Actions conclude methodology-related reviews
Frankfurt am Main, May 21, 2015 -- Moody's Investors Service has concluded its rating reviews on 11
Swiss banks initiated on 17 March 2015 following the publication of Moody's
revised bank rating methodology. In addition, the rating
agency has also reviewed and affirmed the rating of one bank that was
initially not on review.
Moody's has not concluded its reviews on the two large Swiss investment
banks - Credit Suisse AG and UBS AG - and expects to conclude
the reviews on these and other non-Swiss global investment banks
in the first half of 2015.
In light of the revised banking methodology, Moody's rating
actions on the 12 Swiss banks affected by this announcement generally
reflect the following considerations (1) the 'Very Strong --'
Macro Profile of Switzerland (Aaa stable); (2) the Swiss banks'
generally sound asset quality and solid capitalisation metrics as well
as their balanced, largely deposit-financed funding structures;
(3) the protection offered to depositors compared to senior creditors,
owing to depositor preference in Switzerland and the substantial volumes
of deposit funding, as captured by Moody's Advanced Loss Given
Failure (LGF) liability analysis; and (4) the reduced likelihood
of government support for most of these institutions.
Moody's affirmed the adjusted BCAs of eight out of the total 12
Swiss banks and upgraded their deposit ratings by an average of 1.5
notches. At the same time, the senior unsecured debt or issuer
ratings of these banks as well as holding companies were reduced by 0.6
notches, on average.
Among the rating actions on the Swiss banks that Moody's has taken
are the following:
- 10 long-term bank deposit ratings upgraded and two affirmed
- Four short-term bank deposit ratings upgraded and eight
affirmed
- Two bank long-term senior unsecured debt or issuer ratings
downgraded and two affirmed
- Eight baseline credit assessments (BCAs) affirmed, one
lowered and three raised.
In addition, of the 12 banking groups with rated holding company
senior unsecured debt and/or issuer ratings, two senior unsecured/issuer
ratings were affirmed, and one was downgraded.
Moody's has also assigned Counterparty Risk (CR) assessments to
12 Swiss banks and their branches, in line with its revised bank
rating methodology.
Bank-level subordinated debt ratings have either been affirmed
or downgraded and most of the holding companies' subordinated debt
and hybrid securities ratings were upgraded as part of this rating action.
For its own business reasons, Moody's has withdrawn the outlooks
for all of the junior instrument ratings for the banking groups covered
in this press release. For more information, please refer
to "Moody's Investors Service's Policy for Withdrawal of Credit Ratings,"
available at moodys.com.
Outlooks, which provide an opinion on the likely rating direction
over the medium term, are now assigned only to long-term
deposit and senior unsecured debt or issuer ratings. Moody's
has assigned stable outlooks to the long-term deposit ratings of
10 of the affected banks, a negative outlook to one and a positive
outlook to one. Moody's has assigned stable outlooks to the
senior unsecured debt or issuer ratings of two of the affected banks and
a negative outlook to one.
Please click on http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_181304
for the list of affected credit ratings. This list is an integral
part of this press release and identifies each affected issuer.
Please refer to this link for the revised methodology: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_320662.
RATINGS RATIONALE
The revised methodology includes a number of elements that Moody's
has developed to help accurately predict bank failures and determine how
each creditor class is likely to be treated when a bank fails and enters
resolution. These new elements capture insights gained from the
crisis and the fundamental shift in the banking industry and its regulation.
(1) SWITZERLAND'S "VERY STRONG -" MACRO PROFILE
Swiss banks benefit from operating in an environment with a very high
degree of economic, institutional and government financial strength
and very low susceptibility to event risk. The country's relatively
high and rising private sector debt is well covered by private sector
assets, which dampens the risks from persistent, albeit slowing,
property-price inflation. Bank funding conditions benefit
from a strong domestic deposit base as well as good access to the liquid
covered bond and interbank markets.
(2) SWISS BANKS DISPLAY SOLID FINANCIAL RATIOS, BUT SOME CHALLENGES
REMAIN
The considerations that support Swiss banks' BCAs are: (1)
the stable operating environment and banks' solid financial base;
and (2) substantial loss absorption capacity through earnings and loan-loss
reserves. The Swiss banks' solid financial base includes
very low problem loan ratios, strong capital adequacy, and
limited reliance on wholesale funding, in most cases. Following
today's rating actions, the simple average BCA of these 12
banks stands at a3.
The creditworthiness of the Swiss sovereign and the country's solid
economic development as well as the country's low unemployment support
Moody's view of a continued, stable operating environment
for Swiss banks (Moody's forecasts Swiss GDP to grow 0.8%
in 2015 and 1.5% in 2016). Sustained property-price
inflation and persistently low interest rates are the main fundamental
challenges for Swiss banks over the next 12-18 months, whilst
Moody's believes that most of the banks should be able to withstand
earnings pressures arising from the strong Swiss franc.
(3) PROTECTION OFFERED TO DEPOSITORS COMPARED TO SENIOR AND OTHER CREDITORS,
AS CAPTURED BY MOODY'S ADVANCED LGF LIABILITY ANALYSIS
Because of the Swiss operational resolution regime, Moody's
applies its Advanced LGF analysis to Swiss banks' liability structures
under its new methodology. In most cases, this analysis results
in a very low loss-given-failure for Swiss long-term
deposits, in light of depositor preference and the substantial volume
of deposit funding, as well as some protection offered by the amount
of debt subordinated to deposits within banking groups. This has
led to deposit rating upgrades for most of the Swiss banks covered in
this press release.
In contrast, low volumes of senior debt and limited amounts of securities
subordinated to it, reflecting a high expected loss severity in
the event of resolution, prompted the downgrade of some banks'
senior debt ratings, and/or their issuer ratings.
For more information on Moody's LGF analysis, please see Moody's
"How Resolution Frameworks Drive Our Creditor Hierarchies" at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1003760
(in addition to the methodology itself).
(4) REDUCED LIKELIHOOD OF GOVERNMENT SUPPORT
Swiss authorities have implemented a flexible resolution framework that
includes provisions for burden-sharing with senior creditors.
The evolution of the Swiss bank resolution regime and the accelerating
global trend towards the use of burden-sharing tools has led to
a diminishing support for senior creditors from the Swiss government in
the event of need. As a result, only five Swiss banks'
ratings (excluding Credit Suisse AG and UBS AG) continue to benefit from
rating uplift resulting from Moody's revised government support
assumptions.
BANK SPECIFIC ANALYTIC FACTORS
-- BANQUE CANTONALE VAUDOISE
Moody's upgraded Banque Cantonale Vaudoise's (BCV) long-term
deposit ratings to Aa2 from A1, with a stable outlook. At
the same time, the rating agency raised BCV's BCA by one notch
to a2. The Prime-1 short-term deposit ratings were
affirmed. Moody's further assigned an A1(cr)/Prime-1(cr)
Counterparty Risk assessment (CR assessment) to BCV.
The upgrade of BCV's long-term deposit ratings reflects the
very low loss-given-failure for the bank's wholesale
deposits because of the substantial volume of deposits, leading
to a two-notch uplift from its a2 adjusted BCA. This is
further supported by one notch of government support uplift factored into
the bank's long-term ratings, following Moody's
reduction of government support assumptions (previously two notches).
The raising of the bank's BCA by one notch to a2 reflects (1) the
bank's relatively low on-balance-sheet risks,
despite displaying a high concentration in the Canton of Vaud, including
relatively large exposures to the region's real-estate markets;
(2) BCV's high-quality capitalisation with a Common Equity
Tier 1 (CET1) ratio of 17.1% as of year-end 2014;
and (3) its ability to generate sufficient profits in order to cover both
expected losses and a relatively high share of unexpected losses,
without compromising its franchise stability.
-- BANK JULIUS BAER & CO. LTD. / JULIUS
BAER GROUP LTD.
Moody's upgraded Bank Julius Baer & Co. Ltd.'s
(BJB) long-term deposit rating to Aa2 from A1. At the same
time, the rating agency downgraded the bank's issuer ratings
to A2 from A1. The long-term ratings have been assigned
a negative outlook. Moody's affirmed the bank's a2
BCA as well as BJB's short-term deposit rating of Prime-1
and assigned a CR assessment of Aa3(cr)/Prime-1(cr) to BJB.
Subsequently, the rating agency downgraded Julius Baer Group Ltd.'s
(JBG) issuer rating to A3 from A2, and assigned a negative outlook.
JBG's subordinated debt rating has been upgraded to A3 from Baa1,
whilst the group's hybrid securities rating has been upgraded to
Baa2(hyb) from Baa3(hyb).
The upgrade of BJB's long-term deposit ratings reflects the
extremely low loss-given-failure for BJB's wholesale
deposits because of the substantial volume of deposits and the amount
of debt subordinated to it, leading to a three-notch uplift
from its a2 adjusted BCA. For BJB's senior unsecured debt
(and thus its issuer rating), the LGF analysis indicates a moderate
loss-given-failure, leading to a positioning of the
rating in-line with the bank's adjusted BCA. The lower
senior debt cushion leading to a high loss-given-failure
under Moody's LGF analysis means that JBG's issuer rating
has been assigned one notch below BJB's BCA.
Moody's further withdrew one notch of government support uplift
previously factored into the bank's long-term ratings,
partially offsetting the positive rating impact from Moody's LGF
analysis.
The affirmation of BJB's a2 BCA reflects its (1) well-established
franchise in global onshore and offshore private banking, which
has been enhanced in scale through the acquisition of Merrill Lynch's
International Wealth Management (IWM) business outside the United States
(Aaa stable); (2) low financial and moderate business risks;
and (3) solid financial fundamentals including its earnings generation
capacity and capital buffers. The latter could mitigate a meaningful
litigation charge resulting from the US-Swiss tax agreement.
The negative outlooks assigned to the bank's and the group's
long-term ratings reflect the potential impact that a larger-than-anticipated
litigation charge -- one which Moody's has not incorporated
in the current standalone BCA -- may have on the bank's
capital adequacy metrics and, ultimately, its credit profile.
-- BANQUE PICTET & CIE SA
Moody's upgraded Banque Pictet & Cie SA's (Banque Pictet)
long-term deposit ratings to Aa2 from Aa3, with a stable
outlook. At the same time, the rating agency affirmed the
bank's a2 BCA, its a1 adjusted BCA as well as Banque Pictet's
Prime-1 short-term deposit ratings. Moody's
further assigned a CR assessment of A1(cr)/Prime-1(cr) to Banque
Pictet.
The upgrade of Banque Pictet's long-term deposit ratings
reflects the very low loss-given-failure for the bank's
wholesale deposits because of the substantial volume of deposits and the
amount of debt subordinated to it, leading to a two-notch
uplift from its a1 adjusted BCA. This positive rating effect was
partially offset by the withdrawal of one notch of government support
uplift previously factored into the bank's long-term ratings.
The affirmation of Banque Pictet's a2 BCA is supported by the bank's
(1) well-established franchise in wealth management and private
banking; (2) low financial risks and moderate business risks;
and (3) solid financial fundamentals. Banque Pictet's a1
adjusted BCA reflects the rating agency's assessment of Pictet Group's
(unrated) ability and willingness to provide support to Banque Pictet,
in case of need, resulting in a one notch uplift from its a2 standalone
BCA.
-- BANK VONTOBEL AG / VONTOBEL HOLDING AG
Moody's upgraded Bank Vontobel AG's (Bank Vontobel) long-term
deposit ratings to Aa3 from A2, and assigned a stable outlook.
The bank's a2 BCA as well as its Prime-1 short-term
deposit ratings have been affirmed. Moody's further assigned
a CR assessment of A2(cr)/Prime-1(cr) to Bank Vontobel.
In addition, the rating agency affirmed Vontobel Holding AG's
(Vontobel or "the group") A3 issuer ratings and assigned a stable outlook.
The upgrade of Bank Vontobel's long-term deposit ratings
reflects the very low loss-given-failure for the bank's
wholesale deposits because of the substantial volume of deposits and the
amount of debt subordinated to it, leading to a two-notch
uplift from its a2 adjusted BCA. For Bank Vontobel's senior
unsecured debt (and thus the group's issuer rating), Moody's
LGF analysis indicates a high loss-given-failure,
leading to a positioning of the issuer ratings one notch below the bank's
a2 adjusted BCA.
The affirmation of Bank Vontobel's a2 BCA reflects the bank's
(1) well-established franchise in Swiss and international off-shore
private banking; (2) prominent position in Swiss capital markets,
including structured investment products and security custody; (3)
moderate business risks; and (4) good financial fundamentals.
The rating also reflects a degree of earnings' dependence on capital
market developments, as well as typical risks that apply to private
banks, such as a high sensitivity to reputational and operational
risk.
-- BANQUE SYZ SA / FINANCIÈRE SYZ & CO SA
Moody's upgraded Banque SYZ SA's (Banque SYZ) long and short-term
deposit ratings to A2/Prime-1 from Baa2/Prime-2.
The long-term ratings carry a stable outlook. At the same
time, the rating agency affirmed the bank's baa2 BCA and raised
its adjusted BCA by one notch to baa1. Moody's further assigned
a Baa1(cr)/Prime-2(cr) CR assessment to Banque SYZ.
Moreover, Moody's affirmed the Baa2 long-term issuer
rating of Financiere SYZ & Co. S.A., the
parent holding company of Banque SYZ, with a stable outlook.
The upgrade of Banque SYZ's long and short-term deposit ratings
to A2 reflects the very low loss-given-failure for Banque
SYZ's wholesale deposits because of the substantial volume of deposits,
leading to a two-notch uplift from its baa1 adjusted BCA.
The affirmation of Banque SYZ's baa2 BCA reflects the bank's
very solid capital adequacy as well as its limited appetite for credit,
market or liquidity risks. The BCA also reflects significant key
man risk given Eric Syz's 65% ownership (and over 90%
of the voting rights) and his key roles in day-to-day decision
making, and in determining the group's strategic orientation.
The assignment of one notch of affiliate support takes into account the
degree of diversification of the parent holding company's earnings
from non-related operations conducted outside the bank, which,
in Moody's view, constitutes a significant additional source
of loss-absorption capacity that is likely to be made available
to Banque SYZ in case of need. Furthermore, Moody's
assessment considers additional capital available at the holding company
that is highly likely to be 'downstreamed' to the bank should
the need arise. This reflects the strong financial, operational
as well as reputational links of the two franchises as well as strong
management incentives to support the private banking operations.
-- BERNER KANTONALBANK AG
Moody's upgraded Berner Kantonalbank AG's (BEKB) long-term
deposit rating to Aa1 from A1, with a stable outlook. At
the same, the rating agency raised BEKB's BCA by one notch
to a1. The Prime-1 short-term deposit ratings were
affirmed and Moody's further assigned a Aa3(cr)/Prime-1(cr)
CR assessment to BEKB.
The upgrade of BEKB's long-term deposit reflects the very
low loss-given-failure for the bank's wholesale deposits
because of the substantial volume of deposits, leading to a two-notch
uplift from its a1 adjusted BCA, further suppported by an unchanged
one notch of government support.
The raising of the bank's BCA by one notch to a1 reflects (1) BEKB's
relatively low-risk profile; (2) the bank's strong relative
as well as absolute capitalisation levels, providing a decent cushion
against unexpected losses; (3) the bank's high earnings stability
and efficiency; and (4) sound liquidity metrics.
-- BSI AG
Moody's upgraded BSI AG's long and short-term deposit
ratings to A2/Prime-1 from Baa1/Prime-2, with a stable
outlook. At the same time, the rating agency affirmed the
bank's baa1 BCA and assigned a Baa1(cr)/Prime-2(cr) CR assessment
to BSI AG.
The upgrade of BSI AG's long and short-term deposit ratings
reflects the very low loss-given-failure for the bank's
wholesale deposits because of the substantial volume of deposits and the
(very limited) amount of debt subordinated to it, leading to a two-notch
uplift from its baa1 adjusted BCA.
The affirmation of the bank's baa1 BCA reflects (1) BSI AG's
relatively stable franchise development prior to its final sale to Brazilian
Banco BTG Pactual (BTG; local-currency deposits Baa3 stable);
(2) the relatively low risk profile of its balance sheet; and (3)
the bank's solid capital adequacy ratios, which provide significant
loss absorption capacity.
Furthermore, the baa1 BCA reflects (1) Moody's assessment
of the limited, albeit improving, recurring earnings power
of BSI AG despite continued pressures on the bank's revenue base
in a difficult operating environment for private bank franchises in Switzerland
and globally; (2) elevated uncertainty regarding the effects of the
sale of BSI AG to BTG; and (3) typical risks that apply to private
banks, such as a high sensitivity to reputational and operational
risks.
-- CLIENTIS AG
Moody's upgraded Clientis AG's long and short-term
deposit ratings to A2/Prime-1 from A3/Prime-2. The
long-term deposit ratings carry stable outlooks. At the
same, the rating agency affirmed the bank's baa1 BCA.
Moody's further assigned a Baa1(cr)/Prime-2(cr) CR assessment
to Clientis.
The upgrade of Clientis' long-term deposit ratings reflects
the very low loss-given-failure for the bank's wholesale
deposits because of the substantial volume of deposits, leading
to a two-notch uplift from its baa1 adjusted BCA. This was
partially offset by the withdrawal of one notch of government support
uplift previously factored into the bank's long-term ratings.
The affirmation of Clientis' baa1 BCA reflects (1) the bank's
dedicated retail focus and medium-sized local banking franchise
in Switzerland; (2) its relatively low-risk balance sheet
including limited exposures to real-estate 'hot spots'
in the regional real-estate markets in Switzerland; and (3)
strong capitalisation. However, the BCA remains constrained
by Clientis' (1) tighter liquidity metrics and relatively low liquidity
buffers compared with those of its closest peers; (2) a relatively
narrow franchise and modest profitability by international standards;
and (3) Clientis' still comparatively loose and untested long-term
sector set-up. The latter remains a credit issue despite
previous efforts to strengthen the group's cohesiveness by widening
the cross-liability mechanism and ensuring long-term group
membership through legally binding membership commitments, up until
2017.
-- RAIFFEISEN SCHWEIZ
Moody's upgraded Raiffeisen Schweiz's (Raiffeisen Schweiz)
long-term deposit ratings to Aa2 from Aa3. At the same time,
the rating agency downgraded the bank's long-term senior
unsecured ratings to A2, from Aa3. The long-term ratings
carry a stable outlook. The BCA has been raised to a2 from a3,
reflecting the fundamental strength of Raiffeisen Group (unrated) in Raiffeisen
Schweiz's standalone BCA as well as the fact that Raiffeisen Group
as a cooperative group with a statutory and well developed mutualist support
framework is regulated on a consolidated basis. The bank's
A3 subordinated debt rating as well as its Baa3(hyb) high-trigger
Additional Tier 1 (AT1) securities rating (classified as preferred stock
non-cum) have been affirmed. Moody's further assigned
an A1(cr)/Prime-1(cr) CR assessment to Raiffeisen Schweiz.
The rating agency bases its LGF analysis on the consolidated group liabilities
at failure because of its assumption that resolution would, upon
exhaustion of all statutory and joint support, be based on a full
resolution of the entire group, including Raiffeisen Schweiz.
The upgrade of Raiffeisen Schweiz's long-term deposit ratings
therefore reflects the very low loss-given-failure for the
group's wholesale deposits because of the substantial volume of
deposits, leading to a two-notch uplift from its a2 adjusted
BCA, prior to government support uplift. Conversely,
Raiffeisen Schweiz's senior unsecured ratings take into account
their high loss-given-failure because of the group's
relatively low volume of senior unsecured debt outstanding, leading
to a one-notch reduction from the bank's a2 BCA.
In addition, Moody's reduced its government support assumptions
for Raiffeisen Schweiz from 'very high' to 'moderate',
now resulting in one notch of systemic support uplift (previously two)
for the long-term debt and deposit ratings.
Raiffeisen Schweiz's pivotal importance to the group's operations
and performance -- as well as the strong strategic and financial
cohesion among member banks -- led to Moody's to raise
Raiffeisen Schweiz's BCA to a2. Moody's believes that
factoring in the strength of the whole Swiss Raiffeisen sector into Raiffeisen
Schweiz's BCA better reflects Raiffeisen Schweiz's intrinsic
financial strength. Also, regulatory supervision applies
to Raiffeisen Group as a whole and on a consolidated level rather than
to Raiffeisen Schweiz as the group's central institution.
The a2 BCA is underpinned by (1) the bank's and the group's
manageable asset risk and its conservative approach to risk taking;
and (2) the group's solid capital buffers and its comfortable funding
profile. Moody's underlying fundamental group-level
assessment also takes into account pressures from (1) the group's
above-average residential mortgage-loan growth over recent
years, leading to increased susceptibility to shocks under a scenario
of a significant slowdown in the Swiss housing market; and (2) the
continued challenging operating environment, characterised by sustained
net interest margin compression and low interest rates, which continue
to constrain the group's profitability prospects.
-- ST. GALLER KANTONALBANK
Moody's affirmed St. Galler Kantonalbank's (SGKB) Aa1/Prime-1
long and short-term debt and deposit ratings. The long-term
ratings carry a stable outlook. At the same time, the rating
agency lowered the bank's BCA to a3 from a2, and subsequently
downgraded SGKB's subordinated debt rating to Baa1 from A3.
Moody's further assigned a Aa1(cr)/Prime-1(cr) CR assessment
to SGKB.
The affirmation of the bank's long and short-term ratings
reflects the full ownership and statutory guarantee by the Canton of St.
Gallen (unrated), as well as the bank's importance in the
local economy, which together result in a five-notch uplift
to the long-term senior ratings to Aa1 from the bank's a3
BCA.
The lowering by one notch of SGKB's BCA to a3 reflects the bank's
(1) somewhat weaker asset quality ratios when compared with similarly
rated peers, despite the weakness being partly due to conservative
accounting practices; (2) very high concentration in the Canton of
St. Gallen, including large exposures to the region's
real-estate markets; and (3) partial reliance on wholesale
funding to finance parts of its mortgage-lending book. The
a3 BCA remains supported the bank's ability to generate sufficient
profits to cover both expected losses and a relatively high share of unexpected
losses without compromising its franchise stability.
-- VALIANT BANK AG
Moody's upgraded Valiant Bank AG's long-term and short-term
deposit ratings to A2/Prime-1 from A3/Prime-2, and
assigned a positive outlook to the bank's long-term ratings.
At the same, the rating agency affirmed the bank's baa1 baseline
credit assessment (BCA) and assigned an A3(cr)/Prime-2(cr) CR assessment
to Valiant.
The upgrade of Valiant's long-term deposit ratings reflects
the very low loss-given-failure for the bank's wholesale
deposits because of the substantial volume of deposits, leading
to a two-notch uplift from its baa1 adjusted BCA. This was
partially offset by the withdrawal of one notch of government support
uplift previously factored into the bank's long-term ratings.
The affirmation of Valiant's baa1 BCA at the low end of the new
scorecard range indicates potential upside during Moody's 12-18
month outlook period and is reflected in the positive outlook on the bank's
long-term deposit ratings.
The baa1 BCA takes into account Valiant's persistently low risk
profile as well as the amelioration of strategic uncertainty following
the Valiant group's reshuffling. However, the BCA also
takes into account Valiant's only adequate, albeit strengthened,
capitalisation and partial reliance on market funding. In addition,
the bank displays a below-average liquidity buffer that may exert
pressure on the bank's refinancing profile in an adverse scenario.
These factors, together with continued earnings pressure from persistently
lower-than-expected interest rates, as well the bank's
limited ability to improve operating efficiency in a competitive domestic
banking market, constrain Valiant's standalone credit profile
at present.
-- ZUERCHER KANTONALBANK
Moody's affirmed Zuercher Kantonalbank's (ZKB) Aaa/Prime-1
long and short-term debt and deposit ratings. The long-term
ratings carry a stable outlook. At the same time, the rating
agency affirmed ZKB's a2 BCA and assigned a Aaa(cr)/Prime-1(cr)
CR assessment to ZKB.
The affirmation of the bank's long-and short-term
ratings reflects the full ownership and statutory guarantee by the Canton
of Zurich (unrated), as well as the bank's importance in the
local economy, which together result in a five-notch uplift
to the long-term senior ratings to Aaa from ZKB's a2 BCA.
Moody's has placed ZKB's a2 BCA at the high-end of
the new scorecard range, indicating potential downside over the
rating agency's 12-18 month outlook horizon.
The identified pressures on the bank's a2 BCA reflect (1) the growth
of ZKB's residential mortgage-loan portfolio in the highly
dynamic Zurich region over recent years, which, albeit declining,
may lead to increased susceptibility to a significant slowdown in the
Swiss housing market; (2) the increasingly challenging operating
environment, characterised by net interest margin compression and
lower-than-anticipated interest rates, which constrain
the bank's profitability prospects; and (3) increased execution
and franchise risks. These risks are inherent in the bank's
private banking business, which is largely subject to changes in
the regulatory environment, and are due partly to potential litigation
charges in light of the current negotiations with US authorities over
tax evasion. In addition, and following its determination
as a domestically important financial institution ('local SIFI'),
ZKB will have to bolster capital further to continue meeting and exceeding
recently increased capital requirements.
RATIONALE FOR COUNTERPARTY RISK (CR) ASSESSMENTS
Moody's has assigned CR assessments to 12 Swiss banks. CR
assessments are opinions of how counterparty obligations are likely to
be treated if a bank fails, and are distinct from debt and deposit
ratings in that they (1) consider only the risk of default rather than
the likelihood of default and the expected financial loss incurred in
the event of default and (2) apply to counterparty obligations and contractual
commitments rather than debt or deposit instruments. The CR assessment
is an opinion of the counterparty risk related to a bank's covered bonds,
contractual performance obligations (servicing), derivatives (e.g.,
swaps), letters of credit, guarantees and liquidity facilities.
Moody's CR assessments for banks subject to an operational resolution
regime are positioned in-line or one notch above the adjusted BCA.
In Switzerland, counterparty obligations rank above senior unsecured
debt at the same legal entity, but not above deposits, given
the explicit depositor preference in Switzerland.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Upward rating momentum on any of the 12 Swiss banks' ratings could
develop principally from (1) a sustainable and significant improvement
in the banks' profitability; (2) further improvements in and
maintenance of the banks' and the groups' sound asset quality;
(3) materially stronger capital positions; and/or (4) a substantial
improvement of the banks' liquid resources that significantly exceeds
the banks' confidence-sensitive wholesale funding sources.
Downward rating pressure could emerge if (1) asset quality and/or credit
underwriting standards deteriorate beyond Moody's current expectations;
(2) current revenue and profitability pressures intensify, especially
if the low interest-rate environment persists or even worsens;
(3) the domestic macroeconomic environment deteriorates such that unemployment
rises markedly and the Swiss real-estate market weakens; and/or
(4) unexpected litigation charges in connection with typical private banking
and wealth-management lawsuits erode the banks' generally
sound earnings generation capacity and capitalisation levels.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
March 2015. 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 certain 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 certain 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 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 rating action, and
whose ratings may change as a result of this 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 of rated entity Banque Cantonale Vaudoise were initiated by
Moody's and were not requested by these rated entities.
Rated entity Banque Cantonale Vaudoise or its agent(s) participated in
the rating process. This rated entity or its agent(s), if
any, provided Moody's - access to the books,
records and other relevant internal documents of the rated entity.
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 analyst and the Moody's legal entity that has issued the ratings.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Michael Rohr
Vice President - Senior Analyst
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's takes rating actions on Swiss banks
