London, 08 May 2015 -- Moody's Investors Service has today upgraded the deposit and senior
unsecured ratings of Permanent tsb p.l.c. (PTSB)
to B1 from B3 and to B2 from Caa1, respectively. Moody's
also upgraded PTSB's senior unsecured MTN programme to (P)B2 from (P)Caa1.
The action is driven by the upgrade of PTSB's standalone baseline
credit assessment (BCA) to caa1 from caa3 following the EUR400 million
capital increase and the issue of EUR125 million of additional tier 1
(AT1) instruments. Moody's has also assigned a Counterparty
Risk Assessment (CR Assessment) of Ba3(cr)/Not Prime (cr) to PTSB.
The rating action is also driven by the implementation of Moody's new
bank rating methodology and specifically the advanced Loss Given Failure
(LGF) analysis, which offset the rating agency's reduced assessment
of the probability of government support for PTSB's deposits.
This rating action concludes the review on the deposit, senior debt
and junior debt ratings initiated on 30 October 2014 and extended on 12
February 2015, and it concludes the review on PTSB's BCA and
adjusted BCA initiated on 17 March 2015 and extended on 26 March 2015.
The outlook on the long-term deposits and senior unsecured debt
ratings is now stable.
RATINGS RATIONALE
RATIONALE FOR THE BCA
The upward movement on PTSB's standalone BCA was driven by the successful
completion of the EUR400 million capital increase and the issue of EUR125
million of AT1 with a coupon of 8.625%. These placements
combined with at least EUR330 million in capital benefit generated by
management actions such as asset sales, improved financial performance
and technical adjustments will help the bank to address the EUR855 million
capital shortfall that resulted from the adverse stress scenario of the
European Central Bank's (ECB) comprehensive assessment. The
capital increase leads to a pro forma CRD IV fully loaded Common Equity
Tier 1 (CET1) ratio of 14.3%, up from 12.4%
as of December 2014.
While PTSB has signed agreements to sell approximately EUR5 billion of
its portfolio under its restructuring plan, planned disposals of
further "non-core" assets are subject to market conditions
and therefore expose PTSB's capitalisation to risk.
Moody's also notes that PTSB's caa1 standalone BCA continues
to reflect (1) the high level of problem loans, which accounted
for 24.2% of gross loans as of December 2014; (2) low
profitability, albeit improving from very low levels and; (3)
the bank's significant use of wholesale funding, which will
decline following the completion of the non-core asset sales.
RATIONALE FOR THE DEPOSIT AND SENIOR UNSECURED RATING
The upgrade of PTSB's deposit and senior unsecured debt ratings is driven
by the upward change in the BCA, the introduction of the rating
agency's Loss Given Failure (LGF) analysis, and revised government
support assumptions.
PTSB is subject to the EU Bank Resolution and Recovery Directive (BRRD),
which Moody's considers to be an Operational Resolution Regime.
Moody's assumes residual tangible common equity of 3% and
losses post-failure of 8% of tangible banking assets,
a 25% run-off in "junior" wholesale deposits, a 5%
run-off in preferred deposits, and assigns a 25% probability
to deposits being preferred to senior unsecured debt. Moody's
also assumes that the junior proportion of PTSB's deposits is in
line with its estimated EU-wide average of 26%. These
are in line with Moody's standard assumptions. The LGF analysis
is based on the data reported as of year-end 2014 but also incorporate
the sizable maturities of government guaranteed debt which occurred during
the first quarter of 2015, as well as the agreed asset sales of
UK mortgage loans and Irish real estate loans.
Moody's advanced LGF analysis indicates that PTSB's deposits are
likely to face very low loss-given-failure, due to
the loss-absorption provided by subordinated debt and, potentially,
by senior unsecured debt -- if deposits are treated preferentially
in a resolution -- as well as the substantial volume of
deposits themselves. This results in a Preliminary Rating Assessment
for PTSB's deposits of b2, two notches above the caa1 BCA.
In addition, the advanced LGF analysis indicates that PTSB's
senior unsecured debt is likely to face low loss-given-failure,
and under a Preliminary Rating Assessment for PTSB's deposit and senior
debt the result is b3, one notch above the caa1 BCA.
At the same time, Moody's said that the introduction of the BRRD
has demonstrated a reduction in the willingness and ability of EU governments
to bail out banks, resulting in a reduced expectation of government
support. Moody's expects a moderate probability of support
for PTSB, which leads to one notch of uplift from the Preliminary
Rating Assessments for deposits and senior unsecured ratings to B1 and
B2 respectively.
RATIONALE FOR JUNIOR INSTRUMENTS
Following the upward movement on the standalone BCA, Moody's has
also upgraded PTSB's subordinated debt programme rating to (P)Caa2
from (P)Ca and junior subordinated programme rating to (P)Caa3 from (P)C.
The instruments are one and two notches below the bank's BCA, respectively,
reflecting their high expected loss severity in the event of the bank's
failure and the additional coupon risk on the junior subordinated debt.
RATIONALE FOR STABLE OUTLOOK
The stable outlook on PTSB's long-term deposit rating and
senior unsecured rating incorporates Moody's expectation of some
decline in capital due to potential losses on asset sales. The
outlook also incorporates improvements in profitability excluding the
losses trigger by the above-mentioned asset sales and ongoing asset
quality challenges.
RATIONALE FOR THE CR ASSESSMENT
As part of today's actions, Moody's has assigned a CR
Assessment to PTSB of Ba3(cr)/Not Prime(cr). The CR Assessment,
which is not a rating, reflects an issuer's probability of
defaulting on certain bank operating liabilities, such as covered
bonds, derivatives, letters of credit and other contractual
commitments. In assigning the CR Assessment, Moody's
evaluates the issuer's standalone strength and the likelihood,
should the need arise, of affiliate and government support,
as well as the anticipated seniority of counterparty obligations under
Moody's Loss Given Failure framework. The CR Assessment also
assumes that authorities will likely take steps to preserve the continuity
of a bank's key operations, maintain payment flows,
and avoid contagion should the bank enter a resolution.
WHAT COULD CHANGE THE RATING -- UP/DOWN
An upgrade of PTSB's BCA would likely be driven by (1) a sustainable recovery
of asset-quality indicators; (2) significant improvements
in profitability; and (3) conclusion of the asset sales and deleveraging
process without triggering a material deterioration of capital metrics.
A positive movement in PTSB's BCA would likely result in upgrades to all
ratings. PTSB's deposit and senior unsecured ratings could
also face positive pressure if the bank issued a significant amount of
subordinated debt, further shielding these more senior instruments
from loss in the event of the bank's failure.
The bank's BCA could be adversely affected by (1) a greater-than-expected
deterioration in the bank's existing capital buffers; (2) an unexpected
deterioration in the bank's profitability metrics; and (3) a material
deterioration in its liquidity or funding position. A downward
movement in PTSB's BCA would likely result in downgrades to all PTSB's
ratings. A reduction in the moderate probability of support currently
assign to systemically important banks in Ireland could lead to negative
pressure on PTSB's deposit and senior unsecured ratings.
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.
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.
Carlos Suarez Duarte
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
SUBSCRIBERS: 44 20 7772 5454
Nicholas Hill
Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454
Moody's upgrades Permanent tsb's deposit and senior unsecured ratings; outlook stable
