London, 24 March 2011 -- Moody's Investors Service has today taken multiple rating actions on Spanish
banks, including downgrades by one or more notches of the senior
debt and deposit ratings of 30 banks. The rating actions follows
the downgrade of the debt rating of the Kingdom of Spain and also reflects
a reassessment of the extraordinary level of systemic support --
of up to 6 notches -- that had been embedded in many Spanish banks'
ratings, limiting support to more normalized levels.
The key drivers for today's rating actions are:
(i) The combination of heightened financial pressures on the sovereign
and many weak banks
(ii) Declining systemic importance of many smaller and regional banks
as the sector consolidates:
(iii) Weakening future support environment for banks across Europe:
The ratings of the three largest Spanish banks (Banco Santander,
BBVA and La Caixa) are unaffected and have been confirmed.
However, the following rating actions have been taken for most commercial
banks and savings banks:
(i) The deposit and/or senior debt ratings of 30 Spanish banks have been
downgraded by one or more notches, including downgrades of 15 banks
by two notches and 5 banks by 3 or 4 notches
(ii) The short-term deposit and/or senior debt ratings of 17 Spanish
banks have been downgraded by one or more notches
(iii) The dated subordinated debt ratings of 19 Spanish banks have been
downgraded in line with the downgrade of the senior ratings
(iv) The junior subordinated debt and the preferred shares of four banks
have been downgraded by one notch
The outlook on most banks' senior debt and deposit ratings remains
negative, reflecting the negative outlook on the sovereign rating
and the negative outlook on banks' standalone credit profiles,
given the challenging operating environment in Spain. Some bank
ratings remain under review, mainly because these banks are currently
involved in consolidation efforts that may affect their standalone credit
strength and the systemic support which might be available to them.
At the same time, the rating agency has:
(i) Confirmed at Aa2 the deposit and senior debt ratings of Banco Bilbao
Vizcaya Argentaria (BBVA), Banco Santander and Caja de Ahorros y
Pensiones de Barcelona (La Caixa), all with a negative outlook;
(ii) Maintained the review with direction uncertain of the deposit and
senior debt ratings of Caja de Ahorros de Avila (Caja Avila) and Caja
de Ahorros y Monte de Piedad de Segovia (Caja Segovia);
(iii) Downgraded all rated government-guaranteed debt issuance
from Spanish banks by one notch to Aa2; and
(iv) Downgraded all rated long-term debt of Instituto de Credito
Oficial (ICO) to Aa2. ICO's ratings are based on the unconditional
and irrevocable guarantee from the Spanish Government.
Today's rating actions conclude the review for possible downgrade,
which Moody's initiated on December 20, 2010. A full
list of affected ratings can be found at the end of this press release.
Additional information on today's rating action will be published
in a Special Comment "Key Drivers of Moody's Rating Action on Spanish
Banks" today on www.moodys.com.
A full list of the affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
RATINGS RATIONALE FOR THE SENIOR DEBT AND DEPOSIT RATINGS
The key drivers for today's rating actions are:
(i) Combination of heightened financial pressures on the sovereign and
many weak banks raises pressure to limit support to more normalized levels:
The standalone credit profiles of many Spanish banks remain weak and show
little sign of strengthening materially in the foreseeable future.
At the same time, the recent one-notch downgrade of the Spanish
government's rating indicates a slight diminution of its financial
strength, although it remains very highly rated at Aa2. Given
the wider pressures on the sovereign even at a high rating (as indicated
by the continued negative sovereign rating outlook), it seems increasingly
plausible that hard choices will need to be made at some point over the
rating horizon, balancing the sovereign's incentive to support
the banks with the need to protect its own balance sheet. It is,
in Moody's view, increasingly likely that the sovereign will
not be prepared to write all banks a blank cheque, which is a key
driver in Moody's decision to reduce its support assumptions for
Spanish banks to more normalised levels.
(ii) Declining systemic importance of many smaller and regional banks:
The consolidation of the Spanish savings bank sector, more intense
regional competition and governance reforms could over time lead to stronger
standalone credit profiles of the banks, but at the same time they
are likely to make smaller and regional banks less important to their
home markets, which affect Moody's support assumptions for
these banks.
(iii) Weakening future support environment across Europe: There
is, more generally, increasing uncertainty regarding the willingness
of authorities, particularly in Europe, to continue to support
senior creditors of institutions below the first tier in their domestic
markets over the medium term. This has prompted Moody's to
initiate a re-assessment of authorities' willingness to support
senior debt issued by smaller financial institutions in Europe.
Moody's rating actions today on Spanish banks are consistent with
this broader reassessment. Please refer to "Moody's
Reassesses Systemic Support for Senior Debt of Smaller European Financial
Institutions: Spanish Bank Ratings Downgraded as a First Step"
which was also published today on www.moodys.com.
It is important to note that Moody's is not eliminating government
support, which remains incorporated in many of its Spanish banks.
Nor is the rating agency making any changes to its assumptions regarding
the support available to the largest, most clearly systemic institutions
at this point in time. Moody's notes that the government
remains very highly rated, reflecting its view that there remains
substantial ability and willingness to provide ongoing support to the
banking system. However, it is moving away from the extraordinarily
high support assumed at the height of the crisis of up to 6 notches for
the weaker institutions, to more normalised levels, as reflected
in rating uplifts of up to two notches for most Spanish banks.
While the array of rating actions that have been taken today may appear
complex, they reflect a relatively simple set of principles that
determine how Moody's reflects systemic support in its senior debt
and deposit ratings for Spanish banks. More specifically,
Moody's has identified four groups of banks that differ in how much
"systemic uplift" (or additional notches over their standalone
credit strength due to government support) their ratings receive going
forward:
- Group 1: Banks with very high or high likelihood of support
--two notches of systemic uplift. For Spanish banks,
this group comprises banks with national retail networks and market shares
of deposits and loans that according to Moody's are significant
(>6% - "very high" support probability) or
meaningful (3-5% - "high" support probability).
- Group 2: Banks with moderate likelihood of support --
one notch uplift. Spanish banks with national or regional retail
networks and modest (2-3%) market shares of deposits or
loans generally benefit from a "moderate" likelihood of support,
in Moody's view.
- Group 3: Banks with low or no likelihood of support --
no systemic uplift. The agency believes that there is insufficient
certainty surrounding the likelihood and extent of support available over
the medium term to most banks with market shares below 2% of deposits
and loans to warrant any uplift of their standalone credit strength.
- Group 4: Banks involved in consolidation efforts --
ratings remain under review. The ratings for some savings banks
(cajas) that are currently involved in consolidation projects continue
to benefit from exceptionally high systemic support for the time being.
For many Spanish banks, this approach has led to a reduction in
the systemic support previously implied in their ratings, which
is the main driver of the rating actions that Moody's has taken
today.
RATINGS RATIONALE FOR SENIOR SUBORDINATED DEBT
Moody's has downgraded the senior subordinated debt ratings of 19
banks in line with the downgrade of these banks' senior unsecured
debt ratings. Moody's has not yet removed systemic support
for subordinated debt issuances in Spain, but expects to assess
this during the second quarter of 2011 alongside other European countries
affected by European regulation and legislation. If at that time,
Moody's assessment results in the partial or full removal of systemic
support for subordinated debt, any further downgrade of subordinated
debt would likely be limited to a maximum of two notches, given
the reduction of the systemic support rating uplift discussed above.
RATINGS RATIONALE FOR THE DOWNGRADE OF HYBRID INSTRUMENTS
Moody's has downgraded the junior subordinated debt of Bancaja and
Caja Insular de Canarias by one notch to B1 from Ba3, as well as
the preferred shares of Catalunya Caixa to B3 from B2, Bancaja to
Caa1 from B3 and those of Caja Cantabria to Caa1 from B3. This
follows Moody's removal of its assumption of group support within
the savings bank sector. In 2010, Moody's removed all
systemic support from the ratings of junior subordinated debt and other
hybrids in Spain and rated these instruments in view of the banks'
standalone financial strength, but incorporated support from parents
or co-operatives and similar groups. In the past,
Moody's had incorporated some group support within the Spanish Savings
bank sector, despite the absence of any formal support arrangements.
Now, Moody's has eliminated this support assumption within
the sector, as the consolidation and much larger size of many groups
make this type of support from within the group less reliable.
Furthermore, Moody's has observed a reduction of sector cohesion
and solidarity, especially from the stronger members, supporting
its decision to remove this group support. Other than these five
ratings, there is no further impact on any other hybrid ratings.
CONFIRMATION OF RATINGS FOR BBVA, BANCO SANTANDER AND LA CAIXA
In view of the high standalone ratings of BBVA, Santander and La
Caixa -- all rated B-/A1 on a standalone basis --
the debt/deposit ratings of these three institutions have not been affected
by the one-notch downgrade of Spain to Aa2. The senior debt/deposit
ratings of these institutions continue to include two notches of rating
uplift, due to our assessment of very high likelihood of systemic
support.
GOVERNMENT GUARANTEED DEBT
Moody's has downgraded to Aa2, with a negative outlook,
the government-backed rated senior debt of 21 institutions.
This action follows the downgrade to Aa2 (negative outlook) of the Spanish
government bond ratings, announced on 10 March 2011. The
government-backed Aa2 ratings assigned are based on the unconditional
guarantee from the Kingdom of Spain (See "Moody's to assign
backed Aaa ratings to new euro-denominated long-term debt
securities covered by Spanish government's guarantee",
published on 22 January 2009).
RATINGS OF INSTITUTO DE CREDITO OFICIAL
Moody's has downgraded to Aa2, with a negative outlook,
all of ICO's rated debt. Since ICO's liabilities are
explicitly, irrevocably, directly and unconditionally guaranteed
by the Kingdom of Spain, the downgrade of ICO follows the downgrade
of the sovereign.
WHAT COULD CHANGE THE RATINGS UP
An improvement in banks' standalone BFSR's could put upward
rating pressure on the banks' debt and deposit ratings. This
could be driven by the longer-term benefits of the ongoing restructuring
of the Spanish banking sector that should lead to stronger corporate governance,
more efficient cost structures, an in-depth revision of risk
management practices and better access to capital. An improvement
in the economic and overall operating environment could also positively
affect BFSRs and bank ratings.
WHAT COULD CHANGE THE RATINGS DOWN
The ratings of those banks that continue to benefit from systemic support
remain linked to the creditworthiness of the Spanish government and to
a further reduction of the remaining systemic support assumptions.
As the ratings of many banks continue to incorporate one to two notches
of uplift, this could put downward pressure on debt ratings.
With regard to standalone BFSRs, many banks remain vulnerable to
the scenario of greater-than-anticipated asset-quality
deterioration, especially in their real-estate-related
activities.
The following ratings have been affected:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_131754
PREVIOUS RATING ACTION AND METHODOLOGY
The principal methodologies used in this rating were Bank Financial Strength
Ratings: Global Methodology published in February 2007, and
Incorporation of Joint-Default Analysis into Moody's Bank Ratings:
A Refined Methodology published in March 2007.
Previous rating action on Spanish banks took place on December 20,
2010, when Moody's placed on review for possible downgrade
the deposit, senior debt and subordinated debt ratings of several
Spanish banks that benefited from any form of systemic support uplift,
in addition to all rated government-backed debt issued by Spanish
banks.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
On our website www.moodys.com, you can find further
information and any updates on the Lead Analyst to a specific Credit Rating,
and the office from which the credit rating was issued.
In addition to the above general contact information please find,
for each of the Credit Ratings affected, Moody's regulatory
disclosures on the lead analyst and the Moody's office that has
issued the Credit Rating on the ratings tab of the issuer page at www.moodys.com.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating 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.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
London
Javier Rodriguez, CFA
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Johannes Wassenberg
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's takes rating actions on Spanish banks after Spain's downgrade to Aa2
