Rating actions also affect subordinated debt
London, 12 May 2009 -- Moody's Investors Service announced today that it has taken selective
rating actions on five UK banks. The institutions included in these
actions are Close Brothers Limited, Clydesdale Bank, Co-operative
Bank, Standard Bank plc, and Lloyds TSB Offshore Limited.
The ratings of Investec Bank plc and ICICI Bank UK have been affirmed.
Today's rating action follows the earlier rating actions on UK mortgage
lenders which had been announced on April 14th, primarily triggered
by our concern that the global economic crisis will lead to significantly
higher credit losses than previously anticipated, and our continued
expectation of both parental and systemic support for the senior obligations
of some of these banks where appropriate.
"The key factor in these rating actions is Moody's concern that
capitalisation levels will come under pressure over the next quarters
as the deteriorating economic conditions in the UK and globally will lead
to significantly higher credit losses, particularly for the banks
in their corporate banking and commercial real estate assets" said
Ross Abercromby, VP/Senior Analyst.
For those banks with residential mortgage exposure (primarily Co-operative
Bank and Clydesdale Bank) these rating actions, as with our recent
rating actions on the UK mortgage lenders, include the results derived
from the analysis of various stress scenarios, incorporating a peak-to-trough
house price decline of 40% for our base scenario. In addition
we have also stressed the commercial real estate and other loan portfolios
of the banks based on information provided by the banks and Moody's
own assumptions. These expected losses were compared to the capital
positions of the banks and also took into account likely pre-provision
income for the next year. The key concerns for these banks was
the amount of capital available to absorb the upcoming losses, especially
those arising from corporate banking, commercial real estate assets,
including residential development lending, and residential mortgage
assets, as well as future earnings capacity of the banks that directly
affects their ability to add to or replenish their capital base.
The bank deposit and senior debt ratings of the banks continue to incorporate
Moody's expectation of both parental and systemic support (where
appropriate) and are in line with our expectation that banks in highly
rated countries will receive or are likely to receive support depending
on their level of systemic importance as well as their importance to their
parent, if any.
In addition, the subordinated debt of these institutions has also
been downgraded in line with our concern that systemic support may not
be extended to these instruments in the case of financial distress.
Moody's notes that due to the potential lack of systemic support for the
subordinated and hybrid securities in the U.K., the
anchor for subordinated and hybrid debt ratings issued by these institutions
will no longer be the supported debt and deposit rating, but the
standalone intrinsic strength rating, the Baseline Credit Assessment
("BCA") which is derived from the BFSR, incorporating however any
potential parental support. This change in our rating of subordinated
debt and hybrids in the UK follows the recent precedence on the exclusion
of support on such instruments by the U.K. government in
the case of the Dunfermline Building Society, and builds on the
earlier example of Bradford & Bingley. In the case of Clydesdale
Bank and Standard Bank we have incorporated parental support into these
ratings and this explains the A3 rating for subordinated and junior subordinated
debt at Clydesdale, and the Baa1 (on review for possible downgrade)
rating on Standard Bank's subordinated debt.
SUMMARY OF RATING ACTIONS:
Close Brothers Limited ("CBL"): The A2/P-1C+
ratings are affirmed. The outlook is changed to negative from stable.
The change in outlook to negative reflects the still very challenging
economic environment in the UK and the likely impact that this will have
on the bank's profitability and asset quality. The outlook
change however also reflects the expected general resilience of CBL's
business model during the current crisis including its continuing profitability,
sound funding and comparatively strong capitalisation. The outlook
on the debt issued by Close Brothers Finance PLC, guaranteed by
CBL, is also changed to negative.
Clydesdale Bank ("Clydesdale"): senior debt/deposit
ratings are downgraded to A1 negative outlook from Aa3 negative outlook;
the P-1 short-term rating is affirmed; the BFSR is
downgraded to C- (BCA: Baa1) with a stable outlook from C+
(negative outlook); subordinated debt ratings are downgraded to A3.
The downgrade of the BFSR to C- reflects the still very challenging
economic environment in the UK and the impact that this is expected to
have on the bank's profitability and asset quality. The downgrade
of the long-term bank deposit and senior debt ratings to A1 reflects
the lower BFSR, but also the rating agency's view on the high ongoing
support from its parent, National Australia Bank (NAB, rated
Aa1/B, negative outlook), and a moderate probability of systemic
support from the Aaa-rated UK. The backed-Aaa ratings
assigned to the UK government guaranteed debt is unaffected by this rating
action.
Co-operative Bank (Co-op Bank"): the A2/P-1
senior debt and bank deposit ratings are placed on review for possible
downgrade; the BFSR is downgraded to C- (BCA: Baa1)
from C and is also placed on review for possible downgrade; subordinated
debt is downgraded to Baa2 from A3 and is also placed on review for possible
downgrade. Similar to Clydesdale Bank the downgrade of the BFSR
to C- from C reflects the difficult conditions in the UK and the
impact that this is likely to have on the bank's profitability and
asset quality. The review for possible downgrade on the C-
BFSR will focus on the upcoming merger with Britannia Building Society
(BFSR: D+ on review, direction uncertain) and the impact
that the weaker position of the larger Britannia will have on the consolidated
entity. The review for possible downgrade on the banks A2/P-1
long-term bank deposit and senior debt ratings will also focus
on Moody's systemic support assumptions given the likely increasing
systemic importance of the combined entity.
Lloyds TSB Offshore Limited ("Lloyds Offshore"): the
debt and deposit ratings are affirmed at A1/P1 with a stable outlook,
and the outlook on the C BFSR is changed to negative from stable.
The affirmation of the debt ratings reflects the ongoing expectation of
a high level of parental support from Lloyds TSB Bank plc (rated Aa3/P1
with a stable outlook, C+ BFSR with a negative outlook).
The change in outlook on Lloyds Offshore's BFSR reflects the fact
that although the economies of the Islands are unlikely to deteriorate
to the same extent as the UK, they are also subject to negative
headwinds, and the bank's relatively large commercial property
exposures could lead to an increase in impairments. It also reflects
the high integration of Lloyds Offshore into Lloyds Banking Group,
and the subsequent linkage of Lloyds Offshore's intrinsic financial strength
with its parent.
Standard Bank plc ("Standard Bank"): the A3/P-2/C-
ratings are placed on review for possible downgrade, as is the Baa1
long-term Issuer Rating of Standard International Holdings.
The review for possible downgrade will concentrate on the group's
ability to mitigate potential losses and pressure on its capital stemming
from the increased volatility in most of the emerging market countries
where Standard Bank plc operates. The review will also focus on
the robustness of the group's risk management framework and effectiveness
of its collateral valuation and hedging positions, which it extensively
relies on for minimising its exposures and concentration risks.
The ratings of ICICI Bank UK (Baa2/P-2/D) and of Investec Bank
plc (Baa3/P-2/D+) have been affirmed, as recent rating
actions had already incorporated the economic deterioration and the impact
on their intrinsic and Debt and Deposit ratings.
The principal methodologies used in rating these issuers were "Bank Financial
Strength Ratings: Global Methodology" (February 2007) and "Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology" (March 2007), as well as "Moody's Assesses Bank Hybrid
Securities in the Context of the Credit Crisis" (December 2008),
which can be found at www.moodys.com in the Credit Policy
& Methodologies directory, in the Ratings Methodologies sub-directory.
Other methodologies and factors that may have been considered in the process
of rating these issuers can also be found in the Credit Policy & Methodologies
directory.
Previous rating actions on the above institutions are as follows:
Moody's last rating action on Close Brothers Ltd was in April 2007 when
the ratings were upgraded to A2/P-1/C+ from A3/P-2/C
following the implementation of Moody's JDA and BFSR methodologies.
The last rating action on Clydesdale Bank was on March 2, 2009 when
the Aa3/Prime-1 ratings were affirmed, the BFSR was downgraded
to C+ from B- and the outlook was changed to negative from
stable.
The last rating action on Co-operative Bank was on January 21,
2009 when the A2/Prime-1/C ratings were affirmed, and the
outlook was changed to negative from stable, following the announcement
of the proposed merger with Britannia Building Society.
The last rating action on Lloyds TSB Offshore was on February 16,
2009 when the long-term bank deposit rating was downgraded to A1
from Aa2, following the downgrade of its parent.
The last rating action on Standard Bank plc and SIH was on 12th of March,
2009 following the announcement regarding the acquisition of the Russian-based
investment bank Troika-Dialog. The ratings of Standard Bank
plc and SIH were placed on negative outlook.
Structured Finance related rating actions, if any, are not
covered by this press release.
All of the banks included in this action are headquartered in the U.K.
with the exception of Lloyds TSB Offshore that is headquartered in Jersey.
London
Johannes Wassenberg
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Ross Abercromby
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's takes Rating Actions on Five UK Banks
