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Rating Action:

Moody's upgrades Valiant's deposit ratings to A1 from A2; outlook stable

09 Jun 2016

Frankfurt am Main, June 09, 2016 -- Moody's Investors Service has today upgraded Valiant AG's (Valiant) long-term deposit ratings to A1 from A2, following the upgrade of its baseline credit assessment (BCA) and adjusted BCA to a3 from baa1. Concurrently, the rating agency affirmed Valiant's short-term deposit rating at P-1 and the bank's Counterparty Risk Assessment (CR Assessment) at A3(cr)/P-2(cr). The outlook on the long-term deposit ratings is stable.

Moody's says that the upgrade of Valiant's ratings reflects the bank's generally improved financial profile, including higher capitalization that increases the bank's loss-absorbing risk buffers and a significant build-up of liquid reserves that strengthens its liquidity profile.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

UPGRADE OF VALIANT'S BASELINE CREDIT ASSESSMENT REFLECTS IMPROVED CAPITALISATION

The upgrade of the BCA and adjusted BCA to a3 from baa1 reflects Valiant's improved credit fundamentals, notably capitalization, which Moody's expects to stabilize at around 14% of tangible common equity (TCE). This provides the bank with a larger capital cushion over its capital requirements, increasing its ability to absorb unexpected losses and reducing the probability of regulatory intervention. As a 'Category 3' institution (in accordance with the Swiss Financial Market Supervision Authority FINMA), Valiant Holding's (Valiant's regulated parent, unrated) total capital ratio must be 12.0% (by of 31 December 2016). As of year-end 2015, the group's reported total capital ratio stood at 16.8%, up from 15.8% at the end of 2014.

The a3 BCA takes into account Valiant's low risk profile, the bank's improved capitalization, its reduced reliance on confidence-sensitive market funding and a strengthened and now adequate liquidity buffer. However, it also incorporates the bank's limited profitability. Moody's believes that profits are likely to remain compressed in the current low-interest rate environment and expects the bank's ability to improve operating efficiency to remain limited in the competitive domestic banking market.

UPGRADE OF VALIANT'S DEPOSIT RATINGS AND AFFIRMATION OF THE CR ASSESSMENT ARE DRIVEN BY THE BANK' HIGHER BCA

The upgrade of Valiant's long-term deposit ratings to A1 from A2 follows the upgrade of the BCA and adjusted BCA to a3 from baa1. The short-term deposit ratings of Prime-1 were affirmed.

Under Moody's Advanced Loss Given Failure (LGF) analysis, which takes into account the severity of loss faced by the different liability classes in resolution, the bank's A1 deposit rating continue to benefit from two notches of rating uplift. However, Valiant's CR assessment no longer benefits from LGF rating uplift (previously one notch), due to the lower volume of subordination, primarily senior unsecured debt, a large portion of which matured in 2015.

THE OUTLOOK ON VALIANT'S RATINGS IS STABLE

The stable outlook on Valiant's deposit ratings reflects Moody's expectation that Valiant's risk profile will remain unchanged over the outlook period. Moody's also expects that the initiatives that management has initiated to improve efficiency and profitability will only yield benefits in the medium to long term.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Valiant's ratings could be upgraded if Valiant: (1) further increases its capitalization, providing additional protection to its creditors; (2) reduces its susceptibility to interest-rate movements and/or a decline in risk concentrations to domestic real-estate markets; (3) improves its profitability levels, and/or (4) further reduces its reliance on wholesale funding, reducing refinancing risk.

An upgrade of the bank's BCA is likely to trigger an upgrade of its deposit ratings provided that Moody's LGF analysis continues to result two notches of rating uplift for deposits. Valiant's deposit ratings could further be upgraded if the amount of senior unsecured debt and/or subordinated debt classes rises substantially, providing a higher protection to junior depositors, which could lead to one additional notch of rating uplift.

Valiant's BCA and its deposit ratings could be downgraded owing to: (1) A meaningful deterioration in asset quality, beyond what Moody's currently expects, for example due to a marked slowdown in the Swiss real-estate market; (2) a meaningful increase in the bank's risk appetite, which would weaken Moody's assessment of the bank's asset risk; (3) business ventures with other regional or cantonal banks, posing heightened execution risks; and/or (4) a weakening in the bank's liquidity position.

A downgrade of Valiant's deposit ratings could also arise due to a material reduction in its deposits, resulting in a lower rating uplift from Moody's LFG analysis.

LIST OF AFFECTED RATINGS

Issuer: Valiant Bank AG:

The following ratings were upgraded:

- Baseline credit assessment (BCA) and adjusted BCA to a3 from baa1

- Long-term bank deposit ratings to A1 from A2

The following ratings were affirmed:

- Short-term deposit ratings at Prime-1

- Counterparty Risk Assessment at A3(cr)/P-2(cr)

Outlook actions:

- Outlook changed to stable from positive

Principal Methodology

The principal methodology used in these ratings was Banks published in January 2016. Please see the Ratings Methodologies 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 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.

Andrea Wehmeier
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 upgrades Valiant's deposit ratings to A1 from A2; outlook stable
No Related Data.
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