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Announcement:

Moody's extends Santander's current ratings review to its short-term ratings

Global Credit Research - 07 May 2012

Madrid, May 07, 2012 -- Moody's Investors Service has today widened the scope of the existing review for downgrade on Banco Santander's Aa3 long-term ratings (initiated on 15 February 2012) to include the Prime-1 short-term ratings.

The review of Santander's short-term rating is driven by Moody's review of whether Spanish banks with standalone credit assessments at (or below) the government's rating can continue to benefit from systemic support that lifts a bank's rating above that of the Spanish government. This review reflects the rating agency's concern that in a systemic crisis, the Spanish government's capacity and willingness to support its banking system may have diminished.

Moody's will announce the outcome of this review at the same time as it concludes its wider review of Spanish bank debt and deposit ratings.

RATINGS RATIONALE

To date, Moody's has assumed that the Spanish government has a high propensity to provide system-wide support, even if doing so could undermine the government's own credit profile. Consequently, it has so far been possible for systemic support -- calculated using Moody's Joint Default Analysis methodology -- to lift Spanish banks' ratings above that of the government. This implies a lower probability of default for certain banks than exists for the sovereign, even though the standalone strength of those banks is at (or below) that of the sovereign.

This view is currently reflected in a 'Systemic Support Indicator' (SSI) for Spain of '+1', which allows bank ratings that incorporate systemic support uplift to exceed that of the sovereign (currently A3, negative) by one notch.

However, the rising pressures on the Spanish banking system, the government's finances and the Spanish economy has led Moody's to review the government's ability and willingness to commit public funds to support banks. Although Moody's believes that it remains appropriate to factor in some support to the debt ratings of certain Spanish banks, it may no longer be appropriate to assume that the government is more willing and able to provide support to banks than it is to service its own debt, or therefore to assume that support from the government could imply a higher rating for any Spanish bank than for the government itself.

If this view is affirmed supported ratings would be capped at the same level as the sovereign rating. In that scenario, the short-term rating of Banco Santander could be affected if Moody's downgrades Santander's standalone bank financial strength rating from B- to C (mapping to an a3 standalone credit strength). At the C/a3 level, it would no longer be possible to factor any systemic support into Santander's long-term debt rating, which would therefore not exceed A3. Moody's has therefore placed the short-term Prime-1 rating of Banco Santander on review for downgrade, in line with all other ratings of Banco Santander. All the long- and short-term ratings of other banks who currently benefit from a support uplift above the government's ratings of A3 are already on review for downgrade, and the review of these banks will need to incorporate the outcome of Moody's review of the SSI.

WHAT COULD CHANGE THE RATINGS UP/DOWN

The ratings could be downgraded if Spain's government rating is downgraded. Negative pressure on Santander's BFSR could ultimately result from (i) inadequate risk absorption capacity (i.e., recurring earnings, excess capital and loan-loss reserves) compared with Moody's estimated credit losses; (ii) failure to withstand Moody's liquidity stress test; or (iii) a lower share of recurring earnings. This could be driven by increased exposure to inherently volatile markets and/or market segments.

Any upward pressure of Santander's ratings is currently unlikely given the current review for downgrade of its ratings and the negative outlook on Spain's A3 government debt rating. Notwithstanding the above, any upgrade would also be contingent on (i) evidence of more favourable economic conditions across its core markets; (ii) evidence of a sustained reversal in the deterioration in asset quality and profitability indicators; (iii) stronger Tier 1 and tangible common equity ratios, further offsetting estimated credit losses under Moody's scenarios; and (iv) normalised funding markets.

A rating upgrade will also depend on a materially lower credit-risk concentration, particularly with regards to single-name exposures.

The following ratings were affected:

- The short-term deposit rating of Banco Santander S.A

- The short-term ratings on CD of Banco Santander, S.A. London branch

- The short-term ratings on CP and MTN program of Santander Central Hispano International guaranteed by Banco Santander SA

- The short-term ratings on CP of Santander Commercial Paper SA Unipersonal guaranteed by Banco Santander SA

- The short-term ratings on MTN program of Santander International Debt, S.A. Unipersonal guaranteed by Banco Santander SA

The methodologies used in these ratings were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare each of the ratings are the following: parties involved in the ratings, public information and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these reviews.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

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.

In addition to the information provided below please find on the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued each of the ratings.

Maria Cabanyes
Senior Vice President
Financial Institutions Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Johannes Felix Wassenberg
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's extends Santander's current ratings review to its short-term ratings
No Related Data.

 

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