Action follow conclusion of methodology-related review
Hong Kong, May 12, 2015 -- Moody's Investors Service has concluded its rating reviews on Standard
Chartered Bank (SCB) and Standard Chartered PLC (SCPLC). These
reviews were initiated on 17 March 2015 following the publication of Moody's
new bank methodology (see "Rating Methodology: Banks,"
16 March 2015, available at moodys.com).
SCPLC is the listed entity of the Standard Chartered Group (the group),
and SCB is the group's principal operating subsidiary.
Moody's has upgraded SCB's long-term deposit and senior
unsecured debt ratings to Aa2 from A1, confirmed its subordinated
rating at A2, downgraded its junior subordinated debt rating to
Baa1(hyb) from A3(hyb), downgraded its cumulative preference share
rating to Baa1(hyb) from A3(hyb) and affirmed its P-1 short-term
deposit rating.
Moody's has also lowered SCB's standalone baseline credit
assessment (BCA) and Adjusted BCA to a2 from a1. At the same time,
Moody's has assigned SCB and its branches long- and short-term
Counterparty Risk Assessments (CR Assessment) of Aa2(cr)/P-1(cr),
in line with its new bank methodology.
As for SCPLC, Moody's has upgraded its senior unsecured debt
rating to Aa3 from A2, upgraded its subordinated debt rating to
A2 from A3, confirmed its junior subordinated debt rating at Baa1(hyb),
confirmed its non-cumulative preference share rating at Baa2(hyb),
and affirmed its high-trigger Additional Tier 1 Capital rating
at Ba1(hyb).
The outlook on SCB's long-term deposits and senior unsecured
debt, and on SCPLC's senior unsecured debt is negative.
Please refer to the end of this press release for a complete list of ratings
affected.
For its own business reasons, Moody's has withdrawn the outlooks
for all of the junior instrument ratings for SCB and SCPLC. Please
refer to "Moody's Investors Service's Policy for Withdrawal of Credit
Ratings," available at moodys.com. Outlooks,
which indicate the direction of any rating pressures, are now assigned
only to long-term senior debt and deposit ratings.
For more information on the new bank rating methodology, please
see Moody's press release at
http://www.moodys.com/viewresearchdoc.aspx?docid=PR_320662
RATINGS RATIONALE
The new 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.
In terms of the application of the new methodology, Moody's
rating actions reflect the following: 1) the group's "Strong+"
macro profile; 2) the group's strong overall financial profile;
3) the protection offered to senior creditors by substantial volumes of
securities subordinated to them, as captured by Moody's Advanced
Loss Given Failure (LGF) liability analysis.
"STRONG+" MACRO PROFILE
The group's "Strong+" assessment reflects the asset-weighted
average of Moody's view on the multiple markets where the group
operates.
As of the end of 2014, the group had 21% assets in the UK
("Very Strong-"), 19% in Hong Kong ("Strong+"),
15% in Singapore ("Very Strong"), 11%
in the US ("Very Strong-") and 7% in Korea ("Strong+").
The group also operates in more than 60 other markets, which together
accounted for 27% of its assets (World: "Strong").
Moody's new bank methodology gives a more explicit treatment to
the group's exposures outside of the UK than the previous methodology.
OVERALL FINANCIAL PROFILE STILL STRONG BUT HAS WEAKENED
The change in SCB's BCA and adjusted BCA to a2 from a1 incorporates
the group's "Strong+" Macro Profile and reflect
the weakening in the group's financial profile.
The group's asset quality and profitability have weakened in last
two years. At end-2014, the group reported a problem
loan ratio of 2.7%, up from 2.3% at
end-2013 and 1%-2% during 2007-2012.
Its return on average assets fell to 0.5% in 2014 from 0.8%-0.9%
between 2010 and 2013, after excluding goodwill-related items
and netting off financial derivatives.
Moody's expects that the challenges that have pressured the group's
recent performance will remain in the coming 12-18 months.
These challenges include low interest rates and competition from excess
liquidity in many of its key operating markets, weakening credit
cycles and increasing regulatory costs.
On the other hand, the group's geographical diversification
has reduced risk concentration and earnings volatility. The group's
funding and liquidity profile is also strong, and its capital position
is improving.
Moody's notes that the group has committed to raise its common equity
Tier 1 capital ratio to 11%-12% starting in 2015;
a result which is higher than the 10.7% recorded at end-2014.
SCB's BCA and its Adjusted BCA are both at a2 because Moody's
has not incorporated affiliate support from other entities to SCB.
PROTECTION OFFERED TO SENIOR CREDITORS, AS CAPTURED BY MOODY'S
ADVNACED LGF LIABILITY ANALYSIS
Because SCPLC and SCB are incorporated in the UK, they are subject
to the EU's Directive on Bank Recovery and Resolution, which
Moody's considers an operational resolution regime. Moody's
has therefore applied its Advanced LGF analysis to SCPLC's and SCB's
instrument ratings.
Moody's expects that a foreign subsidiary of a bank would usually
be subject to resolution in its own jurisdiction, not that of the
parent, unless a clear cross-border resolution plan has been
agreed by jurisdictions involved. As a result, Moody's
includes balances of the group's overseas branches but excludes
that of the group's overseas subsidiaries in the Advanced LGF analysis.
Moreover, Moody's assumes that holding company debt is likely
to be treated equally with equivalent bank-issued debt under a
resolution.
SCB's Aa2 deposit and senior unsecured debt ratings take into account
the Advanced LGF analysis of SCB's own volume of deposits and the
volume of securities subordinated to them in Moody's creditor hierarchy.
SCB's deposit and senior unsecured debt ratings benefit from substantial
layers of subordination as well as large volume of deposits that ranks
pari passu with senior unsecured debt de jure. This results in
our assumption of an extremely low loss given failure.
SCPLC's Aa3 senior unsecured debt rating reflects Moody's
Advanced LGF analysis, which indicates a very low loss-given
failure.
SCB's and SCPLC's A2 subordinated debt rating reflects Moody's
advanced LGF analysis, which indicates a moderate loss-given-failure.
SCB's and SCPLC's Baa1(hyb) junior subordinated debt ratings,
SCB's Baa1(hyb) cumulative preference share rating, and SCPLC's
Baa2(hyb) non-cumulative share rating reflect (1) Moody's
advanced LGF analysis, which indicates a high loss-given-failure
and (2) additional notching to capture the risk of differential probabilities
of default across different instruments.
SCB's and SCPLC's instrument ratings do not include any uplift
from government support. The current policy direction in the UK
clearly suggests that it is unlikely that the government (Aa1 stable)
will provide extraordinary support to the banks in times of need.
Moreover, because Standard Chartered group has no material retail
business in the UK, it is even less likely that the government would
extend support to the group.
The negative outlook on SCB's long-term deposits and senior
unsecured debt and on SCPLC's long-term senior unsecured
debt reflect Moody's expectation that the challenges that have pressured
the group's recent performance will remain in the coming 12-18
months.
ASSIGNING OF COUNTERPARTY RISK ASSESSMENTS
Moody's has also assigned CR Assessments to SCB and its branches.
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 suffered 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.
WHAT COULD CHANGE THE RATING — DOWN
Downward pressure on SCB's BCA would emerge if there is a further
material weakening in its asset quality and profitability metrics,
a sustained deterioration in the bank's franchise, in particular,
a material loss of stable deposits relative to total funding, and/or
evidence of increasing engagement in investment banking or other product
areas that introduce greater earnings volatility and financial market
contagion risks.
A downward movement in SCB's BCA would likely affect all ratings
assigned to SCB and SCPLC. In addition, SCB's and SCPLC's
deposit and senior debt ratings could be downgraded, if the volume
of their junior instruments outstanding decreases significantly,
thereby reducing their loss cushions.
WHAT COULD CHANGE THE RATING — UP
SCB's BCA could be raised if there is a material reduction in its
new problem loan formation and in single large corporate exposures relative
to its capital and earnings, if its capital position strengthens
significantly, and its profitability improves.
As for SCB's and SCPLC's instrument ratings, these ratings
could be upgraded if SCB's BCA is raised.
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.
The ratings following today's actions are as follows:
Standard Chartered PLC
- Senior unsecured long-term debt upgraded to Aa3 with a
negative outlook from A2
- Senior unsecured long-term MTN program upgraded to (P)Aa3
with a negative outlook from (P)A2
- Subordinated debt upgraded to A2 from A3
- Subordinated MTN program upgraded to (P)A2 from (P)A3
- Junior subordinated debt confirmed at Baa1(hyb)
- Junior subordinated MTN program confirmed at (P)Baa1
- Non-cumulative preference shares confirmed at Baa2(hyb)
- High-trigger Additional Tier 1 securities affirmed at
Ba1(hyb)
Standard Chartered Bank
- BCA and Adjusted BCA lowered to a2 from a1
- Long-term and short-term CR Assessments assigned
at Aa2(cr)/P-1(cr)
- Long-term deposits upgraded to Aa2 with a negative outlook
from A1
- Long-term deposit notes/CD program upgraded to Aa2 with
a negative outlook from A1
- Senior unsecured long-term debt upgraded to Aa2 with a
negative outlook from A1
- Senior unsecured long-term MTN program upgraded to (P)Aa2
with a negative outlook from (P)A1
- Subordinated debt confirmed at A2
- Subordinated MTN program confirmed at (P)A2
- Junior subordinated debt downgraded to Baa1(hyb) from A3(hyb)
- Junior subordinated MTN program downgraded to (P)Baa1 from (P)A3
- Cumulative preference shares downgraded to Baa1(hyb) from A3(hyb)
- Short-term deposits affirmed at P-1
- Short-term Deposit Note /CD program affirmed at P-1
- Short-term MTN program affirmed at (P)P-1
Standard Chartered Bank, New York Branch
- Long-term and short-term CR Assessment assigned
at Aa2(cr)/P-1(cr)
- Commercial paper affirmed at P-1
Standard Chartered Bank, Singapore Branch
- Long-term and short-term CR Assessment assigned
at Aa2(cr)/P-1(cr)
- Commercial paper affirmed at P-1
- Long-term Deposit Note/CD Program upgraded to (P)Aa2 with
a negative outlook from (P)A1
- Short-term Deposit Note/CD Program affirmed at P-1
Standard Chartered Bank, Tokyo Branch
- Long-term and short-term CR Assessment assigned
at Aa2(cr)/P-1(cr)
- Commercial paper affirmed at P-1
Standard Chartered PLC, headquartered in the UK, reported
consolidated assets totaling $726 billion at 31 December 2014.
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.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Christine Kuo
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's upgrades Standard Chartered's deposit and senior unsecured debt ratings to Aa2
