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Rating Action:

Moody's places senior and subordinate debt ratings of Santander Bank, N.A. and Banco Santander Puerto Rico and preferred stock rating of Santander Holdings USA, Inc. on review for upgrade;

27 Sep 2017

Action anticipates further issuance of loss-absorbing debt

New York, September 27, 2017 -- Moody's Investors Service has today placed Santander Bank N.A.'s Baa2 issuer rating, Baa2 senior unsecured debt rating and Baa2 subordinate debt rating and Banco Santander Puerto Rico's Baa2 issuer rating and (P)Baa2 senior unsecured bank note program under review for upgrade. The review was prompted by Moody's expectation of significant issuance of additional loss-absorbing capital in response to regulatory requirements. This issuance should reduce loss severity for bank-level senior and subordinate unsecured debt, according to Moody's revised advanced Loss Given Failure (LGF) analysis. The revised LGF analysis was undertaken following updates to Moody's Banks rating methodology, published on 26 September 2017, which can be accessed via the following link: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1065675.

Santander Holdings USA, Inc.'s (SHUSA) Ba3(hyb) non-cumulative preferred stock rating was also placed on review for upgrade. Moody's decision to introduce its advanced Loss Given Failure (LGF) analysis for SHUSA in response to regulatory requirements prompted the review on the holding company's preferred stock ratings.

Moody's affirmed Santander Bank N.A.'s A2/Prime-1 long- and short-term deposit ratings, A3(cr)/Prime-2(cr) long- and short-term counterparty risk assessments (CR assessments), baa1 adjusted baseline credit assessment (BCA) and baa2 standalone BCA. The outlook on Santander Bank N.A.'s long-term deposit rating is stable.

Regarding the holding company, Moody's affirmed Santander Holdings USA, Inc.'s (SHUSA) Baa3 senior unsecured debt rating and (P)Baa3 senior unsecured shelf rating. The outlook on SHUSA's senior unsecured debt rating is stable.

The other ratings of Banco Santander Puerto Rico (A2/Prime-1 deposits, ba3 BCA, baa1 adjusted BCA) were unaffected by today's actions.

A list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

SANTANDER BANK AND BANCO SANTANDER PUERTO RICO REVIEW REFLECTS REDUCED LOSS SEVERITY FOR CREDITORS FROM EXPECTED ISSUANCE OF ADDITIONAL LOSS-ABSORBING CAPITAL

The review for upgrade of Santander Bank N.A.'s issuer rating, senior unsecured debt rating and subordinate debt rating and Banco Santander Puerto Rico's issuer rating and senior unsecured bank note program reflects Moody's expectation that SHUSA will continue to issue debt in order to comply with Total Loss Absorbing Capacity (TLAC) requirements equivalent to a minimum of 6% of risk-weighted assets (RWAs) by January 2019.

Banco Santander S.A., the group's ultimate parent in Spain, has announced its issuance plans to meet its minimum TLAC requirements. Its US-based intermediate holding company, SHUSA, has issued $3 billion in senior notes in 2017. Moody's expects SHUSA to continue its issuance program to meet TLAC requirements by January 2019, based upon the bank's continued good access to the capital markets.

Given the near term changes in SHUSA's balance sheet, Moody's revised advanced LGF analysis indicates a lower loss-given-failure for bank-level long-term senior and subordinate unsecured creditors, resulting in the review for upgrade. The review will consider the predictability of resources being pushed down to the bank subsidiaries from the holding company for the resolution of the bank subsidiaries. This would support the subordination of the bank subsidiaries' debt structure, reducing the loss severity of the bank subsidiaries' debt.

Under Moody's analysis, Santander Bank N.A.'s deposit ratings are unaffected driving the affirmation. Santander Bank N.A.'s deposits are rated two notches higher than the baa1 adjusted BCA at A2 due to Moody's view that Santander Bank N.A.'s deposits are already likely to face very low loss given failure, due to the loss absorption provided by more junior obligations and by the volume of deposits in Santander Bank's liability structure.

BCA AFFIRMATION REFLECTS STRONG CAPITAL AND WEAK PROFITABILITY

The affirmation of Santander Bank, N.A.'s BCA, adjusted BCA and CR Assessments were driven by its strong capital, good liquidity and sound asset quality. The affirmation also reflects the bank's profitability, which, despite notable improvement in its net interest margin, remains well below peers. The bank's profitability is hampered by its weak operating efficiency due to heightened expenses, largely in response to regulatory deficiencies. Santander Bank, N.A.'s baa1 adjusted BCA and deposit and debt ratings incorporate Moody's view of a high probability of support for the bank from its ultimate parent, the Spanish bank Banco Santander, S.A. That assumption results in a one notch uplift.

SHUSA REVIEW REFLECTS INTRODUCTION OF MOODY'S LGF ANALYSIS FOR HOLDING COMPANY

The review for upgrade of Santander Holdings USA, Inc.'s (SHUSA) non-cumulative preferred stock rating reflects Moody's consideration of the application of its advanced LGF analysis for SHUSA in response to regulatory requirements which indicate that SHUSA will be the vehicle for resolution in the US under Banco Santander S.A.'s multiple point of entry resolution strategy. In Moody's view, these requirements increase the certainty that SHUSA would be subject to a Title I resolution, which Moody's views as an operational resolution regime. Under this framework, Moody's would use its advanced LGF framework, a liability-side analysis to assess the impact of a failure, to express loss severity in terms of notching which would result in an upgrade to SHUSA's preferred debt ratings.

The affirmation of SHUSA's senior unsecured debt and senior unsecured shelf ratings already reflect that Moody's ratings incorporate an assumption of high loss severity given its subordination as a holding company. SHUSA's ratings also incorporate Moody's view of a high probability of support from its ultimate parent. SHUSA's ratings also incorporate Moody's views that the credit profile of Santander Consumer USA Inc. (unrated), a largely subprime US consumer finance company of which SHUSA has majority ownership, is much weaker than that of the bank.

WHAT COULD MOVE THE RATINGS UP/DOWN

Santander Bank N.A.'s issuer rating, senior and subordinate debt ratings and Banco Santander Puerto Rico's issuer rating and senior bank note program rating would be upgraded by one notch if Moody's review finds that SHUSA's debt issuance plan and the resolution framework would provide sufficient subordination to lessen the loss severity of its bank subsidiaries' debt.

SHUSA's successful remediation of its current regulatory deficiencies and a sustained period without further process or control issues would be positive.

A significant deterioration in Santander Bank's capital ratios, which are currently a key credit strength, could lead to downward movement on the bank's BCA and deposit and debt ratings. A downgrade of the ultimate parent's BCA could also lead to a downgrade of Santander Bank's adjusted BCA and debt and deposit ratings.

The holding company's debt ratings could be downgraded if 1) growth at Santander Consumer dilutes SHUSA's overall credit profile by becoming a much larger contributor of assets or earnings, and/or 2) Santander Consumer's credit profile deteriorates, restricting the finance company's access to funding/liquidity.

The principal methodology used in these ratings was Banks published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LIST OF AFFECTED RATINGS

Issuer: Santander Holdings USA, Inc.

..On Review for Upgrade:

....Non-cumulative Preferred Stock, Placed on Review for Upgrade, currently Ba3 (hyb)

..Affirmations:

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3, Outlook Stable

....Senior Unsecured Shelf, Affirmed (P)Baa3

Issuer: Santander Bank, N.A.

..On Review for Upgrade:

....Issuer Rating, Placed on Review for Upgrade, currently Baa2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Upgrade, currently Baa2

....Subordinate Regular Bond/Debenture, Placed on Review for Upgrade, currently Baa2

..Affirmations:

....Baseline Credit Assessment, Affirmed baa2

....Adjusted Baseline Credit Assessment, Affirmed baa1

....Long-Term Counterparty Risk Assessment, Affirmed A3(cr)

....Long-Term Bank Deposit Rating, Affirmed A2, Outlook Stable

....Short-Term Counterparty Risk Assessment, Affirmed P-2(cr)

....Short-Term Deposit Rating, Affirmed P-1

Issuer: Banco Santander Puerto Rico

..On Review for Upgrade:

....Issuer Rating, Placed on Review for Upgrade, currently Baa2

....Senior Unsecured Bank Note Program, Placed on Review for Upgrade, currently (P)Baa2

Outlook Actions:

..Issuer: Banco Santander Puerto Rico

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Santander Bank, N.A.

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Santander Holdings USA, Inc.

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Sovereign Capital Trust VI

....Outlook, Changed To Rating Withdrawn From No Outlook

Withdrawals:

..Issuer: Sovereign Capital Trust VI

....Pref. Stock Shelf, Withdrawn , previously rated (P)Ba2

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 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.

The below contact information is provided for information purposes only. Please see 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 the ratings.

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.

Megan Snyder
Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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