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Announcement:

Moody's reviews Spanish banks' ratings for downgrade; removes systemic support for subordinated debt

12 Dec 2011

NOTE: On May 24, 2012, The Press Release was revised as follows: Added the following missed disclosures in the Regulatory Disclosures section:

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. Revised release follows:

Madrid, December 12, 2011 -- Moody's has placed on review for possible downgrade the ratings of eight Spanish banks and two holding companies -- Banco Cooperativo, Banco Sabadell; Bankia and its holding company, Banco Financiero y de Ahorro (BFA); Bankinter, CaixaBank and its holding company, La Caixa; Confederacion Espanola de Cajas de Ahorro (CECA); Caja Rural de Granada; Ibercaja Banco; and Lico Leasing. This follows the rating agency's reassessment of the financial strength of all Spanish banks reflecting increased loss expectations with respect to their commercial real estate exposure and an anticipation of reduced earnings generation capacity available to strengthen provisions or capital in light of the weakened growth outlook for the Spanish economy.

In addition, Moody's announced it was expanding its ongoing reviews of seven banks involved in mergers to incorporate these considerations, specifically, the ratings of Unicaja, Caja Vital, Banco Popular and NCG Banco remain under review for downgrade and the ratings of Bilbao Bizkaia Kutxa, Banco CEISS and Banco Pastor remain under review for upgrade.

Lastly, Moody's announced it has concluded its review of systemic support currently incorporated in the ratings of senior subordinated debt of Spanish banks, which was initiated on 29 November 2011, and removed all systemic support from these ratings. As a result, subordinated debt (and, where applicable, junior subordinated debt) of 21 financial institutions has been downgraded. The subordinated debt remains under review for downgrade, however, for those banks whose other ratings remain under review for downgrade.

Finally, Moody's has today placed on review for upgrade all ratings of Banco CAM, following its acquisition by Banco Sabadell announced on 7 December 2011. The review for downgrade of Banco Sabadell's ratings will also take into consideration the impact of such integration on the bank's credit profile.

A full list of ratings affected by today's action can be found at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_138022

RATINGS RATIONALE

RATINGS RATIONALE-- BANK FINANCIAL STRENGTH RATINGS

PERSISTING ASSET QUALITY CONCERNS

Moody's notes that its concern about the banks' weak asset performance primarily stems from their exposure to the real-estate sector, through both loans and properties held on-balance sheet. The non-performing-loan (NPL) rate within this sector has exceeded the level reached in the crisis in the early 1990s, and continues to rise, especially for developer exposures, with no sign of abating. As a consequence, current and prospective NPLs exceed loss expectations factored into current ratings.

Additionally, there has been a continuous increase in the stock of real-estate properties that banks are acquiring from delinquent borrowers or as a result of foreclosures, illustrating the lack of liquidity in the market. The level of activity in some of these asset classes is too low to establish credible benchmark valuations. When set alongside the decline in prices observed since 2008, significant doubts persist regarding real-estate valuations and the adequacy of impairments and provisions taken so far by many banks.

Most of the banks whose ratings have been placed under review for downgrade would experience capital shortfalls (benchmarked against the regulatory 8% minimum core tier 1 ratio) under various scenarios of further real estate asset quality deterioration. Moody's has applied a range of scenarios using commercial real estate impairments seen amidst some Spanish banks that have been intervened and subject to a clean-up exercise by the Spanish regulator such as Banco CAM, but also incorporating some of the scenarios applied in other countries with similar commercial real estate sector dynamics such as Ireland. The review will assess the adequacy of banks' capital cushions to cope with more severe deterioration in asset quality, especially in the real-estate sector.

PRESSURE ON INTERNAL CAPITAL GENERATION CAPACITY

Moody's will also review banks' internal capital generation capacity. The agency has reduced its growth forecasts for Spanish GDP for 2012 from close to 2% to 1% at most, which it expects to drive worsening asset performance, and to constrain bank profitability still further. The challenging operating environment is reducing the earnings generation capacity of Spanish banks, especially in terms of net interest income, as a result of the combination of (i) the low interest-rate environment suppressing margins; (ii) lower business volumes; (iii) increased funding costs; and (iv) a rise in the amount of non-earning assets. Weaker earnings imply a further reduced capacity to strengthen provisions or capital.

The review will focus on revised earnings and internal capital generation projections in light of the weakened growth outlook for the Spanish economy. It will also assess banks' ability to generate capital externally, e.g. via asset sales, rights offerings to existing or new wholesale or retail shareholders, as well as other tools to reinforce capital levels.

The review will also take into account the banks' liquidity in an increasingly tough funding environment. Most Spanish banks face restricted access to market funding while concentration of market maturities in the following year are high. Access to funds from the European Central Bank and retail deposits remain the two key remaining funding pillars.

RATING RATIONALE -- SENIOR DEBT AND DEPOSIT RATINGS

The review for downgrade of the senior debt and deposit ratings was triggered by the review for downgrade of their BFSRs. According to Moody's methodology, the senior debt and deposits ratings of a bank results from the combination of its BFSR and any external support it may benefit from. Accordingly, any downgrade of a bank's BFSR could potentially trigger a downgrade of its senior debt and deposit ratings. Moody's is not planning any further revision of the support assumptions currently embedded in these ratings of Spanish banks as part of this review.

RATING RATIONALE -- SUBORDINATED DEBT AND PREFERRED SHARES RATINGS

Moody's has today concluded its review on the systemic support that had been incorporated in Spanish banks' subordinated debt ratings. All systemic support will be removed from these instruments' ratings. This followed the rating action of 29 November 2011, when Moody's placed on review for downgrade the ratings of the subordinated and junior subordinated debt of all Spanish banks, together with other European countries where the subordinated debt incorporates some ratings uplift from Moody's assumptions of government support. (See Moody's Special Comment "Reassessment of Government Support Assumptions in European Bank Subordinated Debt" for further information.)

This decision reflects Moody's conclusion that the possibility of losses being imposed on these instruments outside of liquidation has risen to a level which is incompatible with any remaining uplift. Moody's acknowledges that the current legal and regulatory framework remains ostensibly supportive. However, Moody's believes that the conflict between rising pressure on banks' capitalisation levels and increasingly severe austerity measures increases the probability that the government will seek to protect its own balance sheet at the expense of subordinated creditors, given the lesser contagious impact of such losses on the financial system.

-- RATINGS UNDER REVIEW

Moody's is maintaining the ratings under review for 7 banks as a consequence of their involvement in different consolidation projects. These review processes, expected to be concluded upon the materialisation of the different mergers, will involve an assessment of the different factors which have triggered the BFSR revision process that has started today.

The review for downgrade of Banco Sabadell's ratings initiated today will also take into consideration the impact of its integration with Banco CAM announced on 7 December 2011. This acquisition has also triggered the review for upgrade of all ratings of Banco CAM.

-- CECA AND BANCO COOPERATIVO ESPA?OL

The review for downgrade of CECA and Banco Cooperativo Espa?ol's ratings arises from their role as service providers for Spanish savings banks and rural credit cooperatives respectively, which sustain a significant share of their recurrent earning generation. The review process for these two institutions will focus on (i) the overall performance of the customer base they serve, on the back of weakened growth prospects for the Spanish economy and expectations of a reduction in their business volume; and (ii) increased counterparty risk assumed in operations with savings banks or rural credit cooperatives, given the weakening credit profile in general terms of both financial segments.

-- LA CAIXA AND BANCO FINANCIERO Y DE AHORRO

The review of the issuer ratings of La Caixa and Banco Financiero y de Ahorro (BFA), together with their subordinated debt ratings and that of BFA's preferred shares, is triggered by the review of their operating companies, CaixaBank and Bankia, respectively. The ratings of La Caixa and BFA are positioned two and three notches, respectively, below those of their operating companies.

PRINCIPAL METHODOLOGIES

The methodologies used in this rating were Bank Financial Strength Ratings: Global Methodology published in February 2007, Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007, and 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.

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, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

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.

The lead analyst and rating office for each of the transactions affected are generally different from the contact and office listed at the end of this press release. For each transaction, the lead analyst name and the rating office is available on the issuer page on www.moodys.com

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.

Maria Cabanyes
Senior Vice President
Financial Institutions Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
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 Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's reviews Spanish banks' ratings for downgrade; removes systemic support for subordinated debt
No Related Data.
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