Review follows our assessment of standalone credit ratings positioned above the parent's ratings
Frankfurt am Main, March 30, 2012 -- Moody's Investors Service has today placed on review for downgrade the
D- bank financial strength rating (BFSR) of Eurobank Tekfen A.S.,
whose corresponding Ba3 standalone rating (mapped from the D- BFSR)
is currently six-notches higher than that of its parent,
EFG Eurobank Ergasias (Caa3, mapped from the E BFSR).
The review follows (i) Moody's assessment that the credit quality of parent
banks and their subsidiaries are typically interlinked; and (ii)
the potential negative effects on Eurobank Tekfen's balance-sheet
evolution, given the parent bank's publicly stated intention
to sell its 70% stake in Eurobank Tekfen.
Concurrently, the Ba3 global local-currency (GLC) deposit
rating and the Ba3 foreign-currency deposit rating were also placed
on review for downgrade.
During the review, Moody's will therefore focus on the degree to
which the weak creditworthiness of EFG Eurobank Ergasias might have adverse
consequences on Eurobank Tekfen's standalone credit profile and the potential
impact from a possible new parent.
RATINGS RATIONALE
-- REVIEW OF EUROBANK TEKFEN'S RATINGS
Eurobank Tekfen has a sound capital base and minimal reliance on wholesale
market funds. However, its parent funds a large part of Eurobank
Tekfen's borrowings; it has direct balance-sheet exposure
to the parent in the form of a perpetual loan. In addition,
it currently carries the parent bank's brand name and logo,
which implies a strong relationship between the tarnished reputation of
the parent in the global credit markets and that of the Turkish subsidiary,
which raises the possibility of contagion risk.
At the same time, the review reflects Moody's assessment of
EFG Eurobank Ergasias's intention to sell its majority shareholding
and any potential effects this might have on the franchise and the balance
sheet of Eurobank Tekfen (assuming the subsequent unwinding of outstanding
funding lines and asset placements with the parent bank).
-- FOCUS OF THE REVIEW
Moody's assumption is that subsidiaries are always likely to be partially
affected by changes in parents' creditworthiness. The review will
therefore assess the relationship between the two. Moreover,
Moody's will look into the positioning of Eurobank Tekfen's standalone
credit assessment relative to its parent's standalone profile, taking
into account (i) the degree of interlinkages between them; (ii) the
extent to which a possible default of the parent bank might have credit-negative
implications for Eurobank Tekfen's credit profile and franchise;
and (iii) regulatory barriers in Turkey that restrict EFG Eurobank Ergasias
from using -- at its discretion -- Eurobank
Tekfen's resources.
Moody's notes that EFG Eurobank Ergasias has publicly announced on 14
July 2011 its intention to dispose of its majority stake in Eurobank Tekfen.
The review process will also take into account any potential buyers and
the implications it will have on Eurobank Tekfen's credit fundamentals
and franchise, including any parental support assumptions that could
be incorporated in the bank's deposit ratings.
-- WHAT COULD MOVE RATINGS UP/DOWN
The most important rating drivers are (i) the strategic and operational
uncertainty related to a change in ownership; (ii) continued weakening
in Eurobank Tekfen's core earnings base, effecting its internal
capital generation; (iii) reduction in the overall capital levels,
constraining its franchise expansion; (iv) any deterioration in the
funding profile coupled with an increase in non-performing loans
and thereby posing a risk for the bank's liquidity and solvency;
and (v) liquidity and capital pressures faced by the parent bank that
could have adverse implications for Eurobank Tekfen's standalone
profile.
Moody's believes there is little likelihood of any upward rating pressure
for any of the ratings, captured by today's review for downgrade
placements. However, any change in the majority ownership
to a higher-rated entity could potentially stabilise Eurobank Tekfen's
global local-currency deposit rating.
PRINCIPAL METHODOLOGIES
The methodologies used in this rating were Bank Financial Strength Ratings:
Global Methodology published in February 2007, and Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology published in March 2007. 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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following :
parties involved in the ratings, and public information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
this review.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
two years preceding the credit rating action. Please see the special
report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure
page on our website www.moodys.com for further information.
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
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Consequently, Moody's provides a date that it believes is
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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.
Arif Bekiroglu
Asst Vice President - Analyst
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's reviews Eurobank Tekfen's D-/Ba3 ratings for downgrade
