Hong Kong, November 09, 2015 -- Moody's Investors Service has placed on review for downgrade the
long-term ratings of Standard Chartered PLC (SCPLC) and Standard
Chartered Bank (SCB).
The rating action follows the group's announcement of its 3Q 2015
results and a new strategic plan.
The following ratings are placed on review for downgrade:
SCB: Aa2 long-term deposit rating, Aa2 senior unsecured
debt rating, Aa2 long-term deposit note/CD program rating,
(P)Aa2 senior unsecured MTN program rating, Aa2(cr) long-term
counterparty risk assessment, a2 standalone baseline credit assessment
(BCA) and adjusted BCA, A2 subordinated debt rating, (P)A2
subordinated MTN program rating, Baa1(hyb) junior subordinated debt
rating and Baa1(hyb) preference share rating.
SCPLC: Aa3 senior unsecured debt rating, (P)Aa3 senior unsecured
MTN program rating, A2 subordinated debt rating, (P)A2 subordinated
MTN program rating, Baa1(hyb) junior subordinated debt rating,
and Baa2(hyb) non-cumulative preference share rating.
The following ratings are affirmed:
SCB: P-1 short-term deposit and debt rating,
P-1 short-term deposit note/CD program rating, (P)P-1
short-term MTN program rating, P-1(cr) short-term
counterparty risk assessment
SCPLC: Ba1(hyb) Additional Tier 1 capital securities rating
RATINGS RATIONALE
SCPLC reported a pre-tax loss of US$139 million in 3Q 2015
-- excluding the impact of the revaluation of its own credit,
the gains and losses on business disposals, and civil monetary penalties
-- versus a pre-tax profit of $357 million
in 2Q 2015 and a pre-tax profit of $1.5 billion in
3Q 2014. At the same time, it reported a 9% increase
in non-performing loans from end-June 2015.
The group's earnings and asset quality have been under pressure
for several years, stemming from the combined effect of the low
interest rate environment, competition from excess liquidity in
many of its key operating markets, increasing regulatory costs and
weakening credit cycle.
The group's latest strategy plan assumes only a modest recovery
of profitability to a return on average equity of around 8% by
2018, suggesting the group is facing structural profitability weaknesses.
Along with its 3Q 2015 results, SCPLC has announced a number of
strategic initiatives to improve its solvency and profitability.
These include a fully underwritten GBP3.3 billion rights issue,
which management expects to complete before the end of the year.
The issue will lead to an increase of approximately 160 basis points in
its common equity Tier 1 (CET1) capital ratio to around 13%,
which is in line with management's new target of 12%-13%,
and up from the previous guided range of 11%-12%.
In addition, the group's multi-year strategic plan
involves business restructuring and cost reduction. While the new
plan is intended to boost the group's profitability over the longer
term, it carries considerable execution risks.
Moody's review will focus on (1) the likely drag on profitability
that the plan will cause over the next several years; (2) the likely
further deterioration in its asset quality, considering the changes
in its operating environment, portfolio mix and risk appetite.
A downgrade is likely if Moody's assesses that these credit concerns
outweigh the expected improvement in its capital.
The review of the long-term deposit and instrument ratings at SCPLC
and SCB will also consider the group's liability structure.
Under Moody's Advanced Loss Given Failure analysis, a material change
in the liability structure can affect the loss-given-failure
for different classes of creditors and thus result in rating changes.
However, Moody's does not expect SCB's P-1 short-term
deposit and debt rating and P-1(cr) short-term counterparty
risk assessment to be affected and has thus affirmed these ratings.
SCPLC's Ba1(hyb) rating on Additional Tier 1 capital securities
is also affirmed, reflecting its CET1 capital ratio of 11.4%
at end-September 2015, and the expected further improvement
in this ratio. Moody's rating on high-trigger capital
securities is based on the likelihood of the issuer's capital ratio
reaching the conversion trigger, the probability of a bank-wide
failure and loss severity, if either one or both these events occur.
Moody's scenario analysis concluded that the Ba1(hyb) rating would remain
unchanged if SCB's BCA is lower but SCPLC's CET1 capital ratio falls
between 12% and 13%.
Moody's does not incorporate affiliate or government support in
SCB's and SCPLC's ratings.
The principal methodology used in these ratings was Banks published in
March 2015. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Standard Chartered PLC is a global bank headquartered in London with total
assets of US$695 billion at end-June 2015.
List of affected ratings:
Standard Chartered PLC
- Senior unsecured long-term debt at Aa3 placed on review
for downgrade
- Senior unsecured long-term MTN program at (P)Aa3 placed
on review for downgrade
- Subordinated debt at A2 placed on review for downgrade
- Subordinated MTN program at (P)A2 placed on review for downgrade
- Junior subordinated debt at Baa1(hyb) placed on review for downgrade
- Non-cumulative preference shares at Baa2(hyb) placed on
review for downgrade
- High-trigger Additional Tier 1 securities affirmed at
Ba1(hyb)
Standard Chartered Bank
- BCA and Adjusted BCA at a2 placed on review for downgrade
- Long-term CR Assessment at Aa2(cr) placed on review for
downgrade
- Long-term deposits at Aa2 placed on review for downgrade
- Long-term deposit notes/CD program at Aa2 placed on review
for downgrade
- Senior unsecured long-term debt at Aa2 placed on review
for downgrade
- Senior unsecured long-term MTN program at (P)Aa2 placed
on review for downgrade
- Subordinated debt at A2 placed on review for downgrade
- Subordinated MTN program at (P)A2 placed on review for downgrade
- Junior subordinated debt at Baa1(hyb) placed on review for downgrade
- Cumulative preference shares at Baa1(hyb) placed on review for
downgrade
- Short-term deposits affirmed at P-1
- Short-term Deposit Note /CD program affirmed at P-1
- Short-term MTN program affirmed at (P)P-1
- Short-term CR Assessment affirmed at P-1(cr)
Standard Chartered Bank, New York Branch
- Long-term CR Assessment at Aa2(cr) placed on review for
downgrade
- Short-term CR Assessment affirmed at P-1(cr)
- Commercial paper affirmed at P-1
Standard Chartered Bank, Singapore Branch
- Long-term CR Assessment at Aa2(cr) placed on review for
downgrade
- Long-term Deposit Note/CD Program at (P)Aa2 placed on
review for downgrade
- Short-term Deposit Note/CD Program affirmed at P-1
- Short-term CR Assessment affirmed at P-1(cr)
- Commercial paper affirmed at P-1
Standard Chartered Bank, Tokyo Branch
- Long-term CR Assessment at Aa2(cr) placed on review for
downgrade
- Short-term CR Assessment affirmed at P-1(cr)
- Commercial paper affirmed at P-1
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 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 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 rating action, and
whose ratings may change as a result of this 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.
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.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Christine Kuo
Senior Vice President
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's reviews for downgrade Standard Chartered's long-term ratings after announcement of results and a new strategic plan
