Moody's also converts into definitive from provisional Adam & Company plc's long-term deposit rating of A1.
On April 10, 2018, the List of Affected Credit Ratings accessible via hyperlink from the press release was corrected as follows: the Junior Subordinate Ratings, including shelf's and Programmes (Foreign Currency) rating was removed for issuer The Royal Bank of Scotland plc. Revised release follows.
London, 04 April 2018 -- Moody's Investors Service (Moody's) today downgraded the long-term
senior unsecured debt ratings to Baa2 (from A3 , on review for downgrade)
and the long-term deposit ratings to Baa2 (from A2 , on review
for downgrade) of The Royal Bank of Scotland plc (RBS plc) --to be
renamed NatWest Markets Plc - and The Royal Bank of Scotland N.V.
(RBS NV). At the same time, the agency upgraded the long-term
issuer ratings to A2 (from A3 on review for upgrade) and the long-term
deposit ratings to A1 (from A2 on review for upgrade) of National Westminster
Bank Plc (NatWest Bank) and Ulster Bank Limited (UBL). Today's
rating actions conclude the respective reviews initiated on the banking
entities on 30 January 2018.
Moody's also assigned a notional group BCA to The Royal Bank of
Scotland Group plc (RBSG) of baa3 and affirmed all RBSG's ratings.
Concurrently, Moody's converted into definitive its provisional
long-term and short-term deposit ratings on Adam and Company
PLC (Adam & Co) -- to be renamed RBS plc -, which
are now A1 and Prime-1 respectively.
All long term deposit and senior unsecured ratings of the affected banking
entities now carry stable outlooks.
RBSG is reorganising its legal structure under the UK's "ring-fencing"
legislation. The legislation is intended to make economically vital
banking services more resilient to financial shocks. On 22 March
2018, the Edinburgh Court of Session approved the intra-group
transfer of assets, a key legal requirement.
"As a result of ring-fencing implementation and the separation
of different activities into distinct legal entities, the creditworthiness
of RBS plc and RBS NV will diverge from that of the NatWest Bank and UBL",
said Alessandro Roccati, Senior Vice President at Moody's.
"Under ring-fencing, RBS plc's and RBS NV's
credit profiles will be weaker, as they are focused mostly on capital
markets and wholesale activities and have a greater reliance on wholesale
funding. Conversely, NatWest Bank's and UBL's
credit profiles will be stronger, due to their mostly retail,
SME and large corporate banking activities and largely deposit-based
funding profiles" added Mr. Roccati.
The Baa2 long-term senior unsecured debt ratings and the Baa2 long-term
deposit ratings of RBS plc and RBS NV incorporate ba2 standalone BCAs
and ba1 adjusted BCAs (previously baa3 on review for downgrade).
The BCAs and adjusted BCAs reflect the banks' fundamentals and high
probability of support from RBSG. The senior unsecured debt and
deposit ratings also incorporate two notches of uplift resulting from
Moody's advanced Loss Given Failure (LGF) analysis. However
the debt instruments of these smaller non-ring-fenced banks
no longer benefit from potential support from the government of the United
Kingdom (Aa2 stable), as the probability of such support is now
low, in Moody's view.
The A1 long-term deposit ratings of NatWest Bank, UBL and
Adam & Co incorporate baa1 standalone BCAs and baa1 adjusted BCAs.
The BCA and adjusted BCAs reflect both the similarity of the three banks'
fundamentals but also the support agreements between the entities.
It also incorporates a two-notch uplift resulting from Moody's
advanced LGF analysis and includes one notch of government support,
reflecting Moody's assessment of a moderate probability of support for
these entities' senior instruments from the UK government.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_198935
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_198935
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:
• Principal Methodology
RBSG is reorganising its legal structure as a result of the forthcoming
requirement to separate its retail and business banking businesses from
its other operations by 1 January 2019, under the UK's "ring-fencing"
regulation. The regulation is intended to making economically vital
banking services more resilient to financial shocks. A key step
in this plan was approved on 22 March 2018 by the Edinburgh Court of Session,
paving the way for the transfers.
RBS plc will transfer most of its Personal & Business Banking and
Commercial & Private Banking operations to a ring-fenced banking
sub-group (under an intermediate holding company, NatWest
Holdings Limited (NWH, unrated), a direct subsidiary of RBSG.
The ring-fenced sub-group, which will account for
around 80% of group risk-weighted assets, will include
NatWest Bank, UBL, Adam & Co, Coutts & Company
and Ulster Bank Ireland DAC (LT deposits Baa2 on review for upgrade).
The group's capital market activities will remain with RBS plc.
At the same time as the legal transfer of assets and liabilities,
RBS plc will be renamed NatWest Markets Plc (NatWest Markets), and
Adam & Co will be renamed The Royal Bank of Scotland plc.
RBS plc, RBS NV
Under ring-fencing, RBS plc (to be renamed NatWest Markets)
will likely have a significantly weaker credit profile than it does currently,
as it will become the group's principal entity for conducting capital
markets and some other wholesale activities. Moody's considers
these activities to be typically riskier than retail and commercial banking.
RBS plc will become largely market funded, have a sizeable derivatives
and repo book, and provide broker-dealer capabilities.
Moody's will continue to align the ratings of Dutch entity RBS NV
with those of the current RBS plc, based upon the agency's
expectation that RBS NV will likely become the main entity for the group's
wholesale activities in the European Union outside the UK.
RBS plc's and RBS NV's BCAs of ba2 reflect Moody's expectation
that the implementation of "ring-fencing" in the UK
will weaken RBS plc's credit profile: (1) asset risk will
be weaker due to its large capital markets activities, which represent
a source of volatility and tail-risk; (2) business will be
inherently less diversified and subject to greater volatility; (3)
profitability will be poor due to continued high restructuring costs,
and losses on legacy assets; and (4) usage of wholesale funding will
be high, albeit mitigated by sound liquidity.
Under Moody's advanced LGF analysis, the long-term senior
unsecured debt and deposit ratings of RBS plc and RBS NV incorporate two
notches of uplift, reflecting very low losses in the event of the
bank's failure. The CRA also incorporates a one-notch
uplift for government support, given Moody's view that there is
a moderate probability of support for the bank's holders of operational
liabilities from the UK government, due to the interconnectedness
of the bank's capital markets activities with other parts of the
global financial system.
NatWest Bank, UBL and Adam &Co
Conversely, under "ring-fencing", NatWest
Bank, its subsidiary UBL and Adam & Co will have stronger credit
profiles as these two entities will retain mostly retail, SME and
large corporate banking activities, will have largely deposit-based
funding, and will be more profitable. Moody's will
continue to align the ratings of UBL with those of NatWest Bank,
based upon the high level of integration of the two banks.
The BCAs of baa1 for NatWest Bank, UBL and Adam & Co reflect
Moody's expectation that the ring-fenced banks will benefit from:
(1) moderate asset risk, with legacy exposures mitigated by the
bank's predominantly retail and small business lending activities;
(2) robust capitalisation and modest leverage; (3) good and stable
profits from the retail and business banking activities, underpinned
by the banks' strong franchises, albeit challenged by the
weakening operating conditions in the UK and possible further conduct
and litigation costs; and (4) the strong funding profile and ample
liquidity of the ring-fenced sub-group.
Under Moody's advanced LGF analysis, the long-term senior
unsecured debt rating of NatWest Bank incorporates a one-notch
uplift, reflecting the low loss-given-failure for
senior creditors; the long-term deposit ratings of NatWest,
UBL and Adam & Co incorporate a two-notch uplift, as
junior depositors will face very low losses in the event of the bank's
failure. The long-term senior ratings of the three entities
also incorporate a one-notch uplift in respect of government support,
reflecting Moody's assessment of a moderate probability of support for
the bank's junior depositors from the UK government, based upon
the ring-fenced sub-group's systemic importance for
the country.
WHAT COULD MOVE THE RATINGS UP/DOWN
RBS plc, RBS NV
RBS plc's and RBS NV's ba2 BCA could be upgraded if the banks'
asset risk profile were to be much stronger than Moody's currently
expects, or if its profitability and efficiency improved on a sustainable
basis and/or its capitalisation were to be significantly higher;
an upgrade of the BCA would likely lead to an upgrade of all ratings.
An upgrade could also result from an upgrade of the notional BCA of RBSG,
the support provider.
An upgrade of RBS plc's and RBS NV's long-term senior
unsecured debt and deposit rating could also result from a higher-than-expected
stock of more junior bail-in-able liabilities that would
provide greater protection for those classes of liabilities.
RBS plc's and RBS NV's ba2 BCAs could be downgraded in the
event of: (1) a substantial increase in riskier trading activities;
(2) a decline in capitalisation; (3) large losses from its book of
legacy assets; (4) a material weakening of the liquidity profile;
or (5) large unexpected additional restructuring costs. A downgrade
of the BCA would likely lead to a downgrade of all ratings. A downgrade
could also result from a downgrade of the BCA of RBSG, the support
provider.
The ratings could also be downgraded due to a reduction in the stock of
bail-in-able liabilities that would reduce the degree of
protection for junior depositors.
NatWest Bank, UBL and Adam &Co
NatWest Bank's, UBL's and Adam & Co's baa1 BCAs
could be upgraded if the banks' ultimate asset risk profiles were
likely to be much stronger than Moody's currently expect,
and/or if profitability were to be significantly higher. An upgrade
of NatWest Bank's long-term senior unsecured debt and deposit
ratings and UBL's and Adam & Co's long-term deposit ratings
could also result from a higher-than-expected stock of more
junior bail-in-able liabilities at the ring-fenced
sub-group that would provide greater protection for the bank's
junior depositors.
NatWest Bank's, UBL's and Adam & Co's baa1 BCAs
could be downgraded in the event of: (1) a deterioration in operating
conditions in the UK, beyond Moody's current expectations,
leading to higher asset risk and lower profitability; (2) a decline
in capitalisation; (3) large losses from its book of legacy assets;
(4) a material weakening of the sub-group's liquidity profile;
or (5) a weakening of the intra-group capital and liquidity support
mechanisms. The ratings could also be downgraded due to a reduction
in the stock of bail-in-able liabilities that would reduce
the degree of protection for senior creditors.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_198935
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:
• Releasing Office
• Person Approving the Credit Rating
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Alessandro Roccati
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
