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
