London, 15 June 2017 -- Moody's Investors Service has today upgraded the Royal Bank of Scotland
Group plc's (RBSG, the holding company) long-term senior
unsecured debt ratings to Baa3 and the long-term deposit ratings
of operating companies The Royal Bank of Scotland plc (RBS plc) and National
Westminster Bank PLC (NatWest Bank plc) to A2. The short-term
ratings of RBSG were upgraded to Prime-3 and the short-term
deposit ratings of RBS plc and NatWest Bank plc were upgraded to Prime-1.
The senior unsecured debt ratings of RBS plc and NatWest Bank plc's
issuer rating were affirmed at A3 and RBS plc's corresponding short-term
debt ratings was affirmed at Prime-2.
The upgrade to RBSG's senior debt ratings and the deposit ratings
of RBS plc and NatWest Bank plc reflects the stronger standalone financial
profile of the group and expectation for more stable performance in the
medium term resulting from the group's multi-year restructuring,
leading to a baseline credit assessment (BCA) of baa3 for RBS plc and
NatWest Bank plc. The rating action reflects the group's
(1) strong capital and litigation reserves levels which should allow the
bank to absorb the resolution of pending RMBS litigations without detriment
to the bank's overall solvency, (2) sustainable earnings from
core retail and corporate businesses, which mitigate downward credit
pressures arising from Brexit and provide substantial shock absorbers
relative to the remaining capital markets business, (3) substantially
reduced non-core assets and reduced exposure to more volatile and
complex capital markets risks and earnings and (4) improved risk framework
and governance.
The affirmation of senior debt ratings at RBS plc and NatWest Bank plc's
issuer rating reflects Moody's assessment that the volume of loss
absorbing debt supporting senior debt under Moody's Advanced Loss
Given Failure analysis has reduced faster than our original estimates
and is now below the level consistent with the prior notching.
The rating agency has reflected this change in a lower loss-given-failure
notching for the senior debt ratings of the subsidiaries.
The stable outlook on RBSG's ratings reflects the rating agency's
view that towards the end of the next twelve to eighteen months the bank
will be more advanced in its complex restructuring exercise, have
reduced non-core operations to a small residual and will begin
to generate more stable and sustainable earnings.
A list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE
UPGRADE REFLECTS RBS's IMPROVED STANDALONE CREDIT STRENGTH DUE TO PROGRESS
ON RESTRUCTURING
The upgrade to holding company (RBSG) ratings reflects the substantial
progress the firm has made in its restructuring plan in de-risking
its operations, resolving or setting aside capital for legacy litigation
matters including for its outstanding retail mortgage backed security
(RMBS) litigations with the US Department of Justice (DOJ) and the Federal
Housing Financing Agency (FHFA) and its improved capital and leverage
position. Moody's expects RBS capitalisation and litigation
provisions to be able to absorb RMBS litigation settlements at the high-end
of settlements made by competitors in terms of cost per unit of market
share and that the impact of such a settlement on RBSG's capital position
will be manageable and not detrimental to the bank's overall solvency.
The rating action takes a forward-looking view on RBSG's
profitability, as the bank absorbs the remaining circa GBP3
billion of restructuring and disposal costs it has budgeted over the next
two years.
RBSG has continued the complex restructuring of its operations,
which comprises a number of initiatives that will change its business
mix, reduce its risk profile, and improve operational efficiency
levels. Moody's believes that completion of the plan will make
RBSG a more efficient UK-focused group with lower-risk operations.
While business remains vulnerable to shocks, including Brexit,
RBSG's capacity to absorb losses has increased and the rating agency
expects that non-recurring charges should decrease over the next
eighteen months, making the strong core profitability of the banks
retail and commercial operations more tangible.
WHAT COULD MOVE THE RATINGS UP/DOWN
RBS plc's baa3 BCA could be upgraded if the bank were to return to sustainable
profitability in line with that of peers, generate capital organically
and successfully complete its multi-year restructuring exercise.
RBS plc's baa3 BCA could be downgraded if the group's restructuring
and de-risking strategy fails to deliver improvements in its credit
fundamentals, weakening its capital, asset risk, profitability
and operational efficiency levels. A significant deterioration
in the operating environment beyond our base case expectations and/or
regulatory and litigation charges substantially higher than those Moody's
currently expects, may also result in a downgrade of the BCA.
The BCA and ratings of RBS plc and NatWest Bank plc may also be affected
(upwards and/or downwards) by implementation of the United Kingdom's
(UK; Aa1 negative) requirement that the country's biggest banks
separate their retail lending operations into independently governed and
funded entities, so-called "ring-fencing,"
which will come into effect from 1 January 2019.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
LIST OF AFFECTED RATINGS
Upgrades:
..Issuer: The Royal Bank of Scotland Group plc
.... Senior Unsecured Regular Bond/Debenture,
Upgraded to Baa3 Stable from Ba1 Positive
.... Subordinate Regular Bond/Debenture,
Upgraded to Ba1 from Ba2
.... Subordinate Regular Bond/Debenture,
Upgraded to Ba2 from Ba3
.... Preferred Stock, Upgraded to Ba2
(hyb) from Ba3 (hyb)
.... Pref. Stock Non-cumulative,
Upgraded to Ba3 (hyb) from B1 (hyb)
.... Junior Subordinated Regular Bond/Debenture,
Upgraded to Ba2 (hyb) from Ba3 (hyb)
.... Senior Unsecured MTN, Upgraded
to (P)Baa3 from (P)Ba1
.... Junior Subordinate MTN, Upgraded
to (P)Ba2 from (P)Ba3
.... Subordinate MTN, Upgraded to (P)Ba1
from (P)Ba2
.... Senior Unsecured Shelf, Upgraded
to (P)Baa3 from (P)Ba1
.... Preference Shelf, Upgraded to (P)Ba3
from (P)B1
.... Preference Shelf, Upgraded to (P)Ba2
from (P)Ba3
.... Junior Subordinate Shelf, Upgraded
to (P)Ba2 from (P)Ba3
.... Subordinate Shelf, Upgraded to
(P)Ba1 from (P)Ba2
.... Subordinate Shelf, Upgraded to
(P)Ba2 from (P)Ba3
.... Commercial Paper, Upgraded to P-3
from NP
.... Other Short Term, Upgraded to (P)P-3
from (P)NP
..Issuer: The Royal Bank of Scotland plc
.... LT Bank Deposits, Upgraded to A2
Stable from A3 Positive
.... ST Bank Deposits, Upgraded to P-1
from P-2
.... Subordinate Regular Bond/Debenture,
Upgraded to Ba2 from Ba3
.... Subordinate Regular Bond/Debenture,
Upgraded to Ba1 from Ba2
.... Junior Subordinated Regular Bond/Debenture,
Upgraded to Ba2 (hyb) from Ba3 (hyb)
.... BACKED Junior Subordinated Regular Bond/Debenture,
Upgraded to Ba2 (hyb) from Ba3 (hyb)
.... Junior Subordinate MTN, Upgraded
to (P)Ba2 from (P)Ba3
.... BACKED Junior Subordinate MTN,
Upgraded to (P)Ba2 from (P)Ba3
.... Subordinate MTN, Upgraded to (P)Ba1
from (P)Ba2
.... BACKED Subordinate MTN, Upgraded
to (P)Ba1 from (P)Ba2
.... BACKED Subordinate Shelf, Upgraded
to (P)Ba1 from (P)Ba2
.... ST Deposit Note/CD Program, Upgraded
to P-1 from P-2
.... Adjusted Baseline Credit Assessment,
Upgraded to baa3 from ba1
.... Baseline Credit Assessment, Upgraded
to baa3 from ba1
.... Counterparty Risk Assessment, Upgraded
to A2(cr) from A3(cr)
.... Counterparty Risk Assessment, Upgraded
to P-1(cr) from P-2(cr)
..Issuer: National Westminster Bank PLC
.... LT Bank Deposits, Upgraded to A2
Stable from A3 Positive
.... ST Bank Deposits, Upgraded to P-1
from P-2
.... Subordinate Regular Bond/Debenture,
Upgraded to Ba1 from Ba2
.... Junior Subordinated Regular Bond/Debenture,
Upgraded to Ba2 (hyb) from Ba3 (hyb)
.... Preference Shelf, Upgraded to (P)Ba2
from (P)Ba3
.... Subordinate Shelf, Upgraded to
(P)Ba1 from (P)Ba2
.... Pref. Stock Non-cumulative,
Upgraded to Ba3 (hyb) from B1 (hyb)
.... Adjusted Baseline Credit Assessment,
Upgraded to baa3 from ba1
.... Baseline Credit Assessment, Upgraded
to baa3 from ba1
.... Counterparty Risk Assessment, Upgraded
to A2(cr) from A3(cr)
.... Counterparty Risk Assessment, Upgraded
to P-1(cr) from P-2(cr)
..Issuer: RBS Capital Trust B
.... BACKED Pref. Stock Non-cumulative,
Upgraded to Ba3 (hyb) from B1 (hyb)
..Issuer: RBS Capital Trust II
.... BACKED Pref. Stock Non-cumulative,
Upgraded to Ba3 (hyb) from B1 (hyb)
..Issuer: RBS Holdings N.V.
.... Subordinate Shelf, Upgraded to
(P)Ba1 from (P)Ba2
.... Senior Unsecured Shelf, Upgraded
to (P)Baa3 from (P)Ba1
..Issuer: Royal Bank of Scotland N.V.
.... LT Bank Deposits, Upgraded to A2
Stable from A3 Positive
.... ST Bank Deposits, Upgraded to P-1
from P-2
.... ST Deposit Note / CD Program, Upgraded
to P-1 from P-2
.... Subordinate Regular Bond/Debenture,
Upgraded to Ba1 from Ba2
.... Junior Subordinate MTN, Upgraded
to (P)Ba2 from (P)Ba3
.... Subordinate MTN, Upgraded to (P)Ba1
from (P)Ba2
.... Adjusted Baseline Credit Assessment,
Upgraded to baa3 from ba1
.... Baseline Credit Assessment, Upgraded
to baa3 from ba1
.... Counterparty Risk Assessment, Upgraded
to A2(cr) from A3(cr)
.... Counterparty Risk Assessment, Upgraded
to P-1(cr) from P-2(cr)
..Issuer: Royal Bank of Scotland N.V.,
London Branch
.... Counterparty Risk Assessment, Upgraded
to A2(cr) from A3(cr)
.... Counterparty Risk Assessment, Upgraded
to P-1(cr) from P-2(cr)
..Issuer: Royal Bank of Scotland plc, Australia
Branch
.... Counterparty Risk Assessment, Upgraded
to A2(cr) from A3(cr)
.... Counterparty Risk Assessment, Upgraded
to P-1(cr) from P-2(cr)
..Issuer: Royal Bank of Scotland plc, Tokyo
Branch
.... Counterparty Risk Assessment, Upgraded
to A2(cr) from A3(cr)
.... Counterparty Risk Assessment, Upgraded
to P-1(cr) from P-2(cr)
Affirmations:
..Issuer: The Royal Bank of Scotland plc
.... Senior Unsecured Regular Bond/Debenture,
Affirmed A3 Stable From Positive
.... BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A3 Stable From Positive
.... Senior Unsecured MTN, Affirmed
(P)A3
.... BACKED Senior Unsecured MTN, Affirmed
(P)A3
.... BACKED Senior Unsecured Shelf,
Affirmed (P)A3
.... Commercial Paper, Affirmed P-2
.... BACKED Commercial Paper, Affirmed
P-2
.... Other Short Term, Affirmed (P)P-2
.... BACKED Other Short Term, Affirmed
(P)P-2
..Issuer: National Westminster Bank PLC
.... LT Issuer Rating, Affirmed A3 Stable
From Positive
.... Senior Unsecured Shelf, Affirmed
(P)A3
..Issuer: Royal Bank of Scotland N.V.
.... LT Issuer Rating, Affirmed A3 Stable
From Positive
.... Senior Unsecured Regular Bond/Debenture,
Affirmed A3 Stable From Positive
.... BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed A3 Stable From Positive
.... Senior Unsecured MTN, Affirmed
(P)A3
.... BACKED Senior Unsecured MTN, Affirmed
(P)A3
.... Commercial Paper, Affirmed P-2
.... Other Short Term, Affirmed (P)P-2
..Issuer: Royal Bank of Scotland plc, Tokyo
Branch
.... Commercial Paper, Affirmed P-2
Outlook Actions:
..Issuer: The Royal Bank of Scotland Group plc
....Outlook, Changed To Stable From
Positive
..Issuer: The Royal Bank of Scotland plc
....Outlook, Changed To Stable From
Positive
..Issuer: National Westminster Bank PLC
....Outlook, Changed To Stable From
Positive
..Issuer: Royal Bank of Scotland N.V.
....Outlook, Changed To Stable From
Positive
..Issuer: Royal Bank of Scotland N.V.,
London Branch
....Outlook, Changed To No Outlook From
Positive
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 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.
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.
Alessandro Roccati
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
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 Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
