Updates on ongoing review of the wider Spanish banking sector
NOTE: On October 16, 2012, the press release was revised as follows: A hybrid indicator (hyb) has been added to all junior subordinated debt and the preferred stock ratings; under the list of affected ratings, for all Multiple Seniority Medium-Term Note Programs, except for Bankia, the reference to "Junior Subordinate" has been removed; also removed listings for Caymadrid International Ltd’s Multiple Seniority Medium-Term Note Program (Subordinate) that was withdrawn on October 5, 2012. Revised release follows.
Madrid, October 05, 2012 -- Moody's Investors Service has today taken rating actions on the
subordinated and hybrid ratings of four Spanish banking groups,
which are owned by the government's Fund for Orderly Bank Restructuring
(FROB) and subject to restructuring, namely Bankia and its parent
Banco Financiero y de Ahorros (BFA), Catalunya Banc, NCG Banco
and Banco de Valencia S.A. (categorised as Group 1 institutions
under the Memorandum of Understanding signed by the euro area members
on 20 July 2012). The senior subordinated debt and the hybrid instruments
of all four groups have been downgraded to C reflecting the very high
expected losses, as the government plans to impose losses on holders
of these instruments.
At the same time, Moody's has downgraded the senior debt and
deposit ratings of Banco de Valencia to Caa1 (outlook developing) from
B3 (review for downgrade), to reflect the higher risk for senior
creditors arising from the fact that this entity will go through an orderly
resolution process as expressed in the Royal Decree 24/2012.
The remaining debt ratings as well as the standalone credit assessments
of Group 1 banks remain on review for downgrade, aligned with Moody's
review for downgrade of Spain's Baa3 government bond rating.
In concluding the review of Bankia, BFA, Catalunya Banc and
NCG Banco, Moody's will take into account the conclusion of
the review of Spain's sovereign rating as well as the impact of
the restructuring framework for these banks.
Today's rating actions are unrelated to the ongoing review of Spain's
sovereign rating by Moody's.
RATINGS RATIONALE
SUBORDINATED DEBT AND HYBRID RATINGS
Moody's downgrade of the subordinated debt and hybrid instruments
of these four banking groups (which are currently controlled by the FROB)
reflect the fact that losses will be imposed on subordinated and hybrid
creditors of Group 1 banks. The restructuring framework contemplates
that such "burden-sharing" will be applied to banks
that are deemed to require public-sector capital.
Ratings at C are applied to debt instruments that are typically in default,
with little prospect for recovery of principal or interest. The
C rating also reflects an estimated recovery rate of less than 35%,
which is commensurate with the large discount at which most of these instruments
have been trading in the secondary market.
BANCO DE VALENCIA
The three-notch downgrade of Banco de Valencia's standalone
credit assessment to ca follows the approval of Royal Decree 24/2012 on
31 August 2012, whereby those entities that are currently subject
to a restructuring process governed by article 7 of Royal Decree 9/2009
will be subject to orderly resolution. Consistent with Moody's
definitions, the lower standalone credit assessments reflect the
rating agency's view that Banco de Valencia has highly speculative
intrinsic, or standalone, financial strength and is expected
to avoid default through the provision of extraordinary support,
which the Spanish government has committed to provide .
The one-notch downgrade of the senior debt and deposit ratings
of Banco de Valencia to Caa1 reflects (1) the further deterioration of
its standalone credit profile, as discussed above; (2) uncertainty
around the timing and process for orderly resolution; and (3) whether
future support will be needed and the availability and degree of such
potential support during the resolution process. In recent months,
Moody's believes that it has become increasingly clear that the
creditors of those Spanish banks unable to meet the stricter regulatory
requirements -- absent extraordinary support --
are exposed to increased uncertainty and reduced predictability about
the recovery of principal and interest for the bank's outstanding
debt.
For the industry-wide Spanish bank restructuring framework,
the above mentioned uncertainties are exacerbated by political considerations
and the involvement of the Eurogroup (comprising the ECB, EBA,
European Commission) and other supra-national entities.
Their involvement bolsters the Spanish sovereign's otherwise limited
ability to support banks, but the associated terms and conditionality
add complexity and uncertainty for creditors. Whilst the Eurogroup
has thus far shown a greater inclination to share the burden of recapitalisation
only with subordinated bondholders, the risk has increased that
senior bond holders of Spanish banks may similarly be subject to "burden-sharing"
if future support is required.
Moody's believes that the above-described uncertainties for
Banco de Valencia's senior creditors are appropriately reflected
in senior debt and deposit ratings in the Caa range.
MOODY'S COMMENTS ON EXISTING REVIEW OF SPANISH BANKS
In concluding the review process initiated on 25 June 2012 of the debt
ratings and standalone credit assessments of those banks who were not
identified as having capital shortfalls in the evaluation performed by
Oliver Wyman (Group 0 banks), Moody's will take into account
i) how the conclusion of the review of the Spanish government's
debt ratings may impact the standalone credit strength and debt ratings
of these banks; and ii) any other developments that may affect the
creditworthiness of these banks, such as the mergers that are ongoing
in a few cases.
Moody's expects to address the standalone credit assessments along
with the senior debt and deposit ratings of Group 1 banks after Spanish
authorities submit restructuring or resolution plans for these entities
to the European Commission. These plans will allow Moody's
to better assess the credit profile of the banks post capital infusion,
and in view of the potential transfer of toxic assets to the government
sponsored bad bank. In addition, Moody's will take
into account the conclusion of the review of Spain's sovereign rating.
The conclusion of the ratings review of the three rated banks falling
into Groups 2 and 3 (Banco Popular Español rated Ba1/D/ba2/NP,
review for downgrade; Ibercaja Banco and Liberbank both rated Ba2/D-/ba3/NP,
review for downgrade), i.e. for whom a capital shortfall
has been identified in last week's publication, will take
into consideration the recapitalisation or restructuring plans that these
institutions will need to present in October. The review conclusion
will also incorporate the level of the sovereign rating and any impact
this may have on these banks' standalone and supported credit profiles.
If any of these three banks are considered unable to meet capital shortfalls
from private means (Group 2) the rating actions would likely be taken
shortly after their placement in this group is confirmed and restructuring
plans are submitted. Moody's would expect subordinated debt
and hybrid ratings of any Group 2 bank to reflect the very high likelihood
that the Spanish government will impose losses on these instruments,
consistent with the actions today on Group 1 banks.
For Group 3 firms, the rating reviews will be concluded later in
2012 or in 2013, after the details of the recapitalization plans
are disclosed. Moody's will examine the prospects for successful
implementation of such plans, the impact on the banks' credit
profile if implemented as planned, the structure and amount of any
external support, as well as the potential crystallization of losses
for shareholders and junior creditors of the bank. Moody's
will assess any "burden-sharing" exercises with regards
to whether they constitute distressed exchanges, and thus default
events, under Moody's definition.
In some instances, the ratings may remain on review where ongoing
merger or restructuring procedures prevent sufficient visibility to conclude
on the final ratings.
WHAT COULD MOVE THE RATINGS UP/DOWN
The execution of the restructuring or resolution plans will likely improve
the affected banks' standalone credit strength. The initiatives
included in these plans could lead to upgrades of standalone credit assessments,
which could also affect debt and deposit ratings. Increased clarity
about the banks' standalone strength post-restructuring and/or
an increase in the extent, likelihood or predictability of support
could also have positive rating implications.
Conversely, if any of the four banks enters liquidation with little
prospect for recovery of principal and interest, the standalone
credit assessments will likely fall to 'c' and senior debt
and deposit ratings will decline to Caa or lower.
For Banco de Valencia specifically, the outlook on the senior debt
and deposit ratings is developing, indicating that they could move
in either direction during the resolution. Upwards pressure on
these ratings could develop if Banco de Valencia is acquired by a stronger
peer that assumes the then-outstanding obligations. However,
Moody's says that further downwards pressure could result if a liquidation
of Banco de Valencia was executed in a manner that reduced the prospects
for the recovery of principal and interest on its outstanding debt.
RESEARCH REFERENCES
Research reports:
- Moody's Rating Symbols and Definitions, 31 Aug 2012
- Banking System Outlook: Spain, 17 Aug 2012
- Spanish Banks Restructuring Plan Is Credit Negative for Junior
Bondholders, 16 Jul 2012
- Announcement: Moody's comments on timing for assessing
the impact of Spain's downgrade on Spanish banks' ratings, 19 Jun
2012
- Key Drivers of Spanish Bank Rating Actions, 17 May 2012
- Spain's New Initiative, While Supportive, Leaves
Banks Vulnerable to Rising Loan Delinquencies, 14 May 2012
Websites:
- Moody's Bank Ratings 2012
- European Credits Under Pressure
LIST OF AFFECTED RATINGS
Downgrades:
..Issuer: Bancaja Capital, S.A.
Unipersonal
....Pref. Stock Non-cumulative
Preferred Stock, Downgraded to C(hyb)
from Ca(hyb)
..Issuer: Bancaja Emisiones, S.A.
Unipersonal
....Junior Subordinated Regular Bond/Debenture,
Downgraded to C(hyb)
from Caa1(hyb)
..Issuer: Banco De Valencia S.A.
....Subordinate Regular Bond/Debenture,
Downgraded to C from Caa2
....Senior Unsecured Deposit Rating,
Downgraded to Caa1, Caa1 from B3, B3
..Issuer: Banco Financiero y de Ahorros
....Junior Subordinated Regular Bond/Debenture,
Downgraded to C(hyb)
from Ca(hyb)
....Multiple Seniority Medium-Term
Note Program (Subordinate), Downgraded to
(P)C from (P)Caa3
....Subordinate Regular Bond/Debenture,
Downgraded to C from Caa3
..Issuer: Bankia
....Multiple Seniority Medium-Term
Note Program (Junior Subordinate and Subordinate), Downgraded to
(P)C from a range of (P)Caa1 to (P)B3
..Issuer: Caixa Catalunya Preferential Issuance Ltd.
....Pref. Stock Non-cumulative
Preferred Stock, Downgraded to C(hyb)
from Caa3(hyb)
..Issuer: Caixa Galicia Preferentes, S.A.
....Pref. Stock Non-cumulative
Preferred Stock, Downgraded to C(hyb)
from Caa3(hyb)
..Issuer: Caja Madrid Finance Preferred, S.A.
....Pref. Stock Non-cumulative
Preferred Stock, Downgraded to C(hyb)
from Ca(hyb)
..Issuer: Catalunya Banc SA
....Multiple Seniority Medium-Term
Note Program (Subordinate), Downgraded to
(P)C from (P)B3
....Subordinate Regular Bond/Debenture,
Downgraded to C from B3
..Issuer: NCG Banco S.A.
....Junior Subordinated Regular Bond/Debenture,
Downgraded to C(hyb) from Caa1(hyb)
....Subordinate Regular Bond/Debenture,
Downgraded to C from B3
Issuer: BVA Preferentes, S.A.
....Pref. Stock Non-cumulative
Preferred Stock, Downgraded to C(hyb)
from Ca(hyb)
The principal methodology used in these ratings was Moody's Consolidated
Global Bank Rating Methodology published in June 2012. Please see
the Credit Policy page on www.moodys.com for a copy of this
methodology.
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 ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings 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
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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 entities or their 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.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
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.
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.
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 takes actions on 4 Spanish banking groups due to restructuring framework
