New York, December 20, 2012 -- Moody's Investors Service downgraded certain ratings of three Puerto Rican
banks, including Banco Santander Puerto Rico, Banco Bilbao
Vizcaya Argentaria Puerto Rico, and Popular, Inc. (see
'List of Affected Ratings' below). Today's downgrades
reflect the adverse effects of Puerto Rico's ongoing recession on
the island's banks, as well as the weak prospects for a sustainable
recovery in the coming years. Following the downgrades, the
outlooks on the banks' ratings are stable. These actions
conclude the reviews for downgrade that were initiated on 10 April 2012.
LIST OF AFFECTED RATINGS:
Banco Santander Puerto Rico (BSPR):
- Standalone bank financial strength rating (BFSR)/baseline credit
assessment (BCA) downgraded to D+/ba1 from C-/baa1
- All long- and short-term supported debt ratings
confirmed (deposits at Baa1/Prime-2)
- Stable outlook assigned to all long-term ratings,
including the standalone BFSR/BCA
Banco Bilbao Vizcaya Argentaria Puerto Rico (BBVAPR):
- Standalone BFSR/BCA downgraded to D/ba2 from C-/baa2
- All long- and short-term supported debt ratings
confirmed (deposits at Baa2/Prime-2)
- Stable outlook assigned to all ratings, including the standalone
BFSR/BCA
Banco Popular de Puerto Rico:
- Standalone BFSR/BCA downgraded to D/ba2 from D+/baa3
- Deposit ratings downgraded to Ba2/Not-Prime from Baa3/Prime-3;
issuer rating downgraded to Ba3 from Baa3
- Stable outlook assigned to all long-term ratings,
including the standalone BFSR/BCA
Popular, Inc.:
- Senior unsecured MTN program rating downgraded to (P)B1 from
(P)Ba1; subordinate MTN program rating downgraded to (P)B2 from (P)Ba2;
junior subordinate shelf rating downgraded to (P)B3 from (P)B1; non-cumulative
preferred stock rating downgraded to Caa1 (hyb) from B2 (hyb)
- Stable outlook assigned to all long-term debt ratings
Popular North America, Inc.:
- Senior unsecured debt rating downgraded to B1 from Ba1;
subordinate debt rating downgraded to (P)B2 from (P)Ba2
- Stable outlook assigned to all long-term debt ratings
Popular Capital Trust I, Popular Capital Trust II, BanPonce
Trust I, and Popular North America Capital Trust I:
- Preferred stock ratings downgraded to B3 (hyb) from B1 (hyb)
- Stable outlook assigned to all long-term debt ratings
Popular Capital Trust III:
- Preferred stock rating downgraded to (P)B3 from (P)B1
- Stable outlook assigned to all long-term debt ratings
RATINGS RATIONALE
Moody's said the downgrades of the banks' standalone ratings
were driven by Puerto Rico's difficult operating environment.
The island is in the midst of a deep, protracted recession that
began in 2006. Moreover, the prospects for a sustainable
recovery are constrained by the commonwealth's poor finances,
which are characterized by a severely underfunded retirement system and
an increasingly heavy debt load.
Actions to address these issues in the coming years will likely put additional
stress on Puerto Rico's already weak economy, which is characterized
by high unemployment, a declining population and a lack of clear
growth drivers. This will continue to threaten the banks'
asset quality. The banks' problem assets remain extremely
high relative to US mainland banks, which could lead to significant
losses if the recession continues. This would negatively affect
the banks' profitability and capital.
Puerto Rico's economic challenges were reflected in Moody's
recent downgrade of the commonwealth's general obligation rating
to Baa3 from Baa1 (see press release "Moody's downgrades Puerto
Rico general obligation and related bonds to Baa3 from Baa1 and certain
notched bonds to Ba1," dated 13 December 2012 and available
on moodys.com). Following that downgrade, the outlook
on Puerto Rico's general obligation rating remains negative,
reflecting the stress that the commonwealth will face in the next few
years as it attempts to address the underfunded retirement system from
an already weak financial and economic position.
The multi-notch downgrades of the banks' standalone BCAs
reflect Moody's current views on the health of the Puerto Rico economy
and the weak prospects for improvement. Moody's recent two-notch
downgrade of Puerto Rico's general obligation rating was an important
reference point.
Moody's noted that BSPR's ba1 standalone BCA remains the highest of the
Puerto Rican banks. BSPR's rating is supported by the bank's strong
capital position and its improved funding profile, both of which
have benefited from BSPR's strategy to deleverage in recent years.
At the same time, BSPR's asset quality has been consistently better
than the other banks on the island. Popular's and BBVAPR's standalone
BCAs are both ba2, one notch below BSPR. Popular's rating
is underpinned by the bank's leading deposit market position in Puerto
Rico, which results in a stronger funding profile than BBVAPR.
However, BBVAPR has experienced less asset quality volatility than
Popular in recent years. Moody's added that both banks have relatively
high capital ratios.
Moody's confirmed BSPR's and BBVAPR's deposit and debt
ratings despite the downgrades of the banks' standalone ratings
because both banks have higher-rated affiliates in the US mainland.
Moody's believes that within a US banking family, the deposit ratings
of affiliates should be equalized because of regulatory powers afforded
by the cross-indemnification provisions of the Federal Deposit
Insurance Act. Moody's explained that the cross-indemnification
provisions require any affiliate insured by the Federal Deposit Insurance
Corporation (FDIC) to cover losses incurred by the FDIC in protecting
depositors of any other FDIC-insured affiliate. In Moody's
opinion, these provisions, together with the Federal Reserve's
source of strength doctrine, provide a strong incentive for the
Spanish parents of these banks to support their Puerto Rican subsidiaries
to the same degree as they would their US mainland subsidiaries.
Following today's actions, Moody's assigned stable outlooks
to the banks' long-term ratings, including their standalone
BFSR/BCAs. The stable outlooks are supported by the banks'
relatively high capital ratios, which should enable them to withstand
a stressful economic environment in the near- to medium-term.
The principal methodology used in these ratings was Moody's Consolidated
Global Bank Rating Methodology published in June 2012. Please see
the Credit Policy page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
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
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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
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this announcement provides relevant regulatory disclosures in relation
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Joseph B Pucella
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
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Robert Franklyn Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
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Releasing Office:
Moody's Investors Service, Inc.
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SUBSCRIBERS: 212-553-1653
Moody's downgrades the ratings of three Puerto Rican banks, outlooks stable