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Rating Action:

Moody's takes rating action on five UK banks and one building society following the update to its banks methodology

13 Jul 2021

London, 13 July 2021 -- Moody's Investors Service ("Moody's") has today taken rating actions on five banks and a building society, including the upgrade of the long-term deposit and senior ratings of five of them. The rating actions were driven by revisions to Moody's Advanced Loss Given Failure (Advanced LGF) framework, which is applied to banks operating in jurisdictions with Operational Resolution Regimes, following the publication of Moody's updated Banks Methodology on 9 July 2021. This methodology is available at this link: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625.

A full list of affected ratings and assessments can be found at the end of this Press Release.

All other ratings and assessments of these banks were unaffected by today's rating action and the update of the banks methodology.

RATINGS RATIONALE

Today's rating actions on the five banks and one building society were driven by the revisions to the Advanced Loss Given Failure framework and the change in the rating agency's treatment of high trigger Additional Tier 1 (AT1) within Moody's updated banks methodology. In addition, the rating actions include an upgrade of one building society's standalone baseline credit assessment, driven by idiosyncratic considerations

In particular, ratings were impacted by revised notching guidance table thresholds at lower levels of subordination and volume in the liability structure which have been applied to the banks. For banks that are subsidiaries of international parents and rely on loss-absorbing intergroup funds, the rating actions reflect the current and expected issuance of such instruments in addition to the affiliate support uplift they benefit from. The rating action further includes the consideration of all (AT1) securities issued by these banks in Moody's Advanced LGF framework, eliminating the previous analytical distinction between those high trigger instruments that were deemed to provide equity-like absorption of losses before the point of failure and other AT1 securities.

RATINGS RATIONALE FOR INDIVIDUAL BANKS AND BUILDING SOCIETY

- FCE Bank plc (FCE Bank), upgrade of deposit and senior unsecured ratings due to inclusion of parental funding in Moody's Advanced LGF framework

Moody's upgraded the deposit ratings of FCE Bank to Baa3/P-3 from Ba2/NP and the senior unsecured MTN program ratings and other short term to (P)Baa3/(P)P-3 from (P)Ba2/(P)NP. The outlook on the long-term ratings remains stable. The upgrade reflects inclusion of internally sourced Tier 2 and senior debt from Ford affiliates in Moody's Advanced LGF analysis, which results in a reduction in the loss-given failure to very-low from a moderate level for the deposit and senior unsecured debt ratings, leading the ratings to be positioned two notches above, instead of previously in line with the ba2 Adjusted BCA. Additionally, these considerations resulted in FCE Bank's long-term and short-term Counterparty Risk ratings (CRRs) being upgraded.

- ICBC Standard Bank plc (ICBCS), upgrade of deposit ratings due to inclusion of funds sourced from the majority shareholder in Moody's Advanced LGF framework and growth of its deposit base

Moody's upgraded ICBCS' deposit ratings to Baa1/P-2 from Baa3/P-3, the long-term issuer ratings to Baa1 from Baa3 and the senior unsecured MTN program rating to (P)Baa1 from (P)Baa3. The outlook on the long-term ratings remains stable. The upgrade reflects inclusion of internally sourced high-trigger Additional Tier 1 and Tier 2 from ICBCS' 60% majority owner Industrial & Commercial Bank of China Ltd (ICBC, A1 stable, baa1), as well as growth in the third-party sourced deposits base in Moody's Advanced LGF analysis. These result in reduction in the loss-given failure to low from a high level for the deposit and senior unsecured debt ratings leading the ratings to be positioned one notch above, instead of previously one notch below ICBCS' baa2 Adjusted BCA. Additionally, these considerations resulted in ICBCS' CRRs being upgraded to A3/P-2 from Baa3/P-3 and Counterparty Risk (CR) Assessment to A2(cr)/P-1(cr) from Baa2(cr)/P-2(cr), due to the increased subordination below them in the event of failure.

ICBCS improved profitability and reduced asset risk profile offset Moody's assessment of lower loss-absorbing capital levels of the bank due to the removal of equity credit for high trigger AT1 instruments from the bank's going concern capital. This resulted in Moody's assessment of ICBCS' solvency profile to remain unchanged and affirmation of ICBCS' ba3 BCA and baa2 Adjusted BCA reflecting Agency's unchanged view of very high affiliate support from ICBC.

- Investec plc, upgrade of the holding company's preferred stock and Investec Bank plc's subordinated bank debt ratings following inclusion of high trigger AT1 in Moody's Advanced LGF framework, Investec Bank plc's BCA affirmed.

Investec plc's preferred stock rating on its high-trigger AT1 instruments was upgraded to Ba1(hyb) from Ba2(hyb). The Ba1(hyb) rating, positioned 3 notches below the bank's Adjusted BCA of baa1, reflects the high loss-given-failure for the AT1 securities issued by Investec plc and the security's' coupon skip mechanism and write-down features, which reduce the rating by an additional two notches. Moody's also upgraded Investec Bank plc's subordinated debt by one notch, to Baa1 from Baa2 following the inclusion of high-trigger AT1 instruments in Moody's Advanced LGF framework, which provided an uplift to the ratings as a result of increased loss absorption through greater subordination.

The affirmation of Investec Bank plc's BCA at baa1 reflects the impact of the exclusion of the AT1 instruments from the measure of tangible common equity and subsequent reduction in risk-based capitalisation, which however still remains well above the bank's regulatory requirement. Moody's also affirmed all other ratings and assessments of Investec plc and Investec Bank plc. The outlook is stable on all long-term ratings.

- Skipton Building Society (Skipton), deposit and senior unsecured ratings upgraded due to notching changes and a BCA upgrade; all other long-term ratings and assessments upgraded with the BCA

Moody's upgraded Skipton's long-term deposit and unsecured debt ratings to A2 from Baa1, reflecting the rating agency's revised view on the distribution of losses for banks' liabilities in resolution resulting in lower loss-given-failure assumptions for Skipton's deposits and senior unsecured debt and a one-notch upgrade of the BCA, to a3 from baa1. Skipton's long-term deposit and senior unsecured debt ratings continue to reflect a low probability of support from the Government of United Kingdom (Aa3 stable), which does not result in any uplift. The outlook on Skipton's long-term deposit and senior unsecured debt ratings is stable.

The upgrade of the BCA of Skipton to a3 from baa1 reflects the society's (1) higher-than-peer profitability, reflecting the benefit of its ownership of the estate agency Connells Group, which provides stable and less capital-intensive fee-based revenue; 2) strong risk-based capitalisation and nominal leverage; 3) sound asset quality, as evidenced by a low stock of problem loans; and 4) solid funding profile, with a large and stable deposit base and a fairly diversified funding mix. The BCA also reflects Skipton's structural dependence on the UK housing market, in common with other retail lenders in the UK.

The one-notch upgrade in the BCA resulted in the corresponding upgrade in Skipton's junior senior unsecured debt rating to Baa1 from Baa2 and in subordinated MTN ratings to (P)Baa1 from (P)Baa2. The society's CR Assessment was upgraded to Aa3(cr) from A1(cr) and CRRs was upgraded to A1 from A2. The short-term ratings on CR Assessment and CRRs were affirmed at P-1(cr) and P-1, respectively.

- Tesco Personal Finance Group plc (TPFG), upgrade of senior unsecured due to notching changes

Moody's upgraded the long-term senior unsecured debt rating of TPFG, the holding company of Tesco Personal Finance plc (Baa1 stable, baa1), to Baa1 from Baa2, the long-term issuer ratings to Baa1 from Baa2 and the long-term EMTN program ratings to (P)Baa1 from (P)Baa2. The Prime-2 short-term issuer ratings were affirmed. The outlook on the long-term ratings remains stable. The upgrade by one notch of the senior unsecured ratings better captures the risk characteristics of this class of debt, following the agency's revised view around the distribution of losses for banks' liabilities in resolution, which are reflected in the ratings now being positioned in line with Tesco Personal Finance plc's baa1 BCA. Moody's LGF analysis indicates a moderate loss-given-failure for TPFG's senior unsecured debt, leading to a rating positioned in line with the Adjusted BCA.

- TSB Banking Group plc: upgrade of deposit and issuer rating of TSB Bank plc due to inclusion of internal TLAC

Moody's upgraded TSB Bank plc's deposit and issuer ratings to Baa1 from Baa2. Additionally, the rating agency upgraded the bank's CRRs to A3 from Baa1 and CR Assessment to A2(cr) from A3(cr). In the same rating action, Moody's affirmed TSB Bank plc's BCA of baa2 and TSB Banking Group plc's (TSBG) Baa3 issuer rating. The outlook on the long-term ratings was changed to stable from negative.

The rating action reflects the inclusion in Moody's Advanced LGF analysis of TSBG's holding company senior unsecured and dated subordinated debt issued to its parent, Banco Sabadell, S.A. (Sabadell, deposit rating Baa2, senior unsecured debt Baa3, stable, ba2), resulting in a further one notch of support to the bank's depositors and senior creditors. The bank does not benefit from affiliate support, as TSB Bank plc's BCA of baa2 exceeds the BCA of its parent Sabadell by 3 notches. This differential reflects the limited strategic and operational connections between the two institutions and the regulatory "ring-fencing" of TSB Bank plc in the UK. Our assumption of a low probability of support from the Government of the United Kingdom (Aa3 stable) results in no further rating uplift.

The affirmation of the BCA reflects the substantial progress TSBG has made on its strategic transitioning plan, originally disclosed in November 2019, which entailed optimising the bank's cost structure through branch closures and other budget initiatives, as well as investments in the technology platform. With the bank meeting its previously stated objectives, Moody's expects TSBG to demonstrate improved profitability, while maintaining the solid credit quality of its loan portfolio. The baa2 BCA also reflects the bank's reduced, but still solid capitalisation, which declined from previously strong levels due to loan growth, financial losses and the adoption of new capital regulations. The BCA also incorporates the bank's concentration of revenue and risks in UK residential mortgages.

OUTLOOK

The rating outlook for the banks' and the building society's ratings are stable. The stable outlooks reflect Moody's view that the combined solvency and liquidity metrics will on a forward-looking basis remain in line with the affected banks' and the building society's current standalone assessment, as their asset quality and profitability stabilizes, following the pandemic-induced deterioration in 2020.

Additionally, the outlook for FCE Bank is in line with the outlook on the ratings of Ford Motor Company (Ba2 stable) and reflects the agency's expectation of a gradual growth of FCE Bank's deposit base, a reduction in intergroup funds and that the bank's efficiency will improve supporting its profitability.

Furthermore, the outlook on ICBCS' ratings is in line with the outlook on the ratings of ICBC and reflects Moody's expectation that ICBCS will continue to leverage ICBC's client base further supporting its profitability.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The affected long-term deposit, senior unsecured debt, issuer ratings, CRRs and CR Assessments and junior senior ratings could be upgraded following an improvement in the standalone creditworthiness of the banks and the building society, a higher level of affiliate support where applicable or following a significant increase in the stock of more junior bail-in-able liabilities.

The affected ratings and assessments could be downgraded following a substantial deterioration in the standalone creditworthiness of the banks and the building society, following a significant reduction in the stock of bail-in-able liabilities or a reduced level of any applicable affiliate support.

LIST OF AFFECTED RATINGS

Upgrades:

..Issuer: FCE Bank plc

....LT Counterparty Risk Rating, Upgraded to Baa2 from Baa3

....ST Counterparty Risk Rating, Upgraded to P-2 from P-3

....LT Bank Deposits, Upgraded to Baa3 from Ba2, Outlook remains Stable

....ST Bank Deposits, Upgraded to P-3 from NP

....Other Short Term, Upgraded to (P)P-3 from (P)NP

....Senior Unsecured MTN, Upgraded to (P)Baa3 from (P)Ba2

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa3 from Ba2, Outlook remains Stable

..Issuer: ICBC Standard Bank Plc

....LT Counterparty Risk Assessment, Upgraded to A2(cr) from Baa2(cr)

....ST Counterparty Risk Assessment, Upgraded to P-1(cr) from P-2(cr)

....LT Counterparty Risk Rating, Upgraded to A3 from Baa3

....ST Counterparty Risk Rating, Upgraded to P-2 from P-3

....LT Issuer Rating, Upgraded to Baa1 from Baa3, Outlook remains Stable

....LT Bank Deposits, Upgraded to Baa1 from Baa3, Outlook remains Stable

....ST Bank Deposits, Upgraded to P-2 from P-3

....Senior Unsecured MTN, Upgraded to (P)Baa1 from (P)Baa3

..Issuer: Tesco Personal Finance Group plc

....LT Issuer Rating, Upgraded to Baa1 from Baa2, Outlook remains Stable

....Senior Unsecured MTN, Upgraded to (P)Baa1 from (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa1 from Baa2, Outlook remains Stable

..Issuer: Investec Bank plc

....Subordinate MTN, Upgraded to (P)Baa1 from (P)Baa2

....Subordinate Regular Bond/Debenture, Upgraded to Baa1 from Baa2

..Issuer: Investec plc

....Pref. Stock Non-cumulative, Upgraded to Ba1 (hyb) from Ba2 (hyb)

..Issuer: Skipton Building Society

....Adjusted Baseline Credit Assessment, Upgraded to a3 from baa1

....Baseline Credit Assessment, Upgraded to a3 from baa1

....LT Counterparty Risk Assessment, Upgraded to Aa3(cr) from A1(cr)

....LT Counterparty Risk Rating, Upgraded to A1 from A2

....LT Bank Deposits, Upgraded to A2 from Baa1, Outlook remains Stable

....ST Bank Deposits, Upgraded to P-1 from P-2

....Junior Senior Unsecured, Upgraded to Baa1 from Baa2

....Senior Unsecured MTN, Upgraded to (P)A2 from (P)Baa1

....Junior Senior Unsecured MTN, Upgraded to (P)Baa1 from (P)Baa2

....Subordinate MTN, Upgraded to (P)Baa1 from (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Upgraded to A2 from Baa1, Outlook remains Stable

..Issuer: TSB Bank plc

....LT Counterparty Risk Assessment, Upgraded to A2(cr) from A3(cr)

....ST Counterparty Risk Assessment, Upgraded to P-1(cr) from P-2(cr)

....LT Counterparty Risk Rating, Upgraded to A3 from Baa1

....LT Issuer Rating, Upgraded to Baa1 from Baa2, Outlook changed to Stable from Negative

....LT Bank Deposits, Upgraded to Baa1 from Baa2, Outlook changed to Stable from Negative

Affirmations:

..Issuer: ICBC Standard Bank Plc

....Adjusted Baseline Credit Assessment, Affirmed baa2

....Baseline Credit Assessment, Affirmed ba3

..Issuer: Tesco Personal Finance Group plc

....ST Issuer Rating, Affirmed P-2

..Issuer: Investec Bank plc

....Adjusted Baseline Credit Assessment, Affirmed baa1

....Baseline Credit Assessment, Affirmed baa1

....LT Counterparty Risk Assessment, Affirmed A1(cr)

....ST Counterparty Risk Assessment, Affirmed P-1(cr)

....LT Counterparty Risk Rating, Affirmed A1

....ST Counterparty Risk Rating, Affirmed P-1

....LT Bank Deposits, Affirmed A1, Outlook remains Stable

....ST Bank Deposits, Affirmed P-1

....ST Deposit Note/CD Program, Affirmed P-1

....Senior Unsecured MTN, Affirmed (P)A1

....Commercial Paper, Affirmed P-1

....Senior Unsecured Regular Bond/Debenture, Affirmed A1, Outlook remains Stable

....Other Short Term, Affirmed (P)P-1

..Issuer: Investec plc

....LT Issuer Rating, Affirmed Baa1, Outlook remains Stable

....ST Issuer Rating, Affirmed P-2

....Senior Unsecured MTN, Affirmed (P)Baa1

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1, Outlook remains Stable

..Issuer: Skipton Building Society

....ST Counterparty Risk Assessment, Affirmed P-1(cr)

....ST Counterparty Risk Rating, Affirmed P-1

..Issuer: TSB Bank plc

....Adjusted Baseline Credit Assessment, Affirmed baa2

....Baseline Credit Assessment, Affirmed baa2

....ST Counterparty Risk Rating, Affirmed P-2

....ST Bank Deposits, Affirmed P-2

..Issuer: TSB Banking Group plc

....LT Issuer Rating, Affirmed Baa3, Outlook changed to Stable from Negative

Outlook Actions:

..Issuer: FCE Bank plc

....Outlook, Remains Stable

..Issuer: ICBC Standard Bank Plc

....Outlook, Remains Stable

..Issuer: Tesco Personal Finance Group plc

....Outlook, Remains Stable

..Issuer: Investec Bank plc

....Outlook, Remains Stable

..Issuer: Investec plc

....Outlook, Remains Stable

..Issuer: Skipton Building Society

....Outlook, Remains Stable

..Issuer: TSB Bank plc

....Outlook, Changed To Stable From Negative

..Issuer: TSB Banking Group plc

....Outlook, Changed To Stable From Negative

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The below contact information is provided for information purposes only. Please see 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 the ratings.

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.

Arif Bekiroglu
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Laurie Mayers
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.