Actions conclude review initiated on 15 February 2012
New York, June 21, 2012 -- Moody's Investors Service today repositioned the ratings of 15 banks
and securities firms with global capital markets operations. The
long-term senior debt ratings of 4 of these firms were downgraded
by 1 notch, the ratings of 10 firms were downgraded by 2 notches
and 1 firm was downgraded by 3 notches. In addition, for
four firms, the short-term ratings of their operating companies
were downgraded to Prime-2. All four of those firms also
now have holding company short-term ratings at Prime-2.
The holding company short-term ratings of another two firms were
downgraded to Prime-2 as well.
"All of the banks affected by today's actions have significant
exposure to the volatility and risk of outsized losses inherent to capital
markets activities", says Moody's Global Banking Managing
Director Greg Bauer. "However, they also engage in
other, often market leading business activities that are central
to Moody's assessment of their credit profiles. These activities
can provide important 'shock absorbers' that mitigate the
potential volatility of capital markets operations, but they also
present unique risks and challenges." The specific credit
drivers for each affected firm are summarized below.
Today's rating actions conclude the review initiated on 15 February
2012 when Moody's announced a ratings review prompted by its reassessment
of the volatility and risks that creditors of firms with global capital
markets operations face. In the past, these risks have led
many institutions to fail or to require outside support, including
several firms affected by today's rating actions. Today's
actions, however, reflect not only the credit implications
of capital markets operations. They also reflect (i) the size and
stability of earnings from non-capital markets activities of each
firm, (ii) capitalization, (iii) liquidity buffers,
and (iv) other considerations, including, as applicable,
exposure to the operating environment in Europe, any record of risk
management problems, and risks from exposure to US residential mortgages,
commercial real estate or legacy portfolios.
OVERVIEW OF TODAY'S RATING ACTIONS
Moody's has taken action on the following holding company ratings:
Bank of America Corporation
Long-term senior unsecured debt to Baa2 from Baa1, outlook
negative; Short-term P-2 affirmed
Barclays plc
Long-term issuer rating to A3 from A1, outlook negative;
Short-term to P-2 from P-1
Citigroup Inc.
Long-term senior debt to Baa2 from A3, outlook negative;
short-term P-2 affirmed
Credit Suisse Group AG
Provisional senior debt to (P)A2 from (P)Aa2, outlook stable;
Provisional Short-term (P)P-1 affirmed
The Goldman Sachs Group, Inc.
Long-term senior unsecured debt to A3 from A1, outlook negative;
Short-term to P-2 from P-1
HSBC Holdings plc
Long-term senior debt to Aa3 from Aa2, outlook negative;
Provisional Short-term (P)P-1 affirmed
JPMorgan Chase & Co.
Long-term senior debt to A2 from Aa3, outlook negative;
Short-term P-1 affirmed
Morgan Stanley
Long-term senior unsecured debt to Baa1 from A2; outlook negative;
Short-term to P-2 from P-1
Royal Bank of Scotland Group plc
Long-term senior debt to Baa1 from A3, outlook negative;
Short-term P-2 affirmed
Moody's has taken action on the following operating company ratings:
Bank of America, N.A.
Long-term deposit rating to A3 from A2, outlook stable;
Short-term to P-2 from P-1
Barclays Bank plc
Long-term issuer rating to A2 from Aa3, outlook negative;
Short-term P-1 affirmed
BNP Paribas
Long-term debt and deposit rating to A2 from Aa3; outlook
stable; Short-term P-1 affirmed
Citibank, N.A.
Long-term deposit rating to A3 from A1, outlook stable;
Short-term to P-2 from P-1
Credit Agricole S.A.
Long-term debt and deposit rating to A2 from Aa3, outlook
negative; Short-term P-1 affirmed
Credit Suisse AG
Long-term deposit and senior debt rating to A1 from Aa1,
outlook stable; Short-term P-1 affirmed
Deutsche Bank AG
Long-term deposit rating to A2 from Aa3, outlook stable;
Short-term P-1 affirmed
Goldman Sachs Bank USA
Long-term deposit rating to A2 from Aa3, outlook stable;
Short-term P-1 affirmed
HSBC Bank plc
Long-term deposit rating to Aa3 from Aa2, outlook negative;
Short-term P-1 affirmed
JPMorgan Chase Bank, N.A.
Long-term deposit rating to Aa3 from Aa1, outlook stable;
Short-term P-1 affirmed
Morgan Stanley Bank, N.A.
Long-term deposit rating to A3 from A1, outlook stable;
Short-term to P-2 from P-1
Royal Bank of Canada
Long-term deposit rating to Aa3 from Aa1, outlook stable;
Short-term P-1 affirmed
Royal Bank of Scotland plc
Long-term deposit rating to A3 from A2; outlook negative;
Short-term to P-2 from P-1
Societe Generale
Long-term debt and deposit to A2 from A1; outlook stable;
Short-term P-1 affirmed
UBS AG
Long-term debt and deposit to A2 from Aa3, outlook stable;
Short-term P-1 confirmed.
Please click on the following link to access the full list of affected
credit ratings. This list is an integral part of this press release
and identifies each affected issuer: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_143274.
RATINGS RATIONALE -- STANDALONE CREDIT DRIVERS
Moody's assessment of each firm's standalone credit profile
led to the following relative positioning of the firms:
--FIRST GROUP
The first group of firms includes HSBC, Royal Bank of Canada and
JPMorgan. Capital markets operations (and the associated risks)
are significant for these firms. However, these institutions
have stronger buffers, or 'shock absorbers,' than
many of their peers in the form of earnings from other, generally
more stable businesses. This, combined with their risk management
through the financial crisis, has resulted in lower earnings volatility.
Capital and structural liquidity are sound for this group, and their
direct exposure to stressed European sovereigns and financial institutions
is contained.
Firms in this group now have standalone credit assessments of a3 or better
(on a scale from aaa, highest, to c, lowest).
Their main operating companies now have deposit ratings of Aa3,
and their holding companies, where they exist, have senior
debt ratings between Aa3 and A2. Their short-term ratings
are Prime-1 at both the operating and holding company level.
--SECOND GROUP
The second group of firms includes Barclays, BNP Paribas,
Credit Agricole SA (CASA), Credit Suisse, Deutsche Bank,
Goldman Sachs, Societe Generale and UBS. Many of these firms
rely on capital markets revenues to meet shareholder expectations.
Their relative position reflects a combination of differentiating and
sometimes adverse factors. Capital markets operations constitute
a large part of the overall franchises for Credit Suisse, Goldman
Sachs, Barclays, and Deutsche Bank, but less so for
UBS, Societe Generale, BNP Paribas and CASA's cooperative
group, Groupe Credit Agricole.
Other factors contribute to the relative positioning. For example,
Barclays, BNP Paribas and Groupe Credit Agricole have, to
varying degrees, relatively robust shock absorbers. Exposure
to capital markets businesses is very high for Goldman Sachs, but
this is balanced by a record of effective risk management. Barclays,
BNP Paribas, Groupe Credit Agricole, and Deutsche Bank also
have sizeable but varying degrees of exposure to weaker European economies.
Some firms are relatively weak with regard to structural liquidity or
reliance on wholesale funding.
Firms in this group now have standalone credit assessments of baa1 or
baa2. Their deposit ratings range between A1 and A2, and
their short-term ratings are Prime-1 at the operating company
level. Their holding companies, where they exist, have
senior debt ratings between A2 and A3 and short-term ratings between
Prime-1 and Prime-2.
--THIRD GROUP
The third group of firms includes Bank of America, Citigroup,
Morgan Stanley, and Royal Bank of Scotland. The capital markets
franchises of many of these firms have been affected by problems in risk
management or have a history of high volatility, while their shock
absorbers are in some cases thinner or less reliable than those of higher-rated
peers. Most of the firms in this group have undertaken considerable
changes to their risk management or business models, as required
to limit the risks from their capital markets activities. Some
are implementing business strategy changes intended to increase earnings
from more stable activities. These transformations are ongoing
and their success has yet to be tested. In addition, these
firms may face remaining risks from run-off legacy or acquired
portfolios, or from noteworthy exposure to the euro area debt crisis.
Firms in this group now have standalone credit assessments of baa3.
Their deposit ratings are A3 at the operating company level. Their
holding companies, where they exist, have senior debt ratings
between Baa1 and Baa2. Their short-term ratings are Prime-2
at both the operating and holding company level.
Moody's has today published a special comment titled "Key
Drivers of Rating Actions on Firms with Global Capital Markets Operations"
(http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_143246),
which provides more detail, including the rating rationale for each
firm affected by today's actions. Please refer to the following
webpage for additional related announcements: http://www.moodys.com/bankratings2012
RATINGS RATIONALE - SENIOR DEBT AND DEPOSITS
Moody's systemic support assumptions for firms with global capital
markets operations remain high, given their systemic importance,
and have not been a key driver of today's rating actions.
While Moody's recognizes the clear intent of governments around
the world to reduce support for creditors, the policy framework
in many countries remains supportive for now, not least because
of the economic stress currently stemming from the euro area and the potential
systemic repercussions of large, disorderly bank failures and the
difficulty of resolving large, complex and interconnected institutions.
However, reflecting the view that government support is likely to
become less certain and predictable over time, Moody's has
assigned negative outlooks on certain supported ratings of entities affected
by today's actions, particularly at the holding company level,
as discussed in detail in the firm-specific summaries below.
Moody's view on support considers efforts by policymakers globally
to create resolution and bail-in regimes that allow for more flexible
and limited support in a stress scenario.
RATINGS RATIONALE -- SUBORDINATED DEBT AND HYBRIDS
In addition, Moody's has today downgraded the subordinated debt
and hybrid ratings of the firms whose senior debt ratings have been repositioned.
The downgrades reflect the revised senior debt ratings and, in some
cases, also the removal of systemic support assumptions from subordinated
debt classes. In Moody's view, systemic support in many countries
is no longer sufficiently predictable and reliable going forward to warrant
incorporating systemic-support driven uplift into these debt ratings.
RATING IMPLICATIONS FOR SOME SUBSIDIARIES WILL BE ASSESSED SEPARATELY
Moody's has also today taken rating actions on a number of subsidiaries
and legal entities of firms with global capital markets activities,
as summarized below. However, for some other subsidiaries
of firms included in today's announcement, Moody's will separately
assess the impact of their parents' reduced credit strength.
RATING REVIEWS OF MACQUARIE AND NOMURA WERE CONCLUDED EARLIER
Of the 17 banks and securities firms with global capital market operations
that were placed on review for downgrade in February, the reviews
of two firms were concluded separately. Please see the following
press releases for further information: "Moody's downgrades
Nomura Holdings to Baa3 from Baa2; outlook stable, (http://v3.moodys.com/viewresearchdoc.aspx?docid=PR_240381)
published 15 March 2012, and "Moody's downgrades Macquarie
Bank to A2, Macquarie Group to A3," (http://v3.moodys.com/viewresearchdoc.aspx?docid=PR_240306)
published 16 March 2012.
ISSUER SPECIFIC CONSIDERATIONS (ALPHABETICAL ORDER)
BANK OF AMERICA
Bank of America Corporation's (BAC) senior unsecured debt ratings
were downgraded to Baa2 from Baa1 and the deposit ratings of Bank of America,
N.A. (BANA) were downgraded to A3/Prime-2 from A2/Prime-1.
Bank of America Corporation's Prime-2 short-term rating
was affirmed. Moody's also downgraded the bank's standalone
credit assessment to D+/baa3 from C-/baa2. The outlook
on the standalone credit assessment and the ratings of BAC's operating
subsidiaries is stable, while that on the senior debt and subordinated
debt ratings of (or guaranteed by) the parent holding company is negative.
BAC's ratings benefit from three notches of uplift from the standalone
credit assessment at the subsidiary bank level, and two notches
of uplift at the holding company level, reflecting Moody's
assumptions about the very high likelihood of support from the US government
for bondholders or other creditors in the event that such support is required
to prevent a default.
The lowering of the standalone credit assessment to baa3 positions Bank
of America in the third group of firms with significant global capital
markets activities. This position reflects (i) the large absolute
size and funding requirements of the bank's capital markets activities;
(ii) the bank's relatively high historical earnings volatility and
the problems in risk management and controls it experienced during the
crisis, and (iii) constraints on the ability of Bank of America's
other businesses to provide strong earnings buffers to protect against
capital markets risks, given the potential for additional losses
on the bank's large residential mortgage-related exposures
(including its mortgage-related litigation exposures). Partly
mitigating these risks are (i) the bank's sound structural liquidity
profile and large global excess liquidity pool; (ii) its improving
capital levels and leverage that is below that of many of its peers;
and (iii) enhancements to corporate governance and the risk management
function.
The stable outlook on Bank of America's standalone credit assessment
and its bank-level ratings reflects the view that these risk factors
have now been fully incorporated into the bank's ratings.
A significant reduction in the bank's mortgage-related exposures
could lead to upward pressure on the rating, while any indications
of control failures, a marked increase in risk appetite or deterioration
in capital levels would lead to downward pressure on the ratings.
The negative outlook on the parent holding company's supported ratings
reflects Moody's view that government support for US bank holding
company creditors is becoming less certain and less predictable,
given the evolving attitude of US authorities to the resolution of large
financial institutions, whereas support for creditors of operating
entities remains sufficiently likely and predictable to warrant stable
outlooks.
++++
BARCLAYS
Barclays Bank (Barclays) plc's long-term deposit and debt
ratings were downgraded to A2 from Aa3 and the bank's Prime-1
short-term ratings were affirmed. The bank's standalone
credit assessment was lowered to C-/baa2 from C/a3. The
senior debt and deposit ratings benefit from three notches of uplift from
the standalone rating, reflecting Moody's expectation of a
very high probability of government support for the bank in the event
of stress. The ratings of the holding company, Barclays plc,
were downgraded to A3/ P-2 from A1/P-1. The outlook
on the C- standalone rating is stable, whereas that on the
A2 long-term deposit rating is negative, reflecting the view
that government support for large UK banks will reduce over the medium
term.
The lowering of the standalone credit assessment to baa2 places Barclays
in the second group of firms with significant global capital market activities,
that is, those with baseline credit assessments of baa1 or baa2.
This position reflects (i) a relatively high proportion of revenues and
earnings from global investment banking (GBP10.3 billion,
representing 40% of revenues adjusted for fair value of own debt
over 2009 - 2011); (ii) concentration risks inherent in investment
banking (particularly to other financial institutions); and (iii)
sensitivity to the weak operating environment in Europe, given the
bank's operations in Spain and Italy, as well as to the challenging
environment in the UK. These factors are somewhat mitigated by
(i) strong franchises in non-investment banking activities (albeit
not all producing the returns targeted by management); (ii) track
record of low historical earnings volatility compared with the peer group;
(iii) good liquidity management, including a high-quality
liquidity buffer, and an adequate funding profile; and (iv)
capital levels that remain resilient under stress tests.
The stable outlook on Barclays' standalone credit assessment reflects
the view that capital markets-related risk factors have now been
fully incorporated into the bank's ratings.
If the more immediate risks in the operating environment in the UK and
Europe were to recede or Barclays were to significantly strengthen the
profitability of its non-investment banking businesses, the
bank's ratings could come under upward pressure. On the other
hand, any indications of control failures, a marked increase
in risk appetite or a deterioration in capital levels could lead to downward
pressure on the ratings.
++++
BNP PARIBAS
BNP Paribas's (BNPP) long-term debt and deposit ratings were
downgraded by two notches, to A2 from Aa3. The bank's
Prime-1 short-term rating was affirmed. The standalone
credit assessment was lowered by two notches, to C-/baa2
from C/a3. The outlook on both the standalone credit assessment
and the long-term debt and deposit ratings is stable.
Senior debt and deposit ratings are rated A2 and incorporate three notches
of uplift from government support assumptions.
BNPP's dated subordinated and junior subordinated debt ratings were
downgraded to Baa3 and (P)Ba1, respectively (one and two notches
below its baa2 standalone credit assessment). The downgrades reflect
the removal of government support assumptions from the dated subordinated
debt instruments. In Moody's view, government support in
many European countries, including France, is no longer sufficiently
predictable and reliable to warrant incorporating government support-driven
uplift into these debt ratings. Ratings on preference shares were
downgraded by two notches, to Ba2(hyb), and continue to be
positioned three notches below the standalone credit assessment.
The lowering of the standalone credit assessment to baa2 places BNPP in
the second group of firms with significant global capital market activities.
This position reflects (i) the significant proportion of BNPP's
revenues generated by its capital markets business, which contributed
18% of group revenues on average between 2009 and 2011, and
is a very significant business in its own right; (ii) the view that
BNPP is more dependent on short-term wholesale funding and its
liquidity position weaker compared to many of its global peers; and
(iii) BNPP's large exposures to economies under pressure from the
broader euro area crisis, in particular Italy through its subsidiary
BNL, which has a loan book of EUR71 billion, in addition to
BNPP's portfolio of sovereign bonds, of which EUR11 billion are
Italian.
These factors are somewhat mitigated by BNPP's (i) broad spread
of generally strong businesses, predominantly in retail and commercial
banking, which provide a more dependable stream of earnings and
resultant advantages in terms of risk diversification and loss absorption
capacity; (ii) strengthened capital position in anticipation of Basel
III standards; (iii) materially reduced dependence on short-term
US dollar funding, which proved unreliable; and (iv) relatively
good track record in terms of risk management, including in its
capital markets business.
BNPP's ratings could come under upward pressure from a combination
of (i) a material structural improvement in the bank's liquidity
and funding position; (ii) a reduction in the weight of the capital
markets business within the group; and (iii) improving conditions
in European markets. On the other hand, any indications of
control failures, an increase in risk appetite or a willingness
to increase leverage could lead to downward pressure on the bank's
ratings.
BANCA NAZIONALE DEL LAVORO
Banca Nazionale del Lavoro's (BNL) long- and short-term
deposit ratings were downgraded by three notches, to Baa2 (negative
outlook)/Prime-2 from A2/Prime-1. This was prompted
by the downgrade of its BFSR to D+ with a negative outlook (mapping
to a ba1 standalone credit assessment), from C-/baa1.
The downgrade of BNL's standalone credit assessment reflects the
combined pressures on the bank's asset quality, profitability
and funding from the difficult operating environment. It also reflects
BNL's reliance on parental funding.
BNL's long-term global local-currency (GLC) deposit
rating is Baa2, based on Moody's assessment of a very high
probability of support from parent BNPP and a high probability of government
support, if needed, which results in two notches of rating
uplift from the ba1 standalone credit assessment. The negative
outlook reflects the challenging operating environment in Italy.
With a reported problem loan ratio of 12.3% in 2011 (compared
with 11.2% for the system), up from 10.6%
in 2010, the bank's focus on midsize corporate loans in central
and southern Italy has weakened its asset quality. Profitability
was low in 2011 and is unlikely to improve significantly in 2012.
These factors create some vulnerability in BNL's capital under Moody's
central scenario.
With loans equivalent to a high 212% of retail funding, BNL's
reliance on the ECB is above that of its Italian peers; it also relies
heavily on BNPP. Moody's believes that over time BNL may
be required to reduce its use of parental funding, which may in
turn create pressure to reduce its own balance sheet.
FORTIS BANK
Fortis Bank SA/NV's (Fortis Bank) long-term debt and deposit
ratings were downgraded by one notch, to A2 from A1, and are
now in line with those of BNPP. The bank's Prime-1
short-term rating was affirmed. The C-/baa1 standalone
credit assessment is unaffected by today's rating actions.
The rating action reflects the downgrade of BNPP and the resultant impact
on the parental support assumptions Moody's incorporates into its
long-term ratings. Further, the bank's dated
subordinated and junior subordinated debt ratings were downgraded to Baa2
and Baa3(hyb), respectively (one and two notches below its baa1
standalone credit assessment), following the removal of government
support assumptions. The outlook on all the ratings is stable.
BGL BNP PARIBAS
BGL BNP Paribas's long-term debt and deposit ratings were
downgraded by one notch, to A2 from A1, and are in line with
those of BNPP. The Prime-1 short-term rating was
affirmed. The C/a3 standalone credit assessment is unaffected by
today's rating actions. The rating action reflects the downgrade
of BNPP and the resultant impact on the parental support assumptions Moody's
incorporates into its long-term ratings. Further,
the bank's dated subordinated and junior subordinated debt ratings
were downgraded to Baa1 and (P)Baa2, respectively (one and two notches
below its a3 standalone credit assessment), following the removal
of government support assumptions. The outlook on all the ratings
is stable.
++++
CITIGROUP
Citigroup Inc.'s (Citi) long-term senior rating was
lowered to Baa2 from A3. Citigroup Inc.'s Prime-2
short-term rating was affirmed. In addition, the long-term
and short-term deposit ratings of Citibank N.A. were
lowered to A3 and Prime-2 from A1 and Prime-1, respectively.
Moody's also downgraded the bank's standalone credit assessment
to D+/baa3 from C-/baa1. The outlook on the standalone
credit assessment and the ratings of Citi's operating subsidiaries
are stable, while that on the senior debt and subordinated debt
ratings of (or guaranteed by) the parent holding company is negative.
Citi's ratings benefit from three notches of uplift from the standalone
credit assessment at the subsidiary bank level, and from two notches
of uplift at the holding company level, reflecting Moody's
assumption of a very high likelihood of government support for bondholders
or other creditors in the event such support was required to prevent a
default.
Citi is in the third group of firms with significant global capital markets
activities. This position reflects i) the bank's very high
commitment to the capital markets; ii) the bank's historically
high earnings volatility and the problems Citi experienced during the
crisis in terms of risk management and controls; and iii) the challenges
of instilling a risk culture that results in low volatility, considering
Citi's commitment to the capital markets business and the pressure
to return capital to shareholders. Partly mitigating these factors
are (i) Citi's sizable "shock absorbers" in the form
of earnings from other, more stable businesses, although this
benefit is somewhat less than it is for banks with a dominant domestic
franchise. Other mitigating factors are the bank's (ii) strong
liquidity; (iii) sound capital; and (iv) the visible progress
Citi has made in rebuilding its corporate governance and risk management
structure.
The stable outlook (on Citi's standalone credit assessment and its
bank-level ratings) reflects the view that these risk factors have
now been fully incorporated into the bank's ratings. Upward
rating pressure would emerge if Moody's felt that Citi's improved
risk management structure had traction throughout the bank's large
and complex global network. Signals of traction would include a
superior comparative performance in adverse market conditions.
Other indicators would be conservative capital management and maintenance
of a prudent liquidity profile. Upward rating pressure would also
emerge if Citi were successful in gaining market share, in a controlled
manner, in its global branch banking business. Any indications
of control failures, a marked increase in risk appetite or deterioration
in capital levels would lead to downward rating pressure.
The negative outlook on the holding company ratings reflects Moody's
view that government support for US bank holding company creditors is
becoming less certain and less predictable, given the evolving attitude
of US authorities to the resolution of large financial institutions,
whereas support for creditors of operating entities remains sufficiently
likely and predictable to warrant stable outlooks.
++++
CREDIT AGRICOLE SA
Credit Agricole SA's (CASA) long-term debt and deposit ratings
were downgraded by two notches, to A2 from Aa3. The bank's
Prime-1 short-term rating was affirmed. The standalone
credit assessment was lowered by three notches, to D/ba2 from C-/baa2,
and the adjusted baseline credit assessment -- incorporating cooperative
support from Groupe Credit Agricole (GCA) -- to baa2 from a3.
The outlook on both the standalone credit assessments and the long-term
debt and deposit ratings is negative.
The bank's senior debt and deposit ratings are rated A2 and incorporate
three notches of uplift from government support assumptions.
CASA's dated subordinated and junior subordinated debt ratings were
downgraded to Baa3 and Ba1(hyb), respectively (one and two notches
below its baa2 adjusted BCA). The downgrade reflects the removal
of government support assumptions from the dated subordinated debt instruments.
In Moody's view, government support in many European countries,
including France, is no longer sufficiently predictable or reliable
to warrant incorporating government support-driven uplift into
these debt ratings. The ratings on preference shares were downgraded
by two notches, to Ba2(hyb), and continue to be positioned
three notches below the baseline credit assessment.
The lowering of the adjusted baseline credit assessment to baa2 places
CASA in the second group of firms with significant global capital market
activities. This position reflects (i) the risks to CASA from its
significant exposure to the Greek economy, particularly in view
of the EUR4.6 billion of financing currently extended to its local
subsidiary, Emporiki (Caa2, E/caa3 negative); and (ii)
the bank's greater dependence compared to many peers on short-term
wholesale funding and a higher reliance on central bank eligible loans
for its liquidity reserves, which Moody's thus considers to
be of lower intrinsic quality. Moody's considers that capital
markets activities, which have contributed about 8% of group
revenue over the past three years, are a more marginal risk factor
for CASA than for most other banks, even if their earnings remain
volatile.
Moody's also recognizes some mitigating factors: (i) GCA is
primarily a retail and commercial bancassurance group whose activities
generate stable revenue streams, which allows the group to withstand
substantial shocks within its smaller, more volatile business lines;
(ii) the group has taken strategic decisions to reduce its riskier activities
and has invested in improving its risk management; and (iii) group
capital resources have been increased, and display a good level
of resistance under Moody's stress tests.?
The negative outlook on the standalone credit assessment and long-term
ratings recognizes that the balance of risks lies to the downside,
given the increased probability Moody's attaches to a potential
exit of Greece from the euro area. Although such an event would
likely be financially manageable for the group, it would nonetheless
be very significant. An increase in the likelihood of a Greek exit
could result in further downward rating pressure. ?
Given the negative outlook on long-term ratings and the BFSR,
the probability of an upgrade is low for either rating. The outlook
could revert to stable if the risks associated with a Greek exit from
the euro area subside significantly, such that CASA's standalone
credit strength stabilizes.
Downward pressure on the ratings could result from (i) an increase in
the risk of a Greek exit from the euro area; (ii) further deterioration
in funding conditions; (iii) an aggressive recommitment to the capital
markets business, as evidenced through greater balance sheet usage
or market risk appetite; (iv) a weakening in the availability of
cooperative support mechanisms; and/or (v) a marked weakening in
the capacity or willingness of the French government to provide support
for the benefit of creditors.
CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK (CACIB)
CACIB's long-term debt and deposit ratings were downgraded
by two notches, to A2 from Aa3, in line with those of CASA.
The Prime-1 short-term rating was affirmed. The standalone
credit assessment was lowered by one notch, to D-/ba3 from
D/ba2, and the adjusted baseline credit assessment -- incorporating
cooperative support from GCA -- to baa2 from a3. The lowering
of CACIB's standalone credit assessment reflects principally the
wholesale bias of CACIB, and hence its exposure to both capital
markets and funding constraints, as evidenced by its current deleveraging
program. The outlook on the standalone credit assessment is stable
and that on the long-term debt and deposit ratings is negative.
The downgrade in the long-term rating principally reflects the
decline in the creditworthiness of GCA, which Moody's expects
to support CACIB in the event of need.
LE CREDIT LYONNAIS SA (LCL)
LCL's long-term debt and deposit ratings were downgraded
by two notches, to A2 from Aa3, in line with those of CASA.
The Prime-1 short-term rating was affirmed. The standalone
credit assessment was lowered by one notch, to C/a3 from C+/a2.
The outlook on the standalone credit assessment is stable and that on
the long-term debt and deposit is negative. The lowering
of LCL's standalone credit assessment reflects the more difficult
operating environment in which LCL operates, and which is expected
to modestly impact profitability and asset quality going forward.
The downgrade of the long-term debt and deposit ratings for the
most part reflects the decline in the creditworthiness of GCA, which
Moody's expects to support LCL in the event of need.
++++
CREDIT SUISSE
Credit Suisse AG's deposit and senior debt ratings were downgraded
to A1 from Aa1 and the bank's Prime-1 short-term rating
was affirmed. The bank's standalone credit assessment was
downgraded to C-/baa1 from B/aa3. The provisional senior
debt ratings of the bank's parent holding company, Credit
Suisse Group AG, were downgraded to (P)A2 from (P)Aa2 and its provisional
short-term rating was affirmed at (P)Prime-1. The
outlook on all the ratings is stable.
Credit Suisse's deposit and senior debt ratings benefit from three
notches of uplift from the bank's standalone credit assessment,
reflecting Moody's assumptions about a very high likelihood of support
from the Swiss government for senior bondholders and other senior creditors
in the event that such support was required to prevent a default.
On the other hand, Credit Suisse's subordinated debt ratings
(at Baa2 for Credit Suisse AG) are now notched off the bank's standalone
credit assessment, following the removal of the assumption of government
support for this class of debt at Swiss banks. Moody's views
government support for the subordinated debt of Swiss banks as no longer
sufficiently predictable or reliable to warrant incorporating any related
uplift into its ratings.
The lowering of the standalone credit assessment to baa1 positions Credit
Suisse in the second group of firms with significant global capital markets
activities. This position reflects (i) a relatively high proportion
of revenues and earnings from, and a clear commitment to,
the global capital markets business; (ii) the large absolute size
of the bank's wholesale funding requirements; and (iii) relatively
high historical earnings volatility. These factors are partly mitigated
by (i) the stable stream of earnings from the bank's wealth management
and Swiss banking businesses; (ii) a highly pro-active approach
to risk management; (iii) a sound structural liquidity profile and
strong liquidity risk management; (iv) an improving capital position
that is expected to result in lower leverage and capital ratios above
the average for the bank's peers; and (v) resilience to the
weak operating environment in Europe, given low exposures to peripheral
Europe and Switzerland's perceived safe-haven status among
investors.
The stable outlook on Credit Suisse's ratings reflects the view
that capital markets-related risk factors have now been fully incorporated
into the bank's ratings. Given the bank's high ratings
compared with those of most of its global capital markets peers,
Moody's does not expect significant upward pressure on the bank's
ratings absent a significant reduction in the bank's reliance on
earnings from its capital markets business. Any indications of
control failures, a marked increase in risk appetite, a significant
decline in the Swiss economy or deterioration in capital levels would
lead to downward pressure on the ratings.
++++
DEUTSCHE BANK AG
Deutsche Bank AG's long-term deposit ratings were downgraded
to A2 from Aa3. The downgrade resulted from the lowering of Deutsche
Bank's standalone credit assessment to C-/baa2 from C+/a2.
The outlook on all the ratings is stable. All the bank's
Prime-1 short-term ratings were affirmed. This rating
action is consistent with Moody's 15 February guidance and concludes
a review for downgrade undertaken as part of an industry review of global
investment banks.
Deutsche Bank AG's debt and deposit ratings benefit from three notches
of uplift from the standalone credit assessment, reflecting Moody's
assumptions about a very high likelihood of support from the German government
for senior bondholders in the event such support was required to prevent
a default.
The lowering of the standalone credit assessment to baa2 positions Deutsche
Bank in the second group of firms with significant global capital markets
activities. The position in the second group reflects Deutsche
Bank's (i) very large capital markets business (representing 45%
of firm-wide revenues in 2011) and unwavering commitment to these
businesses; (ii) relatively high level of secured and unsecured wholesale
funding within the overall balance sheet; (iii) balance sheet leverage
that is higher than the industry average; and (iv) its vulnerabilities
to weaknesses in the euro area. These factors are partly mitigated
by Deutsche Bank's (i) more stable earnings from private clients,
asset management and global transaction banking; (ii) an acceptable
structural liquidity position and strengthened liquidity pool; and
(iii) adequate capital levels relative to Moody's stress assumptions
on the bank's loan book.
The expectation that these risk factors have been fully incorporated into
the current standalone rating underlies the stable outlook on the bank's
BFSR. However, any indications of control failures,
a marked increase in risk appetite, or a willingness to increase
leverage could lead to downward pressure on the ratings. Upward
rating pressure could develop if Deutsche Bank were to scale back its
ambitions in capital markets businesses (which Moody's considers
unlikely), or if more predictable business lines become a much larger
portion of the earnings mix.
++++
GOLDMAN SACHS
The Goldman Sachs Group, Inc.'s senior unsecured debt
ratings and short-term ratings were downgraded to A3/Prime-2
from A1/Prime-1 and the long-term deposit ratings of Goldman
Sachs Bank USA to A2 from Aa3. The Goldman Sachs Bank USA's
Prime-1 short-term rating was affirmed. Moody's
also downgraded Goldman Sachs' standalone credit assessment,
to C-/baa1 from B-/a1. The outlook on the standalone
credit assessment and the ratings of Goldman Sachs' operating subsidiaries
is stable, while that on the senior debt and subordinated debt ratings
of (or guaranteed by) the parent holding company is negative.
Goldman Sachs' ratings benefit from two notches of uplift from the
standalone credit assessment at the subsidiary bank level and at the holding
company, reflecting Moody's assumptions about a high likelihood
of support from the US government for bondholders or other creditors in
the event such support was required to prevent a default.
The lowering of the standalone credit assessment to baa1 positions Goldman
Sachs in the second group of firms with significant global capital markets
activities. The position in the second group reflects Goldman Sachs'
(i) clear commitment to the global capital markets business; (ii)
its lack of significant earnings from other more stable businesses;
and (iii) the large absolute size of its wholesale funding requirements.
These factors are partly mitigated by (i) the firm's superior track
record of risk management and comprehensive risk controls; (ii) moderate
historical earnings volatility compared with that of many of its peers;
(iii) low leverage; and (iv) a large positive structural liquidity
position.
The stable outlook on Goldman Sachs' standalone credit assessment
and the ratings of its operating subsidiaries reflects the view that the
risk factors related to capital markets activities are now fully incorporated
into the bank's ratings. Moody's does not expect significant
upward pressure on the ratings, absent a significant reduction in
the firm's reliance on earnings from its capital markets business.
Any indications of control failures, a marked increase in risk appetite
or deterioration in leverage or other capital metrics would lead to downward
pressure on the ratings.
The negative outlook on the parent holding company reflects Moody's
view that government support for US bank holding company creditors is
becoming less certain and less predictable, given the evolving attitude
of US authorities to the resolution of large financial institutions,
whereas support for creditors of operating entities remains sufficiently
likely and predictable to warrant stable outlooks.
++++
HSBC
HSBC Holdings' senior debt rating was downgraded to Aa3 from Aa2.
The provisional short-term rating was affirmed at (P)Prime-1.
Moody's considers the intrinsic standalone financial strength of
the consolidated group as equivalent to a1, one notch lower than
previously. The group benefits from two notches of uplift from
government support assumptions, and the rating of HSBC Holdings
is notched down by one notch for the structural subordination of the holding
company. The outlook on the Aa3 long-term debt rating is
negative, reflecting the view that government support for large
UK banks may be lowered over the medium term.
The downgrade of HSBC Holdings' ratings positions the group in the
first group of firms with global capital market activities, that
is, with baseline credit assessments of a3 and above. This
position reflects (i) HSBC's moderately large capital markets operation,
which emphasizes plain vanilla businesses (Moody's estimates that
the capital market activities within Global Banking & Markets represent
10%--15% of the group's total revenues);
and (ii) interconnectedness with other, often less highly rated,
financial institutions, given the size and presence of the group
and its role in the interbank and repo market.
Despite the downgrade, Moody's still views HSBC as one of
the strongest banking groups globally. This view is supported by
(i) low historical earnings volatility across the group due to very strong
geographic diversification, which has enabled the group to absorb
even large losses in certain businesses; and (ii) a conservative
funding profile based on a strong global retail deposit base and a strict
liquidity framework at each subsidiary.
The subordinated and junior capital instruments of HSBC Holdings have
been downgraded by two notches, as they are notched down from the
standalone intrinsic strength of the group, but now also incorporate
one notch for the structural subordination of the holding company.
HSBC BANK
HSBC Bank's senior debt and deposit ratings were downgraded by one
notch, to Aa3 from Aa2, and the bank's standalone ratings
to C/a3 from C+/a2. The Prime-1 short-term rating
was affirmed. The senior debt and deposit ratings of HSBC Bank,
which represents the group's European operations, benefit
from a very high level of support from the consolidated HSBC group,
which has an intrinsic financial strength of a1 (two notches of uplift),
and from very high government support assumptions (one notch of uplift).
The outlook on the standalone rating is stable, and that on the
senior debt and deposit ratings is negative, reflecting the view
that government support for large UK banks may be lowered over the medium
term.
The downgrade reflects the fact that as one of four hubs within the HSBC
group for capital market activities, HSBC Bank has a relatively
high proportion of such activities, which can increase the volatility
of its earnings. The downgrade also incorporates the fact that
the bank operates in tougher operating environments in the UK and Europe.
Offsetting these risks, HSBC Bank benefits from a strong franchise
in UK retail and commercial banking, good capitalization,
a strong liquidity and funding profile and a conservative risk culture.
Upward pressure on the standalone ratings over the medium term could result
from a further reduction in the bank's ABS exposures and a decreased reliance
on the more volatile capital markets earnings streams.
Deterioration in financial performance, a further weakening of the
capital base and/or a significant decline in asset quality that places
stress on the capital base could lead to downward pressure on the standalone
rating.
The subordinated and junior capital instruments of HSBC Bank have been
confirmed at their current level, as Moody's is notching them
down from the adjusted baseline credit assessment, which remains
at a1, to recognize the expectation of a very high level of group
support for this entity, in line with other group entities.
HSBC FRANCE
HSBC France's bank financial strength rating was downgraded to C-
from C, equivalent to a baseline credit assessment of baa2,
and its long-term rating to A1 from Aa3. The short-term
ratings were affirmed at Prime-1. The rating outlook is
stable.
The downgrade of HSBC France's standalone bank financial strength
rating reflects Moody's expectation of further pressure on the bank's
profitability in the current environment, and also incorporates
the challenges facing institutions with large capital markets activities.
HSBC France derives a significant proportion of its earnings from its
global banking and markets activities, particularly from its rates
business (government bond trading). This reflects HSBC France's
role as a hub for all euro area sovereign trading of the HSBC group,
and renders the bottom-line profitability at the HSBC France level
inherently more volatile. Evidence of this volatility are the market
losses it took in Q4 2011 on its euro area sovereign exposures to France
and Italy, which resulted in a 70% drop in net profitability
at fiscal year-end 2011.
The downgrade of the bank's standalone credit assessment reflects
Moody's expectation that the continued challenges facing sovereigns
in the euro area will likely continue to pressure the performance of the
rates activities, the main contributor to the bank's bottom-line
profitability in recent years.
Set against these weaknesses, the bank's standalone financial
strength is supported by an adequate level of capitalization and strong
liquidity positioning. HSBC France's bank financial strength
rating also reflects the tangible benefits of being highly integrated
within the HSBC group, which has a global reach, and of its
role as an important hub for the group's global banking and markets
activities.
++++
JP MORGAN CHASE
JP Morgan Chase & Co.'s senior long-term debt
was downgraded to A2 from Aa3. At the bank level, JP Morgan
Chase Bank's long-term deposit and debt ratings were downgraded
to Aa3 from Aa1. All Prime-1 short-term ratings were
affirmed. The downgrade resulted from the lowering of JP Morgan's
standalone credit assessment to C/a3 from B/aa3. The outlook on
the standalone credit assessment and the ratings of JP Morgan's
operating subsidiaries is stable, while that on the senior debt
and subordinated debt ratings of (or guaranteed by) the parent holding
company is negative.
JP Morgan's ratings benefit from three notches of uplift from the
standalone credit assessment at the bank level, and from two notches
of uplift at the holding company, reflecting Moody's assumptions
about a very high likelihood of support from the US government for bondholders
or other creditors in the event such support was required to prevent a
default.
The negative outlook on the parent holding company reflects Moody's
view that government support for US bank holding company creditors is
becoming less certain and less predictable, given the evolving attitude
of US authorities to the resolution of large financial institutions,
whereas support for creditors of operating entities remains sufficiently
likely and predictable to warrant stable outlooks.
The lowering of the standalone credit assessment to a3 positions JP Morgan
in the first group of firms with significant global capital market activities.
This position reflects the risks related to JP Morgan's (i) very
large capital markets business (representing 26% of reported firm-wide
revenues in 2011); (ii) relatively high absolute level of secured
and unsecured wholesale funding within the overall balance sheet;
and (iii) the recent control failure within its Chief Investment Office
(CIO), which has tarnished JP Morgan's otherwise strong track
record of risk management. These factors are mitigated by (i) JP
Morgan's diversified and sustainable earnings streams from its five
other lines of business; (ii) relatively low earnings volatility
compared with the peer group; (iii) good structural liquidity and
large liquidity pool; (iv) capital levels that are solid and resilient
under Moody's stress tests; and (iv) leverage that is below
the industry median.
JP Morgan's recently announced loss within the CIO was an important
factor in the downgrade of the standalone credit profile. It illustrates
the challenges of monitoring and managing risk in a complex global organization
-- and highlights the opacity of such risks. The firm has
substantial earnings and liquidity, which affords it the time to
work out of the positions. Management is also acting aggressively
to stem the losses and has already added new controls to the CIO.
These risk factors have been fully incorporated into the current standalone
assessment. Since JP Morgan is positioned in the first group of
firms with global capital markets operations, upward pressure on
the rating is unlikely, absent a material shrinking and de-risking
of the investment bank, which Moody's does not anticipate.
Any further control failures, a marked increase in risk appetite
or a willingness to increase leverage could lead to downward pressure
on the ratings.
++++
MORGAN STANLEY
Morgan Stanley's senior unsecured long-term debt ratings
were downgraded to Baa1 from A2 and the long-term deposit and issuer
ratings of Morgan Stanley Bank, N.A. were downgraded
to A3 from A1. The short-term ratings of both firms were
lowered to Prime-2 from Prime-1. Moody's also
downgraded Morgan Stanley's standalone credit assessment,
to D+/baa3 from C/a3. The outlook on the standalone credit
assessment and the ratings of Morgan Stanley's operating subsidiaries
is stable, while that on the senior debt and subordinated debt ratings
of (or guaranteed by) the parent holding company is negative.
Morgan Stanley's ratings benefit from three notches of uplift due
to external support assumptions. This includes one notch of uplift
from its largest shareholder, Mitsubishi UFJ Financial Group (MUFG,
deposits Aa3, standalone credit assessment at C/a3 at Bank of Tokyo-Mitsubishi
UFJ, Ltd), and two notches of uplift owing to Moody's
belief that there is a high likelihood that Morgan Stanley, as a
systemically important financial institution, would receive support
from the US government in the event such support was required to prevent
a default. The one notch of uplift reflecting potential support
from MUFG is the reason the downgrade was less than the guidance Moody's
provided on 15 February.
The lowering of the standalone credit assessment to baa3 positions Morgan
Stanley in the third group of firms with significant global capital markets
activities. This position reflects (i) the firm's commitment
to the global capital market business, on which it relies heavily
for earnings; (ii) its historically high level of earnings volatility;
and (iii) the problems in risk management and controls the firm suffered
during the crisis. Partly mitigating these factors are (i) the
firm's gradually increasing "shock absorbers" in the
form of earnings from other more stable businesses (albeit still below
that of most peers); (ii) its reduced risk appetite, improved
liquidity profile and stronger capital position; and (iii) enhancements
to risk management, internal processes and controls.
The stable outlook on Morgan Stanley's standalone credit assessment
and the ratings of its operating subsidiaries reflects the view that the
capital markets-related risk factors have now been fully incorporated
into the ratings. Moody's does not expect significant upward
pressure on the firm's ratings. Any indications of control
failures, a marked increase in risk appetite or deterioration in
leverage or other capital metrics would lead to downward pressure on the
ratings.
The negative outlook on the parent holding company reflects Moody's
view that government support for US bank holding company creditors is
becoming less certain and less predictable, given the evolving attitude
of US authorities to the resolution of large financial institutions,
whereas support for creditors of operating entities remains sufficiently
likely and predictable to warrant stable outlooks.
++++
ROYAL BANK OF CANADA
Royal Bank of Canada (RBC)'s long-term deposits were downgraded
to Aa3 from Aa1. RBC's standalone credit assessment was lowered
to C+/a2 from B/aa3. The long term debt and deposit ratings
incorporate two notches of uplift from government support assumptions,
reflecting Moody's assessment of a very high probability of support
from the Canadian government. Moody's has also attached a
hybrid (hyb) indicator to the junior subordinated debt of RBC.
All Prime-1 short-term ratings were affirmed. The
outlook on all the ratings is stable.
The a2 standalone credit assessment places RBC in the first group of firms
with significant global capital market activities. This position
reflects: (i) RBC's significant commitment to global investment
banking activities (C$5.9 billion in revenues representing
22% of firm-wide revenues in 2011 on a CGAAP basis);
(ii) management's commitment to growing its position, particularly
in the US, acknowledging that the contribution to RBC of capital
markets activities may decline if other lines of business grow at a faster
rate; (iii) the high degree of interconnectedness or concentration
risks inherent to capital markets activities; and (iv) the view that
global capital markets activities expose RBC to risks that could result
in comparatively rapid deterioration in its creditworthiness.
These factors are mitigated by: (i) the fact that RBC is a strong
and diversified universal bank with sustainable leading market shares
across many retail products and services in its home market; (ii)
RBC has the lowest earnings volatility in the global investment banking
peer group, which is evidence of the stability of its franchises,
its sound risk management infrastructure and embedded risk culture;
(iii) a business mix within capital markets that is more heavily weighted
toward client-driven primary origination and advisory businesses;
and (iv) a large core deposit base and strong capital levels.
The stable outlook on RBC's ratings reflects the view that the capital
markets-related risk factors have now been fully incorporated into
the ratings. RBC is very highly rated and upward pressure on the
rating is not currently anticipated, however management action signaling
a change in direction and scaling-down of the commitment to the
capital markets business would further stabilize the standalone credit
assessment.
Any indications of control failures, a change in risk appetite,
a reduced commitment to strong capital and liquidity, or management
increasing its commitment to the capital markets business, either
organically over time or through a capital markets business acquisition,
could lead to downward pressure on the ratings.
++++
ROYAL BANK OF SCOTLAND
Royal Bank of Scotland plc's (RBS) long-term deposit and
debt ratings were downgraded to A3 from A2, and the bank's
Prime-1 short-term rating was downgraded to Prime-2.
The bank's standalone credit assessment was lowered to D+/baa3
from C-/baa2. The senior debt and deposit ratings benefit
from three notches of uplift from the standalone rating, reflecting
Moody's expectation of a very high probability of government support
for the bank. The ratings of the holding company, Royal Bank
of Scotland Group plc, were downgraded to Baa1/ P-2 from
A3/P-2.The outlook on the D+/baa3 standalone ratings
is stable, whereas the outlook on the A3 long-term deposit
rating is negative, reflecting the view that government support
for large UK banks may be lowered in the medium-term.
The downgrade of the standalone credit assessment to baa3 positions RBS
in the third group of firms with significant capital market activities,
with baseline credit assessments of baa3 and below. This position
reflects (i) high historical earnings volatility across the bank;
(ii) relatively large capital markets business (expected to stabilize
at around 20% of revenues) even after recent de-risking
and exiting of certain business lines; (iv) further potential earnings
volatility as a result of large loan books in Ireland; and (v) ongoing
challenges of winding down non-core assets. These factors
are somewhat mitigated by (i) strong underlying earnings in non-investment
banking activities; (ii) a large and high-quality liquidity
buffer relative to short-term liabilities; (iii) the strong
track record of the current management team in de-risking and restructuring
the group; and (iv) sufficient long-term capital to meet short-term
funding vulnerabilities, reflected in a net cash capital surplus
according to Moody's metrics.
The stable outlook on RBS' standalone ratings reflects the view
that the capital markets-related risk factors have now been fully
incorporated into the bank's ratings. Given the bank's
strong retail and banking franchise and its moderated risk appetite for
capital markets activities, if the more immediate risks in the operating
environment in the UK and Europe were to recede and RBS were to return
to a stable earnings profile, there could be upward pressure on
the bank's ratings. On the other hand, any indications
of control failures, a marked increase in risk appetite or a deterioration
in capital levels could lead to downward pressure on the rating.
Moody's took a variety of actions on RBS' May-Pay securities.
These are the securities on which RBS omitted coupons due to European
Commission restrictions following the receipt of state aid over the period
30 April 2010 to 30 April 2012. On 4 May 2012 RBS announced its
intention to resume dividend payments on certain May-Pay instruments
and Moody's now considers that the risks for these instruments are
in line with the Must Pay instruments. The ratings of these instruments
have now all been moved so that they are in line with the Must Pay securities,
which are rated in line with hybrid notching guidelines. Click
on the following link for a list of the affected May-Pay securities:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_143289.
RBS NV
The ratings of RBS NV have been moved to be aligned with those of RBS
plc, reflecting the ongoing process of transfer of assets and liabilities
from RBS NV to RBS plc, and the explicit commitment by RBS plc to
support RBS NV. The senior debt and deposit and issuer ratings
have been downgraded to A3 from A2. The short-term rating
was downgraded to Prime-2 from Prime-1. And the standalone
credit assessment has been raised to D+/ baa3 from D/ ba2,
in line with RBS plc. The outlook on the standalone rating is stable
and that on the senior debt rating is negative, in line with RBS.
The dated subordinated debt instruments have been downgraded to Ba1 from
A3, in line with RBS plc, while assumptions of support from
the Dutch government are no longer being incorporated into these instruments.
The ratings of RBS NV will continue to move in line with those of RBS
plc.
ULSTER BANK LIMITED AND ULSTER BANK IRELAND LIMITED
The long-term bank deposit ratings of Ulster Bank Limited (UBL)
and Ulster Bank Ireland Limited (UBIL) have been downgraded to Baa2 from
Baa1, the long-term issuer rating of UBL to Baa2 from Baa1,
the (P) senior unsecured debt rating of UBIL to (P)Baa2 from (P)Baa1 and
the dated subordinated rating of UBIL to Ba1 from Baa3. This follows
the downgrade of the ratings of its parent, RBS plc, to A3/P-2
from A2/P-1. The outlook on the ratings of UBL and UBIL
is negative, in line with the outlook on the senior ratings of RBS
and that on the standalone ratings of UBL and UBIL. There is no
impact on the D-/ba3 standalone credit assessment of either UBL
or UBIL or on the negative outlooks that continue to reflect the significant
uncertainty about the speed and magnitude of further asset quality deterioration
on Ulster Bank's asset quality. The ratings continue to reflect
the incorporation of a very high level of parental support into the ratings
of both UBL (incorporated in Northern Ireland) and UBIL (incorporated
in Ireland). This is based on Moody's assessment that Ulster
Bank Group (which includes both UBL and UBIL) is a core subsidiary of
Royal Bank of Scotland Group (RBS Group) and is likely to remain so.
Ulster Bank Group (the consolidated entity) is an integral part of RBS
Group's strategy and this has been evidenced by the ongoing high levels
of support through the provision of capital and funding support.
Moody's expects this high commitment to continue and therefore have
maintained a high level of parental support in the supported ratings of
UBL and UBIL.
++++
SOCIETE GENERALE
Societe Generale's (SocGen) long-term debt and deposit ratings
were downgraded by one notch, to A2 from A1. The Prime-1
short-term rating was affirmed. The standalone credit assessment
was also lowered by one notch, to C-/baa2 from C-/baa1.
The outlook on both the standalone credit assessment and long-term
debt and deposit ratings is stable.
Senior debt and deposit ratings are rated A2 and incorporate three notches
of uplift from government support assumptions. SocGen's dated
subordinated and junior subordinated debt ratings were downgraded to Baa3
and Ba1(hyb), respectively (one and two notches below its baa2 standalone
credit assessment). The downgrades reflect the removal of government
support assumptions from the dated subordinated debt instruments.
In Moody's view, government support in many European countries,
including France, is no longer sufficiently predictable and reliable
to warrant incorporating government-support-driven uplift
into these debt ratings. Ratings on preference shares were downgraded
by one notch, to Ba2(hyb), and continue to be positioned three
notches below the standalone credit assessment.
The lowering of the standalone credit assessment to baa2 places SocGen
in the second group of firms with significant global capital market activities.
This position reflects (i) the significant and relatively volatile nature
of the bank's capital markets business, which contributed
18% of revenues between 2009 and 2011; (ii) SocGen's
continued relative reliance on short-term wholesale funding and
its smaller liquidity pool compared with some other banks; and (iii)
challenges arising from the expected deterioration in macroeconomic conditions
in western Europe, which will affect many of the countries in which
SocGen operates.
These factors are somewhat mitigated by (i) SocGen's good spread
of generally solid businesses focused on retail and commercial banking,
which provide more stable revenues and help ensure that the capital markets
business does not dominate the group; (ii) the bank's relatively
small exposure to more problematic sovereign debt; (iii) diversification
into central and eastern Europe, which brings a less correlated
source of earnings; and (iv) improving trends in capital and liquidity,
partly the consequence of a deleveraging program that is, however,
still in progress.
The rating could be upgraded in the event of a material structural improvement
in the bank's funding and liquidity profile and a further reduction
in the weight of capital markets-related activity within the group.
The rating could be downgraded in the event of (i) the re-emergence
of deteriorating funding conditions; (ii) risk management failures
or material unexpected losses, for example in the capital markets
business; (iii) worsening macroeconomic conditions; (iv) a reduced
probability of meeting its capitalization target of a 9-9.5%
Core Tier 1 ratio under Basel III by end-2013; and (v) a marked
weakening in the capacity or willingness of the French government to provide
support to the benefit of creditors.
++++
UBS
UBS AG's deposit and senior debt ratings were downgraded to A2 from
Aa3 and the bank's Prime-1 short-term rating was confirmed.
The bank's standalone credit assessment was downgraded to C-/baa2
from C/a3. The outlook on all the ratings is stable.
UBS's deposit and senior debt ratings benefit from three notches
of uplift from the bank's standalone credit assessment, reflecting
Moody's assumptions about a very high likelihood of support from
the Swiss government for senior bondholders and other senior creditors
in the event such support was required to prevent a default.
On the other hand, UBS's subordinated debt ratings (at Baa3)
are now notched off the bank's standalone credit assessment following
the removal of the assumption of government support for this class of
debt at Swiss banks. Moody's views government support for the subordinated
debt of Swiss banks as no longer sufficiently predictable or reliable
to warrant incorporating uplift into its ratings.
The lowering of the standalone credit assessment to baa2 positions UBS
in the second group of firms with significant global capital markets activities.
This position reflects (i) the bank's high historical earnings volatility;
(ii) its relatively large capital markets business; and (iii) the
problems in risk management and controls from which the bank suffered
during the crisis. Partly mitigating these factors are (i) the
bank's reduced ambition in investment banking; (ii) its significant
and stable earnings from non-investment banking activities;
(iii) positive structural liquidity and a large liquidity reserve;
(iv) an improving capital position and capital targets well above peers;
(v) ongoing enhancements to corporate governance, risk management
and controls; and (vi) resilience to the weak operating environment
in Europe given low exposures to peripheral Europe and Switzerland's
perceived safe-haven status among investors.
The stable outlook on UBS's ratings reflects the view that capital
markets-related risk factors have now been fully incorporated into
the bank's ratings. Moody's does not expect significant
upward pressure on the bank's ratings absent a significant reduction
in the bank's reliance on earnings from its capital markets business.
Any indications of control failures, a marked increase in risk appetite,
a significant decline in the Swiss economy or a deterioration in capital
levels or targets would put downward pressure on the ratings.
RESEARCH REFERENCES
For further detail please refer to:
- Special Comment: Key Drivers of Rating Actions on Firms
with Global Capital Markets Operations (http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_143246),
21 June 2012
- Press Release: Moody's Reviews Ratings for Banks and Securities
Firms with Global Capital Markets Operations (http://www.moodys.com/research/Moodys-Reviews-Ratings-for-Banks-and-Securities-Firms-with-Global--PR_238006),
15 Feb 2012
- Special Comment: Challenges For Firms with Global Capital
Markets Operations: Moody's Rating Reviews and Rationale (http://www.moodys.com/research/Challenges-For-Firms-With-Global-Capital-Markets-Operations-Moodys-Rating--PBC_139659),
15 Feb 2012
- Special Comment: Euro Area Debt Crisis Weakens Bank Credit
Profiles (http://www.moodys.com/research/Euro-Area-Debt-Crisis-Weakens-Bank-Credit-Profiles--PBC_137981),
19 Jan 2012
Moody's webpages with additional information:
- http://www.moodys.com/bankratings2012
- http://www.moodys.com/eusovereign
REGULATORY DISCLOSURES
The principal methodologies used in ratings of Bank of America,
Barclays, BNP Paribas, Citigroup, Credit Agricole,
Credit Suisse, Deutsche Bank, HSBC, JPMorgan,
Royal Bank of Canada, Royal Bank of Scotland Societe Generale and
UBS 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.
The principal methodologies used in ratings of Goldman Sachs and Morgan
Stanley were Global Securities Industry Methodology published in December
2006, 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.
Please click on this link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_143274
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
•Endorsement
•Person approving the credit rating
•Releasing office
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 ratings for Barclays PLC, BNP Paribas, Credit Agricole
S.A., HSBC Holdings plc, Royal Bank of Scotland
Group plc, Societe Generale and their subsidiaries 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 the ratings are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
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 considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Royal Bank of Scotland N.V. has received a Rating Assessment
Service within the last two years preceding the Credit Rating Action.
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 Moody's website www.moodys.com
for further information.
The below contact information is provided for information purposes only.
Please see the issuer page on www.moodys.com for Moody's
regulatory disclosure of the name of the lead analyst and the office that
has issued the credit rating.
The relevant Releasing Office for each rating is identified under the
Debt/Tranche List section on the Ratings tab of each issuer/entity page
on moodys.com.
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.
Robert?Franklyn?Young
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Gregory?Winans?Bauer
MD - Global Banking
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades firms with global capital markets operations
