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Rating Action:

Moody's places Banco Sabadell's Ba1 ratings on review for downgrade

04 Jul 2013

Madrid, July 04, 2013 -- Moody's Investors Service has today placed on review for downgrade Banco Sabadell's long-term debt and deposits ratings of Ba1 and its D standalone bank financial strength rating (BFSR; equivalent to a ba2 baseline credit assessment, or BCA). At the same time, the rating agency has also placed on review for downgrade Banco Sabadell's Ba3 senior subordinated debt ratings and B3(hyb) preference shares. The bank's short-term rating remains at Not Prime.

The review has been prompted by Moody's concern over the broader asset quality deterioration at Banco Sabadell, particularly in the non-real-estate corporate segment, which has been the bank's traditional focus. Moody's is concerned about the continuing weak outlook for the non-export-oriented corporate sector in view of the ongoing contraction in the domestic, non-export oriented economy. The review will also take into consideration any potential negative impact of the very acquisitive expansion of Banco Sabadell over recent months.

For additional insight about our broader view on the Spanish banking system, please refer to http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_155899 "Credit profiles of many Spanish banks continue to deteriorate given weakness of domestic economy".

RATINGS RATIONALE

--REVIEW OF STANDALONE CREDIT ASSESMENT--

Moody's says that primarily its concern over the broader asset quality deterioration in the non-real estate segment and in particular Banco Sabadell's exposure to this sector, triggered the review for downgrade of the bank's standalone ratings. Moody's expects the asset quality of the corporate sector - as well as other asset categories such as residential mortgages and consumer loans - to deteriorate further, based on its view that any signs of a modest economic recovery at this stage are only caused by the export sector, whereas weak domestic demand is still set to contract domestic growth into 2014. Banco Sabadell is particularly exposed to the non-real estate corporate sector, which represented a high 43% of the bank's total loans at end-December 2012. However, Moody's notes that the integration of Banco CAM in June 2012 has broadened Banco Sabadell's asset base.

Furthermore, Moody's notes that the negative conditions in the country's economy will continue to drive a deterioration in Banco Sabadell's asset-quality indicators across all asset classes, including the residential mortgage portfolio (around 34% of the bank's loan book) and the real-estate segment (16% of total loans). As a result of these conditions, the increase in Banco Sabadell's non-performing loans (NPLs) has been particularly acute since 2012, with a NPL ratio of 9.7% (excluding the portfolio covered by the asset protection scheme) as of end-March 2013.

In concluding the review of Banco Sabadell's standalone ratings, Moody's will take into account (1) the ability of the bank to generate sufficient earnings to offset any increase in provisioning requirements and to ensure a sufficiently resilient capital base; (2) the impact on the bank's credit profile of the acquisitions announced over the past recent months, which individually are not relevant in size but combined increase Banco Sabadell's exposure to the domestic market and therefore may render the bank more vulnerable to the downside risks of Spain's macro scenario. In particular, the rating agency will assess the impact of (1) the acquisition of the retail network of former Caixa Penedes to Banca Mare Nostrum (unrated) closed on 31 May 2013, (2) Banco Sabadell's acquisition of Banco Gallego (unrated), announced on 19 April 2013 after the public auction made by the Spanish Fund for the Orderly Resolution of the Banking System (FROB); and (3) the acquisition of all Spanish subsidiaries of Lloyds TSB Bank (A2 negative; C-/baa2 negative), announced on 29 April 2013.

--REVIEW OF THE SENIOR DEBT AND DEPOSIT RATINGS--

The review for downgrade of the senior debt and deposit ratings was triggered by the review for downgrade of Banco Sabadell's standalone BCA. According to Moody's methodology, the senior debt and deposit ratings of a bank results from the combination of its BCA and any external support it may benefit from. Accordingly, any downgrade of a bank's BCA could trigger a downgrade of its senior debt and deposit ratings.

--SUBORDINATED DEBT AND HYBRID RATINGS--

Moody's review for downgrade of Banco Sabadell's Ba3 senior subordinated debt ratings and B3(hyb) preference share ratings is in line with the review for downgrade of the bank's BCA.

WHAT COULD CHANGE THE RATING UP/DOWN

The ratings have been placed on review for downgrade, indicating downward pressure. This pressure may intensify beyond what has been described above if the macroeconomic operating conditions in Spain should deviate significantly from Moody's current GDP growth projections for 2013 and 2014, a GDP decline of -1.4% for 2013 and a very weak growth of less than 1% in 2014; furthermore, should asset quality deteriorate at a significantly faster rate than the system average, this may exert further pressure on the rating.

An upgrade of Banco Sabadell's standalone credit strength is currently very unlikely, given the current review for downgrade. However, upward pressure could be exerted on the bank's BCA as a result of (1) Banco Sabadell successfully resolving its asset-quality challenges; (2) a sustainable recovery of its profitability indicators; and (3) the bank achieving sustainable access to market funding and capital.

The principal methodology used in these ratings was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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 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 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 rating action, and whose ratings may change as a result of this 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.

Maria Jose Mori
Vice President - Senior Analyst
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 places Banco Sabadell's Ba1 ratings on review for downgrade
No Related Data.
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