London, 02 February 2016 -- Moody's Investors Service has today upgraded by one notch the long-term
ratings of Investec Bank plc. The bank's long-term
deposit rating was upgraded to A2 from A3 with a stable rating outlook,
its senior unsecured rating to (P)A2 from (P)A3, its subordinated
debt rating was upgraded to Baa3 from Ba1, its standalone baseline
credit assessment (BCA) to baa2 from baa3, and its counterparty
risk assessment to A2(cr) from A3(cr). At the same time,
Moody's upgraded the short-term deposit and commercial paper
program ratings of Investec Bank plc to Prime-1 from Prime-2.
Finally, the rating agency also upgraded the senior unsecured and
issuer ratings of holding company Investec plc to Baa2 from Baa3,
these ratings are under review for further upgrade.
A full list of affected ratings is provided towards the end of this press
release.
RATINGS RATIONALE
The rating action reflects the continued improvement in the credit fundamentals
of IBP. The business now benefits from a substantial reduction
in the bank's legacy business in the UK, in particular its
commercial property lending risk. In total the bank's net
portfolio of assets in run-off was GBP645 million at 30 September
2015, reduced from a net GBP2.2 billion in March 2014.
The bank has also become less complex, a result of the sale of its
banking businesses in Australia, intermediated mortgage businesses
in the UK and Ireland as well as certain other mortgage assets.
Furthermore, the bank has diversified its revenue base with greater
focus on capital light businesses. As a result of these actions,
both Investec plc and IBP have improved its capitalisation, while
reducing potential risks from the loan book and investment portfolio.
Investec also maintains strong levels of liquidity which mitigate potential
funding shocks. The stable outlook reflects our expectation that
the improvements in the bank's credit fundamentals will be sustained
in line with its strategy.
In Moody's view, Investec plc has achieved a significant reduction
in risk in recent years. This has been achieved through the sale
of Kensington Group plc (effective on 30 January 2015), which carried
significant impaired loans, as well as assets in Australia and Ireland.
Accordingly, the bank has reduced its asset concentrations through
the sales in its commercial property book, which made up 21%
of net core loans and advances as of 31 March 2015. Total lending
collateralized by property (which includeds the commercial property book)
made up 31% of net core loans and advances as of 31 March 2015
against 52% as of 31 March 2010. This has been accompanied
by growth in corporate lending, resulting in a more granular and
diversified lending portfolio. Structured credit exposures have
also been significantly reduced from GBP608 million as at March 2011 to
GBP350 million as at March 2015, with the remaining exposures predominantly
relating to pools of UK RMBS and European and US corporate loans,
with only a modest amount of unrated and speculative grade ratings.
In addition to the reduction in lending risk, growth in IBP's
Wealth and Investment business has helped to diversify and improve the
stability of the bank's earnings.
Moody's views Investec's capitalisation as a strength.
The bank is well placed amongst its UK peers with a 14% Moody's
calculated tangible common equity to risk-weighted-assets
ratio as at 30 September 2015, with material improvements reflected
in both higher equity and reduced RWAs. As Investec uses the generally
more conservative standardised approach for calculating its capital requirements,
this level of risk-weighted capitalisation results in a better-than-average
unweighted leverage ratio of 10.9%. IBP also has
experienced a lower level of impairments as economic conditions improved
and the weaker legacy portfolios have been run down, with Moody's
calculated problem loans ratio falling to 3.9% as at 30
September 2015 from 4.7% as at March 2012.
The bank's funding profile has continued to improve as a result
of growth in customer deposits. The customer loan to customer deposit
ratio was 71.6% as at September 2015 and 69.9%
for the prior year, indicating that the bank has little reliance
on less stable market funding. At the same time, the stability
of the deposit base itself has improved thanks to longer deposit maturities.
Liquidity is a key strength of IBP, with assets considered by Moody's
to be liquid comprising 37% of tangible banking assets as of 30
September 2015. Of this, the bank maintains a majority of
its liquidity buffer of GBP4.4 billion in cash and near cash,
of which GBP 2.9 billion is placed at the Bank of England or in
UK Gilts. This liquidity buffer helps to mitigate any funding shocks
that may arise. While liquidity at IBP was elevated by excess cash
holdings following the various strategic business and portfolio sales,
cash holdings are now back to more normalised, but still conservative,
levels following the sale of Kensington, and we expect IBP to continue
to maintain strong liquidity resources in line with its track record.
Investec plc
As a result of the upgrade to IBP's BCA, we have upgraded
the issuer and senior unsecured ratings of Investec plc. In addition,
following the sale of Kensington Group, Investec plc now holds two
principal operations, IBP and Investec Asset Management (IAM).
The direct ownership of the asset manager may provide some additional
benefit to creditors of the holding company, and Moody's has
accordingly placed the issuer rating and senior unsecured rating of Investec
plc under review for upgrade. Over the review period we will look
to examine the extent to which the holding company's additional
sources of value beyond IBP may protect its own bondholders from losses
in resolution.
WHAT COULD MOVE THE RATINGS UP -- IBP
An upgrade to IBP's BCA is unlikely to materialise in the near term
given the recent upgrade of the rating. Pressure towards a positive
outlook could arise from a combination of the following factors:
a sustained increase in the proportion of stable earnings sources which
diversify the bank's exposure away from the UK property market; significant
and sustained improvement in IBP's profitability and efficiency ratios;
and/or a material shift in its lending profile towards more diverse and
lower risk credits.
WHAT COULD MOVE THE RATINGS UP -- Investec plc
The ratings at Investec plc are under review for further upgrade.
Over the review period Moody's will look to examine the extent to
which the holding company derives sufficient benefit from its holding
of IAM to warrant a further notch uplift in the senior unsecured and issuer
rating of Investec plc.
An upgrade of the issuer rating of Investec plc could also materialise
from an upgrade in the ratings of IBP, its main operating subsidiary.
WHAT COULD MOVE THE RATINGS DOWN -- IBP
IBP's BCA could be downgraded as a result of (i) a deviation from IBP's
current strategy of reducing risk (for example by redeploying capital
into growing the already sizeable portfolio of investments, including
low rated and unrated securitisations, or the portfolio of investment
properties); (ii) a significant increase in the bank's Moody's calculated
non-performing loans as a percent of Moody's calculated gross
loans of 3.87% (as of 30 September 2015) or (iii) a deterioration
from the present adequate capital and strong liquidity position.
An increase in dividends such that the bank faces deterioration in its
robust capital and leverage levels could also trigger a downgrade.
IBP's deposit ratings currently benefit from an uplift of three
notches due to the loss absorbency and subordination of more junior creditor
classes. These ratings could face a downgrade in the event these
junior creditor classes are reduced, relative to tangible banking
assets, and expose to the instruments to higher risk in resolution.
WHAT COULD MOVE THE RATINGS DOWN -- Investec plc
A downgrade in the deposit ratings of IBP would most likely lead to a
downgrade of the issuer rating of Investec plc. Outside of this,
the rating could also experience further downward pressure from (1) a
material reduction in Investec's ownership of Investec Asset Management
Ltd; (2) a significant increase in Investec plc's direct borrowing;
or (3) reduced subordinated debt at IBP
The principal methodology used in these rating was Banks published in
January 2016. Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
LIST OF AFFECTED RATINGS
Upgrades:
..Issuer: Investec Bank plc
.... LT Bank Deposits, Upgraded to A2
Stable from A3 Stable
.... ST Bank Deposits, Upgraded to P-1
from P-2
.... Senior Unsecured MTN, Upgraded
to (P)A2 from (P)A3
.... Other Short Term, Upgraded to (P)P-1
from (P)P-2
.... Subordinate MTN, Upgraded to (P)Baa3
from (P)Ba1
.... Subordinate Regular Bond/Debenture,
Upgraded to Baa3 from Ba1
.... ST Deposit Note/CD Program, Upgraded
to P-1 from P-2
.... Commercial Paper, Upgraded to P-1
from P-2
.... Adjusted Baseline Credit Assessment,
Upgraded to baa2 from baa3
.... Baseline Credit Assessment, Upgraded
to baa2 from baa3
.... Counterparty Risk Assessment, Upgraded
to A2(cr) from A3(cr)
.... Counterparty Risk Assessment, Upgraded
to P-1(cr) from P-2(cr)
..Issuer: Investec Finance plc
.... BACKED Junior Subordinate, Upgraded
to Ba1 (hyb) from Ba2 (hyb)
.... BACKED Senior Unsecured MTN, Upgraded
to (P)A2 from (P)A3
.... BACKED Junior Subordinate MTN,
Upgraded to (P)Ba1 from (P)Ba2
.... BACKED Other Short Term, Upgraded
to (P)P-1 from (P)P-2
.... BACKED Subordinate MTN, Upgraded
to (P)Baa3 from (P)Ba1
.... BACKED Commercial Paper, Upgraded
to P-1 from P-2
..Issuer: Investec plc
.... LT Issuer Rating, Upgraded to Baa2
Ratings Under Review from Baa3 Stable; Placed Under Review for further
Upgrade
.... ST Issuer Rating, Upgraded to P-2
from P-3
.... Senior Unsecured MTN, Upgraded
to (P)Baa2 from (P)Baa3; Placed Under Review for further Upgrade
.... Senior Unsecured Regular Bond/Debenture,
Upgraded to Baa2 Ratings Under Review from Baa3 Stable; Placed Under
Review for further Upgrade
Outlook Actions:
..Issuer: Investec Bank plc
....Outlook, Remains Stable
..Issuer: Investec Finance plc
....Outlook, Remains Stable
..Issuer: Investec plc
....Outlook, Changed To Rating Under
Review for further Upgrade From Stable
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.
Michael Eberhardt, CFA
VP - Senior Credit Officer
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 ratings of Investec Bank plc (IBP) to A2 with stable outlook and of Investec plc to Baa2 with ratings under review for upgrade
