Moody's rating actions related to proposed offer for ABN AMRO Bank N.V.
Rating actions follow announcement of consortium's proposed acquisition of ABN AMRO (Aa2/P-1/B-, positive)
London, 30 May 2007 -- Moody's Investors Service today announced rating actions related
to a 29 May proposal to acquire ABN AMRO Bank N.V. Affected
ratings include those of ABN AMRO NV as well as those of members of the
bidding consortium, which comprises consortium leader, the
Royal Bank of Scotland Group plc (RBSG), as well as Banco Santander
and Fortis Group.
Rating actions are as follows:
Moody's affirmed the Aaa/P-1/B+ ratings of the Royal
Bank of Scotland plc and National Westminster Bank plc as well as the
Aa1/P-1 ratings of the Royal Bank of Scotland Group plc,
but changed the outlook on the BFSRs and long-term ratings of these
entities to negative from stable. The stable outlook on the entities'
P-1 ratings was affirmed.
The outlook change recognises litigation uncertainties related to the
completion of the transaction, the possibility of a counter-bid
for ABN AMRO, integration challenges, as well as the negative
short-term impact of the proposed transaction on the quality of
RBSG's capital and historically strong earnings, Moody's
said. The agency added that it expects RBSG's profitability
to be marginally weaker over the near term as it integrates ABN AMRO's
under-performing Global Clients unit as well as its North America
business unit. Resolution of the uncertainties surrounding the
litigation issues, progress in the integration of ABN AMRO,
and rebuilding of RBSG's core capital and profitability in line
with its current BFSR within 12 to 18 months would have positive rating
implications. Conversely, failure to resolve these issues
within the same time frame could lead to negative rating actions.
The ratings of Banco Santander (senior at Aa1/P-1) and all of the
ratings of the Fortis Group and Fortis Bank (senior at Aa2/P-1)
were affirmed at their current levels with a stable outlook. Moody's
also affirmed the ratings of Ulster Bank, Ulster Bank Ireland and
First Active.
The rating agency also affirmed the Aa2/P-1/B- ratings of
ABN AMRO Bank N.V. The outlook on ABN AMRO's debt
ratings remains stable while the outlook on the BFSR remains positive.
Separately, Moody's affirmed the ratings of Banca Antonveneta
and Interbanca at their current levels and said that the prospective ratings
of the two banks would depend on the eventual owner.
ABOUT THE TRANSACTION
The purchase, if completed, will be made for total consideration
of EUR71.1 billion, of which 79% (EUR56.2 billion)
is to be paid in cash. The balance is to be paid in new RBS shares
and includes a EUR1 per share to be retained by the consortium to cover
related litigation costs. The capital associated with the proposed
transaction is fully underwritten, according to Moody's.
If approved, the acquisition is expected to close by year-end
2007.
The offer is conditional on ABN AMRO shareholder approval of the sale
of La Salle Bancorporation, which is currently under contract to
be sold to Bank of America Corporation.
This is dependent upon a decision by the Dutch Supreme Court upholding
the preliminary ruling of the Dutch Enterprise Chamber that ABN AMRO shareholders
will have to approve the acquisition of La Salle Bancorporation.
In addition, the offer is subject to regulatory approvals.
ACQUISITION STRUCTURE
The acquisition structure currently calls for three steps. In the
first step RFS Holdings, a company owned by the consortium members
and organised under Dutch law, will acquire 100% of ABN AMRO.
RFS Holdings will also become a subsidiary of the Royal Bank of Scotland
Group. In a second step, Fortis and Santander will absorb
specific businesses and subsidiaries of ABN AMRO. In a third step,
residual assets, labelled "the Rump", of ABN AMRO,
will be sold to third parties. Each of the consortium partners
will be responsible from the closing date for their pro-rate share
of the investment, Moody's said.
Ultimately, RBSG would acquire the North America business unit including
Citizens, the Global Clients business and wholesale clients in the
Netherlands, Latin America (excluding Brazil) and Asia excluding
Saudi Hollandi, and Europe, excluding Banca Antonveneta.
In its turn, Fortis will acquire BU NL, BU Private Clients
and BU Asset Management, and Santander will acquire BU Latin America
(excluding wholesale clients outside Brazil), Antonveneta,
Interbank and DMC Consumer Finance.
"The various pieces of ABN AMRO being acquired by each of the consortium
partners will be franchise-enhancing for them," said
Lynn Exton, a Moody's Senior Vice President and Regional Credit
Officer.
ABOUT THE RATING ACTIONS
In changing to negative the outlook on the B+ BFSR and Aaa long-term
debt and deposit ratings of RBS plc and NatWest plc and the Aa1 senior
debt ratings of RBSG, Moody's recognises the group's
strong track record in integrating acquisitions, including the rapid
and effective integration of NatWest in 2000 as well as Charter One Financial
in 2004. RBSG has a strong franchise throughout the UK, with
leading or strong positions in a range of businesses, particularly
retail and corporate banking, and it appears to be strengthening
its position across these. It also has significant and growing
insurance operations through Churchill and Direct Line. The strength
of the UK franchise is an important factor underpinning the ratings.
The group also has growing activities outside the UK, particularly
in the United States. The ratings are also supported by RBSG's
very strong recurring earnings capacity and sustainable financial fundamentals.
However, offsetting these strengths are (i) the group's quality
of capital -- as measured by the proportion of preference
shares included in Tier 1 -- which is weaker than at its
peers in the B+ BFSR peer group, (ii) the challenge in integrating
a large and complex group such as ABN AMRO, (iii) the possibility
of adverse developments in legal proceedings, which could have a
material financial impact on the group, although the likelihood
of this ocurrance is low, and (iv) the timeframe to rebuild its
earnings -- as measured by return on risk-weighted
assets -- to levels consistent with its current BFSR peer
group.
The negative outlook on the bank financial strength ratings of RBSG's
lead banks results in a negative outlook on the long-term deposit
and debt ratings of Citizens Financial Group's seven rated U.S.
bank subsidiaries. Citizens is the primary US operating subsidiary
of RBSG. Each of the seven banks is rated B for bank financial
strength and Aa2 for long-term deposits. The bank financial
strength rating of B translates into a Aa3 Baseline Credit Assessment,
indicating a one-notch lift to the long-term ratings of
Citizens' banks based on Moody's expectation of a high level
of parental support from RBSG. That support is driven by the intrinsic
financial strength of RBSG and its bank subsidiaries, as reflected
in their own bank financial strength ratings.
In its affirmation of all Fortis group's ratings with a stable outlook,
Moody's affirmed the Aa3 issuer ratings of Fortis SA/NV and Fortis
NV, the Aa3/A1/A2 senior/ subordinated and preferred debt ratings
of the main funding holding companies and the group's P-1
CP and short-term debt ratings. Moody's also affirmed
the Aa2/P-1 ratings of the three Fortis banks operating in Benelux
-- Fortis Bank SA/NV, Fortis Bank Nederland (Holding)
NV and Fortis Bank Luxembourg -- as well as the Aa3 IFSRs
of the main rated insurance entities in Belgium and the Netherlands:
Fortis Insurance Belgium, Fortis ASR Levensverzekering N.V.
and Fortis ASR Schadeverzekering NV.
"The rating affirmation reflects the transaction's good strategic
fit for Fortis as well as the relatively limited impact of the planned
funding package (including EUR15 billion underwritten rights issue) to
the capital structure, capitalisation and underlying fundamentals
of the group," said Jose Morago, a Moody's Assistant
Vice-President/Analyst. Moody's does, however,
acknowledge the challenges presented by the size, complexity and
amount of resource necessary for Fortis to integrate and extract value
from the new businesses.
In its affirmation of the Aa1/B/P-1 ratings of Banco Santander,
Moody's cites: (i) the strategic fit of this acquisition,
which is fully consistent with Santander's international strategy;
(ii) the bank's proven strong track-record of integrating
large-scale acquisitions and extracting cost efficiencies from
them, (iii) the limited negative implications for pro-forma
profitability, both pre- and post-provisions;
(iv) the fact that the larger contribution from more volatile markets
(Latin America) does not change the group's existing risk profile
materially; and (iv) Santander's proven prudent management
of its economic solvency.
"Although the acquisition will likely increase the group's
leverage -- core capital levels are expected to fall to
5.3% from 5.97% -- we expect
to see leverage levels restored within 12-18 months,"
says Maria Cabanyes, a Moody's Senior Vice President and Regional
Credit Officer.
The affirmation of Santander's ratings also takes into account Moody's
expectation that Santander's core capital ratios will not be put
under further strain and its concerns about the challenges of turning
around Antonventa and integrating the Brazilian operations, which
will double its existing size.
The affirmation of ABN AMRO's Aa2/P-1 senior debt ratings
with a stable outlook is supported by the very high level of systemic
support from the Netherlands given the bank's importance to its
home market. The rating is also supported by a moderate degree
of expected support from, RBSG, Moody's said.
"ABN AMRO's financial fundamentals are weaker than those of
RBSG particularly with respect to profitability, cost efficiency
and asset quality, as captured in its B- BFSR. Moody's
will consider these factors, and the extent to which they are likely
to improve following the proposed merger", said Lynn Exton.
As of year-end 2006, ABN AMRO Bank NV reported total assets
of EUR987 billion, while the banking operations of Fortis had total
assets of approximately EUR674 billion, RBSG had total assets of
GBP871 billion and Banco Santander had total assets of EUR834 billion.
London
Antonio Carballo
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Lynn Exton
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
