com for a copy of these methodologies.
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.
Ratings for the Medium-Term Note Program issued by Banca March S.A. were initiated by Moody's and were not requested by this rated entity.
Rated entity Banca March S.A its agent(s) participated in the rating
process. This rated entity or its agent(s), if any,
provided Moody's access to the books, records and other relevant
internal documents of the rated entity.
The ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings 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
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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 entities or their related third parties within
the two 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.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
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.
Johannes Wassenberg
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
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United Kingdom
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Gregory?Winans?Bauer
MD - Global Banking
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Moody's downgrades Spanish banks
