New York, May 18, 2010 -- Moody's Investors Service has today announced the following rating
actions on Caixa d'Estalvis de Catalunya (Caixa Catalunya,
rated A3/Prime-2/D-; total assets as of 12/2009:
EUR 65 bn) and Caixa d'Estalvis de Manresa (Caixa Manresa,
rated Baa1/Prime-2/D+; EUR 6.8 bn) in response
to the announcement that a merger has been agreed by the boards of the
two Spanish savings banks as well as that of the unrated Caixa d'Estalvis
de Tarragona (EUR 9.8 bn):
i) The A3/P-2 senior and the Baa1 subordinated debt/deposit ratings
of Caixa Catalunya have been affirmed maintaining the existing negative
outlook, the D- BFSR and B3 preference share rating have
been placed under review for possible upgrade.
ii) The Baa1 long-term senior and Baa2 subordinated debt rating
of Caixa Manresa has been placed under review for possible upgrade,
while its D+ BFSR has been placed under review for downgrade,
and the P-2 rating has been affirmed.
The review of the various ratings will focus on any changes to the current
merger plans which are still subject to approval by the regional government
of Catalonia. Absent any such changes, Moody's said
that the combined entity would likely be rated A3/P-2/D upon closure
of the merger, which is expected for July 1st, 2010.
The merger will result in a new entity -- to be called Caixa d'Estalvis
de Catalunya, Tarragona i Manresa -- which will be operative
as of 1 July 2010. Caixa Catalunya, Caixa Tarragona and Caixa
Manresa will then cease to exist as independent legal entities and the
ratings for two of the banks will therefore be withdrawn. The merger
is dependent on approval from the regional government (or "Generalitat")
Maria Cabanyes, Senior Vice President and responsible for the coverage
of Spanish banks at Moody's, commented: "Overall
we see this merger as a credit positive: The restructuring and streamlining
of the new entity's regional presence, much improved provisioning
levels against non --performing assets and the capital injection
from the FROB are all contributing to strengthening the credit profile
of this new combined entity, which is largely dominated by Caixa
Catalunya as this bank represents approx. 80% of total assets.
Upon closing of the merger on July 1st we therefore expect that the intrinsic
rating of the new entity (its Bank Financial Strength Rating -- "BFSR")
should be above the current rating of Caixa Catalunya, most likely
at D mapped to the long term scale of Ba2 whereas the overall debt rating
is expected to be aligned with Caixa Catalunya's current A3/P-2
ratings, which already benefits from significant exceptional systemic
support given the bank's role and importance in the regional catalan
Maria Cabanyes continued: "The significant increase in loan
loss reserves and other provisions against its real estate portfolio should
help to stabilize asset quality of the combined new entity. At
the same time, cost cuttings and expected efficiency gains should
improve its earnings power, whereas the EUR 1,250 billion
in preferred shares received from the Frob underpin the new entity's
capitalization. However, at this point in time we see further
positive rating pressure constrained by the overall moderate degree of
capitalization even after the capital injection from the Frob (Tier 1
capital is expected to be at 7.3% at FYE 2010), and
in this context note the required repayment of the Frob funds by 2015,
as well as the high coupon payment of 7.75% on the Frob
preference shares, both of which may have prevented the bank from
seeking a more substantial recapitalization.
DETAILS OF THE MERGER AND RESTRUCTURING TRANSACTION
According to Moody's, the review of the two banks' BFSRs
will focus on the assessment of the creditworthiness of the resulting
merged entity, which the rating agency expects to be stronger than
the sum of its parts.
The new entity will receive public funds from the Fondo de Restructuración
Bancaria (FROB, or Spain's fund for orderly bank restructuring)
amounting to EUR1,250 million, or equivalent to 2.37%
of its risk-weighted assets. The solvency of the new entity
will be further strengthened by several actions taken by management,
the most significant being the sale of 50% of its insurance business
-- which has already generated capital gains close to EUR300
million -- thereby adding to the loan loss provisioning
effort and write-offs carried out by the three entities over the
The new entity will also benefit from the significant cost savings that
will arise from the restructuring plan that has been approved by the three
existing savings banks and whose implementation will be closely followed
by Bank of Spain. The mentioned plan entails a 15% reduction
of the new group's combined workforce as well as branch closures
that will affect 25% of its existing networks.
RATIONALE FOR THE BFSR OF THE NEW GROUP
Notwithstanding the clear benefits of the above-mentioned actions,
Moody's believes that the new group faces challenges that will have
to be borne with a modest core capital ratio of around 6.4%.
Although the EUR1,250 million funds from the FROB are estimated
to cover the bulk of loan loss provisioning requirements for the following
years, the rating agency notes that internal capital generation
from recurrent sources will be limited by a very challenging domestic
operating environment of subdued growth, downward pressure on margins
-- on the back of low interest rates and relatively high
non-earning assets and the coupon-payment on the FROB's
preferred shares -- as well as by the ongoing restructuring of the
real estate sector. In addition, the more stringent capital
requirements associated with Basel III could exert additional pressure
on the new group's solvency. As a result, Moody's
cautions that the BFSR of the resulting entity could be limited to the
RATING ACTIONS ON DEBT RATINGS
In affirming Caixa Catalunya's debt ratings at A3/Prime-2,
Moody's has incorporated (i) the low execution risks deemed acceptable
given the leading role that the savings bank will play in the merger process,
and the fact that it will represent around 80% of the new entity's
total assets; (ii) the review for upgrade of its BFSR; as well
as (iii) the maintenance of ongoing exceptional systemic support.
In this respect, Moody's believes that the Spanish government
is both willing and able to support its banking system, if and when
required, and that the banking system's potential capital requirements
in and of themselves should not put undue pressure on the government's
In addition, the review for upgrade of Caixa Manresa's Baa1
debt ratings anticipates Moody's long- term view as part
of its ongoing stance to "look through" the current crisis
to the specific franchise characteristics of the new group as it emerges
out of this environment. As a result, the new entity's
default risk is likely to be in the low single-A category.
The negative outlook -- which is consistent with the outlook that
Moody's has assigned to most Spanish banks and saving banks at this
time -- is based on the challenging operating environment in Spain
that will continue to exert pressure on the new entity's credit
fundamentals, combined with the expectation that the exceptional
systemic support may be weakening in the medium to long-term.
Moody's will closely monitor the accomplishment of the financial
plan that has been presented following the merger announcement.
Any deviation from the business programme could exert downward pressure
on the BFSR and thus on its debt ratings.
The previous rating action on Caixa Catalunya was implemented on 22 February
2010, when Moody's downgraded the banks' hybrid securities
following revisions to Moody's hybrids methodology.
The previous rating action on Caixa Manresa was implemented on 15 June
2009, when Moody's downgraded the BFSR to D+ (mapping to a
BCA of Baa3) from C, changing the outlook to negative; while
also downgrading the bank's long-term debt and deposit rating
to Baa1 from A2, changing their outlook to negative; downgrading
the senior subordinated debt to Baa2 from A3, changing its outlook
to negative; and downgrading the short-term debt and deposit
rating to P-2 from P-1.
The previous rating action on Caixa Tarragona was implemented on 29 May
2009, when Moody's withdrew for business reasons the Baa1/Prime-2
deposit ratings and the C- bank financial strength rating,
which had previously been on review for possible downgrade.
The principal methodologies used in rating these issuers are Moody's "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, which
are available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating these issuers can also be found in the Rating Methodologies
sub-directory on Moody's website.
Headquartered in Barcelona, Spain, Caixa Catalunya reported
total consolidated assets of EUR64 billion as at 31 December 2009.
Headquartered in Tarragona, Spain, Caixa Tarragona reported
total assets of EUR 11 billion as at 31 December 2009.
Headquartered in Manresa, Spain, Caixa Manresa reported it
had total assets of EUR7 billion as at 31 December 2009.
Financial Institutions Group
Moody's Investors Service Ltd.
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Moody's takes rating actions on Caixa Catalunya and Caixa Manresa ahead of merger
Senior Vice President
Financial Institutions Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454