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Rating Action:

Moody's places Santander UK's A2/P-1/C- ratings on review for downgrade

27 Jun 2012

Subordinated debt downgraded by one notch and remains on review for downgrade; Rating actions follow downgrade of parent bank's ratings

London, 27 June 2012 -- Moody's Investors Service has today placed on review for downgrade Santander UK's long and short-term A2/P-1 bank deposit and senior debt ratings and the standalone bank financial strength rating (BFSR) of C- (equivalent to a baa1 standalone credit assessment). In addition, Moody's downgraded by one notch Santander UK's dated subordinated debt ratings, the junior subordinated debt ratings, and the preference shares ratings to Baa2, Baa3(hyb) and Baa3/Ba1(hyb), respectively.

The review of Santander UK's ratings follows Moody's downgrade of the bank deposit and senior debt ratings of Santander UK's parent (Banco Santander S.A.) to Baa2/P-2 and of its standalone credit assessment to baa2, all on review for downgrade (see "Moody's downgrades Spanish banks" published on 25 June 2012 for more details).

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_143507 for the list of Affected Credit Ratings. This list is an integral part of this press release and identifies each affected issuer.

For additional information on bank ratings, please refer to the webpage containing Moody's related announcements: http://www.moodys.com/bankratings2012.

RATINGS RATIONALE

The downgrade of Banco Santander S.A.'s standalone rating to C-/baa2, one notch below the standalone credit assessment of Santander UK (C-/baa1), means that the ratings of Santander UK will no longer benefit from any uplift from parental support. Previously, Santander UK benefited from one notch of uplift to its baa1 standalone credit assessment from parental support in addition to one notch of systemic support.

Moody's review of Santander UK's A2/P-1 senior debt and bank deposit ratings will therefore focus on whether Santander UK's role in the UK market could justify two notches of systemic support over its baa1 standalone credit assessment. A further factor in the senior debt and long-term bank deposit ratings will be the future level of the UK bank's standalone rating, which has also been placed on review for downgrade in line with the review of Banco Santander S.A.

The review of the bank's C-/baa1 standalone credit assessment will focus on the independence and resilience of the UK bank's franchise and financial strength in the event that the creditworthiness of the parent is further affected and its ratings lowered. Generally, Moody's is comfortable with subsidiaries' standalone credit assessments exceeding those of their parents, but this is typically limited by linkages between the subsidiary and the parent bank. The extent to which the regulatory framework in the UK insulates Santander UK from potential adverse developments in Spain will also be factored into Moody's review of Santander UK's ratings.

Moody's has downgraded by one notch all of Santander UK's subordinated debt, junior subordinated debt and preference share ratings (many of which are issued through subsidiaries -- see the attached link for a complete list of affected ratings). This is because these debt instruments are notched down from the 'adjusted' standalone credit assessment (which includes parental support). Moody's says that following the removal of parental support ratings uplift, the adjusted standalone credit assessment is now baa1, rather than a3. These junior instruments are also now on review for further downgrade, and will move in line with the standalone ratings of Santander UK.

WHAT COULD MOVE THE RATINGS UP/DOWN

As a result of the review for downgrade, upwards pressure on the bank's senior debt and deposit ratings is unlikely at the current time. A downgrade of the bank's standalone rating is likely to lead to a downgrade of the senior debt and deposit ratings. In addition, downwards pressure on Santander UK's senior debt and deposit ratings might develop if Moody's decides not to increase the level of systemic support it incorporates into the ratings of Santander UK.

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: Global Methodology published in March 2012. Other methodology used includes Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt, published in November 2009. 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.

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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.

Ross Abercromby
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Moody's places Santander UK's A2/P-1/C- ratings on review for downgrade
No Related Data.
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