NOTE: On December 07, 2020, the List of Affected Ratings accessible via hyperlink from this press release was corrected as follows: the Rating Class description for Program ID 825177668 (UBS AG, London Branch) was changed to “Commercial Paper (Foreign).” Revised release follows.
Frankfurt am Main, December 01, 2020 -- Moody's Investors Service ("Moody's") has today upgraded the senior unsecured
debt ratings of Credit Suisse Group AG to Baa1 from Baa2 and the long-term
senior unsecured debt and deposit ratings of its principal bank subsidiary,
Credit Suisse AG (CS), to Aa3 from A1. The outlook on these
ratings has been changed to stable from positive.
The rating agency further upgraded Credit Suisse AG's Baseline Credit
Assessment (BCA) to baa1 from baa2, its Adjusted BCA to baa1 from
baa2, and its long-term Counterparty Risk (CR) Assessment
to Aa3(cr) from A1(cr). The senior unsecured debt, long-term
issuer as well as long-term deposit ratings of all of CS's subsidiaries
- where applicable - have also been upgraded. The
rating agency affirmed all of the bank's and its subsidiaries'
Prime-1 short-term ratings.
Moody's today also affirmed UBS AG's (UBS) Aa2 long-term
deposit ratings and its Aa3 long-term issuer and senior unsecured
debt ratings with a stable outlook. The rating agency further affirmed
UBS AG's a3 BCA and Adjusted BCA and its Aa2(cr) long-term CR Assessment
as well as all of its other long- and short-term ratings.
Similarly, the senior unsecured debt, issuer as well as deposit
ratings of all of UBS's subsidiaries - where applicable -
have also been affirmed. The rating agency further affirmed UBS
Group AG's A3 senior unsecured debt ratings with a stable outlook and
its Ba1(hyb) preferred stock ratings.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL436027
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
---CREDIT SUISSE
The strengthening of CS's credit profile and, thereby,
the upgrade of its ratings was driven by the bank's improved and
more stable profitability on the back of its structurally lower cost base,
additionally supported by sustained lower funding costs and revenue growth
in its core businesses. The ratings remain further supported by
the stable earnings and lower risk profile of the bank's large global
wealth management franchise and well-positioned domestic Swiss
banking franchise producing an increased share of recurring revenues for
the firm.
The rating upgrades further take account of the sustainable progress the
firm has achieved as a result of its 2015-18 restructuring,
which included a meaningful de-risking of its balance sheet and
a sizeable reduction in capital and risk allocated to the Investment Bank,
lowering its inherent reliance on less predictable revenue items,
and lifting the returns and operating leverage of the remaining businesses.
Moody's expects CS to continue executing on and reinforcing its
long-standing business strategy - in addition to further
modifications announced earlier this year - thereby maintaining
firm control on risks taken within the group, in particular within
its Investment Bank.
The rating upgrades also reflect CS having maintained its superior liquidity
and solid funding profiles, as displayed through a peer-leading
liquidity coverage ratio (LCR) and an above-average maturity profile
of its more confidence-sensitive market funding. CS has
issued most of its loss-absorbing debt earlier than many peers
and the related debt issuances have significantly extended CS's debt maturity
profile and lowered its refinancing risk. If maintained,
CS's improved ability to manage funding and liquidity needs across the
group will increase its resilience to periods of high volatility or funding
market dislocation.
CS's ratings continue to take account of the inherent volatility and risk
opacity of the bank's capital markets business as well as the heightened
confidence sensitivity of that business's client base. Although
CS has curtailed a large number of inherently more volatile product lines
during its 2015-18 restructuring, the remaining exposure
to capital markets activities remains higher and also less diversified
than the leading global investment banks (GIBs) peers. The group's
comparatively higher dependence on transaction-driven capital market
revenues as well as its relatively high exposure to underwriting of leveraged
lending and of high-yield debt transactions, therefore,
has the potential to exert meaningful strain on CS's earnings in a highly
adverse market environment. At the same time, Moody's
believes the bank's solid capital position will help mitigate larger
unexpected losses, safeguarding the bank's improved credit
profile.
The upgrades further reflect the unchanged results of Moody's Advanced
Loss Given Failure (LGF) analysis in assessing the bank's existing bail-in-able
debt cushion and resulting loss severity for its different debt classes.
For deposits and senior unsecured debt, this continues to lead to
three notches of rating uplift from the bank's baa1 Adjusted BCA.
For senior unsecured debt issued by Credit Suisse Group AG, Moody's
Advanced LGF analysis continues to lead to no uplift from the bank's baa1
Adjusted BCA.
Moody's also maintained its assumption of a moderate probability of government
support for junior depositors and bank-level senior unsecured creditors
at Credit Suisse AG to be forthcoming in case of the bank's failure.
This assumption continues to lead to one notch of additional rating uplift
for the bank's and its subsidiaries' as well as branches' deposit and
senior unsecured debt ratings, where applicable. Further,
the rating agency believes that the probability of government support
for creditors of Credit Suisse Group AG remains low.
---UBS
The affirmation of UBS's ratings reflects its continued strong capital
position, the bank's pro-active approach to risk management
as well as its strong liquidity position, all of which help mitigate
risks inherent in its capital markets activities, including moderate
wholesale funding sensitivities. Its ratings remain further supported
by the stable earnings and lower risk profile of the bank's large global
wealth management franchise and well-positioned domestic Swiss
banking franchise and resulting very high share of recurring revenues
and earnings.
UBS runs the most diversified wealth management franchise within its GIBs
peer group, including strong presences in both Asia and the US and
it is the only wealth manager operating at scale in all large global markets.
Its global wealth management business generated more than 50% of
the group's revenue and almost 60% of the group's pretax
profits over the past few years, supporting earnings stability.
In conjunction with its resilient domestic universal banking businesses
and a more modest reliance on results generated within its investment
banking franchise, UBS was able to produce highly resilient earnings
over the past few years. Moreover, UBS was able to offset
strain from the coronavirus pandemic and persistently ultra-low
interest rates on its earnings in 2020-to-date, a
clear credit strength.
Similar to its GIBs peers, UBS's ratings further take account of
the inherent volatility and risk opacity of the bank's capital markets
business and the heightened confidence sensitivity of that business's
client base. In addition, the ratings incorporate the risk
of potentially sizeable litigation charges as a result of ongoing lawsuits
and litigation proceedings.
The affirmation further takes account of the unchanged results of Moody's
Advanced LGF analysis in assessing the bank's existing bail-in-able
debt cushion and resulting loss severity for its different debt classes.
For deposits and senior unsecured debt, this continues to lead to
three and two notches of rating uplift from the bank's a3 Adjusted BCA,
respectively. For senior unsecured debt issued by UBS Group AG,
Moody's Advanced LGF analysis continues to lead to no uplift from the
bank's a3 Adjusted BCA.
Moody's also maintained its assumption of a moderate probability of government
support for junior depositors and bank-level senior unsecured creditors
of UBS AG to be forthcoming in case of the bank's failure.
This assumption continues to lead to one notch of additional rating uplift
for the bank's and its subsidiaries' as well as branches' deposit and
senior unsecured debt ratings, where applicable. Further,
the rating agency believes that the probability of government support
for creditors of UBS Group AG remains low.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on Credit Suisse's ratings could arise if the group (1)
were to achieve a sustainable improvement in its profitability metrics
to levels well above the communicated targets; (2) further curtailed
its risk appetite in its Investment Bank, in particular with regard
to leveraged lending and other non-investment-grade exposures
and (3) extended the share of revenue, profits and resources generated
from and allocated to its more stable wealth management and Swiss universal
banking businesses while maintaining a strong performance in its Investment
Bank. Any upgrade remains further contingent on the group reducing
its wholesale funding dependence expressed through Moody's market
funds ratio to well below the year-end 2019 level.
CS's ratings could be downgraded if the bank (1) failed to deliver
on the proposed refinements to its business model, in particular
if it failed to keep contained the resources allocated to its capital
markets businesses or if it failed to sustain positive operating leverage;
(2) were to suffer from a significant control or risk management failure;
or (3) materially increased its risk appetite against a more challenging
market environment, in particular if it grew higher-risk
lending or capital markets businesses well above market rates.
The ratings may also be downgraded in the event of a prolonged market
downturn and sustained macroeconomic slump in the Swiss or global economies
leading to an unexpected and meaningful deterioration in the group's asset
quality, capital and profitability metrics; or its liquidity
and funding profile.
CS's ratings could also be downgraded should there be a significant
and larger-than-anticipated decrease in the bank's existing
stock of bail-in-able liabilities. Although regarded
highly unlikely at present, this may lead to fewer notches of rating
uplift as a result of Moody's Advanced LGF analysis.
Although unlikely at present, UBS's ratings could be upgraded
following a combination of the following: (1) UBS achieving a meaningful
reduction in group resources allocated towards its capital markets segment
while maintaining sufficient returns; (2) the group further improving
its earnings profile and profitability levels, and sustaining these
even under more adverse market conditions; (3) UBS maintaining its
solid capital position while balancing bondholders' and shareholders'
interests; and (4) the group materially decreasing its reliance on
wholesale funding sources.
UBS AG's long-term senior unsecured debt ratings could also
be upgraded if the bank were to maintain the current proportion of bank-level
senior unsecured debt in relation to tangible banking assets. Those
ratings currently incorporate the rating agency's expectation for
a reduction of such liabilities based on its assessment of the bank's
funding plans and the maturity profile of these liabilities. Were
this reduction not to occur, it could lead to one additional notch
of rating uplift for the bank-level senior unsecured debt ratings
as a result of Moody's Advanced LGF analysis. However, this
would have no impact on any other ratings of the bank or the group.
UBS's ratings could face downward pressure if (1) the bank were
to suffer from any control or risk management failure; (2) UBS were
to materially increase its risk appetite, such as by materially
increasing capital allocation to the Investment Bank or modifying its
well-established group risk management and stress-testing
framework to allow greater risk-taking; or (3) there were
a significant deterioration in the bank's asset quality, capital
or liquidity, for example, as a result of a prolonged market
downturn and sustained macroeconomic slump in the Swiss or global economies;
unexpectedly high litigation charges; or significantly lower earnings
from its global wealth management franchise.
UBS's ratings could also be downgraded if there was a significant
and larger-than-expected decrease in the bank's existing
bail-in-able debt buffer, leading to a higher loss
severity for its various debt classes. Although regarded unlikely
at present, this may lead to fewer notches of rating uplift as a
result of Moody's Advanced LGF analysis.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are a mix of solicited
and unsolicited credit ratings. Additionally, the List of
Affected Credit Ratings includes additional disclosures that vary with
regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL436027
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Endorsement
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Lead Analyst
• Releasing Office
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.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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
Senior Vice President
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
