Banco Santander And Banco Bilbao Vizcaya Argentaria Upgraded On Spain Action; Outlook Stable; Some Banks Affirmed

Transcription

1 Banco Santander And Banco Bilbao Vizcaya Argentaria Upgraded On Spain Action; Outlook Stable; Some Banks Primary Credit Analyst: Elena Iparraguirre, Madrid (34) ; Secondary Contacts: Luigi Motti, Madrid (34) ; Carlos Cobo, Madrid (34) ; Antonio Rizzo, Madrid (34) ; OVERVIEW Spain's stronger economic recovery will support the country's fiscal performance and debt dynamics. On Oct. 2, 2015, we raised our long-term sovereign credit rating on Spain to 'BBB+' from 'BBB'. The outlook is stable. As a result, we are raising our long-term counterparty credit ratings on Spain-based Banco Santander S.A. and Banco Bilbao Vizcaya Argentaria S.A., as well as the ratings on some of the latter's subsidiaries. We are affirming the ratings on Ibercaja Banco S.A., Caixabank S.A., and Cecabank S.A. The outlook on Ibercaja remains positive, while the outlooks on Caixabank and Cecabank remain stable. MADRID (Standard & Poor's) Oct. 6, Standard & Poor's Ratings Services today took the following rating actions: We raised the long-term counterparty credit rating on Banco Santander S.A. to 'A-' from 'BBB+', and upgraded its highly strategic subsidiaries Santander Consumer Finance S.A. (SCF), Santander Holdings USA, and Santander Bank NA to 'BBB+' from 'BBB'. We affirmed the short-term ratings on all the entities at 'A-2'. All the outlooks are stable. We raised the long-term counterparty credit ratings on Banco Bilbao Vizcaya Argentaria S.A. (BBVA) and on its highly strategic subsidiaries, BBVA Compass Bancshares and Compass Bank, to 'BBB+' from 'BBB'. We OCTOBER 6,

2 affirmed the 'A-2' short-term ratings. All the outlooks are stable. We affirmed our 'BBB/A-2' ratings on Caixabank S.A. and Cecabank S.A. and our 'BB/B' ratings on Ibercaja Banco S.A. The outlook on Caixabank and Cecabank remains stable. The outlook on Ibercaja is still positive. RATIONALE On Oct. 2, 2015, we raised our long-term sovereign credit rating on Spain, reflecting our expectation that the country's strong, balanced economic performance will benefit its public finances. We now expect average GDP growth rates of 2.7% during , and nominal GDP growth to reach 3.8% in 2015 and exceed 4% for the next four years. We project that Spain's fiscal deficit will continue to reduce, reaching 3.5% of GDP at end-2016, and its net general government debt to peak at 90.7% of GDP. The strength of Spain's economic recovery and ongoing improvements on the fiscal front further support our view that economic risks in Spain are likely to ease, as we communicated back in April 2015 when we assigned a positive trend to Spain's banking sector economic risks. Our assessments of the economic and industry risks that the Spanish banking industry faces have not changed, however, following Spain's upgrade. Our upgrade of Spain to 'BBB+' leads us to raise our ratings on the country's largest financial institutions: Banco Santander and BBVA. Our ratings on both had previously been constrained by the comparatively weaker creditworthiness of their home country. Following today's actions, our ratings on both banks reflect our view of their stand-alone credit profiles (SACPs) of 'a-' and 'bbb+', respectively. The upgrades have had positive implications for the ratings on some of their subsidiaries, namely SCF and the U.S. operations of both banks. In our view, these entities would now benefit from stronger financial support from their parents if needed or, as is the case for BBVA's U.S. operations, the parent's creditworthiness no longer constrains our ratings on the subsidiaries. We also raised the issue ratings on the hybrid instruments issued or guaranteed by both Santander and BBVA, as we derive the hybrid ratings from the lowest of the SACP and issuer credit rating. Until today's rating action, the issuer credit ratings on both entities had been lower than the SACPs. Our long-term ratings on Santander are still one notch above the long-term rating sovereign credit rating on Spain. This reflects our view that there is an appreciable likelihood that Santander would not default in the stress scenario that would likely accompany a hypothetical default of the Spanish sovereign. In such a scenario, we would expect Santander to face meaningful impairments, which would erode most, but not all, of its capital base. Regulatory forbearance, however, would be likely as it would be challenging for the bank to comply with minimum regulatory capital requirements. Similarly, we would expect Santander's Spanish operations to suffer sizable outflows of liquidity, but consider that the bank would be able to overcome liquidity pressures by resorting to European Central Bank (ECB) funding. OCTOBER 6,

3 We affirmed the ratings on Ibercaja. This reflects our view that although the bank could now benefit from potential extraordinary government support following the sovereign's improved creditworthiness, once Spain fully implements its resolution regime by January 2016 the government's capacity to provide such support without substantial burden-sharing by creditors will likely be constrained. Our upgrade of Spain has also slightly changed the factors that could influence the direction of our ratings on Caixabank and Cecabank stated in our previous outlook statements on both banks. Both outlooks remain stable, but, unlikely previously, Spain's creditworthiness no longer prevents future upgrades. We did not include any other Spanish banks in this review as the sovereign action did not by itself directly affect their ratings, rating factors, and/or outlooks. OUTLOOKS SANTANDER S.A. The stable outlook on Santander reflects our stable outlook on the long-term rating on Spain, as we consider it unlikely that we would rate the bank two notches above the sovereign. This is because we believe that, if the sovereign defaulted, Santander would likely require regulatory forbearance on capital to continue operating, as well as funding support from the ECB to meet its obligations. On a stand-alone basis, we expect improving economic conditions in Spain and the U.K., the two markets in which the bank runs its largest operations, to support its performance and allow it to accommodate potential earnings pressure and higher risks arising from Latin America, particularly from Brazil. We therefore expect the bank to maintain adequate capitalization, with its Standard & Poor's risk-adjusted capital (RAC) ratio comfortably above 7% over the next months. We also believe that the group's asset quality will continue performing better than banking industry averages in the markets where it operates, in line with its track record. Although a positive rating action is unlikely at this point, it could happen if we were to upgrade Spain and at the same time we considered that the bank's stand-alone creditworthiness had improved. Conversely, a downgrade of Spain would trigger a similar action on Santander. We could also lower the ratings if credit losses, and particularly those from Brazil and other emerging market subsidiaries, were to increase significantly above our current expectations, materially impairing the bank's solvency levels. BANCO BILBAO VIZCAYA ARGENTARIA S.A. OCTOBER 6,

4 The stable outlook reflects our expectation that all factors driving our ratings are unlikely to change. We anticipate that BBVA will continue developing its strong retail banking franchises in the majority of countries in which it operates, with a focus on strengthening profitability while preserving what we see as a conservative strategy. We consider that the impact of the economic slowdown in some emerging markets will be manageable. Following BBVA's acquisition of an additional stake in Turkish bank Turkiye Garanti Bankasi AS (Garanti), and of Catalunya Banc S.A. (Catalunya) in Spain, we do not envisage further meaningful merger and acquisition activity. Instead, we expect the bank to focus on integrating the aforementioned acquisitions. As economic conditions in Spain become more supportive, we expect that BBVA's asset quality will improve and that the bank will continue to outperform its peers. Lower credit provisions, cost control, and steady earnings growth will support improving profits. However, we anticipate an increase in the cash payout to shareholders. We see the bank's RAC ratio gradually strengthening, but hovering just below 7% for the next couple of years. Over the medium term, we expect the bank's capacity to absorb losses in a stress scenario to remain a rating strength, but we think it is unlikely to drive future positive rating actions. We expect BBVA's sound funding and liquidity profile to be preserved. Although our base-case scenario is for the ratings to remain stable, we could consider an upgrade in a scenario of significant easing of economic risks in the main markets where BBVA operates (Spain, Mexico, the U.S., and Turkey) or if the bank substantially improves its profitability and proves to be an outperformer in its peer group. For an improvement in the bank's stand-alone creditworthiness to translate into a higher rating, we would first have to upgrade Spain. This is because, given BBVA's business concentration in Spain, we would consider it unlikely that the bank would continue honoring its obligations in a timely manner in the hypothetical event of a Spanish sovereign default, and therefore we would not rate the bank above the long-term sovereign credit rating on Spain. Conversely, the ratings on BBVA could also come under pressure if the bank's risk profile were to materially deteriorate. BBVA COMPASS BANCSHARES AND COMPASS BANK The stable outlook on U.S.-based BBVA Compass Bancshares (BBVA Compass) and its main bank subsidiary, Compass Bank, reflects our stable outlook on the parent, BBVA, and our expectation that BBVA Compass' SACP will remain 'bbb+'. BBVA Compass' rating is now the same as the parent rating, and its SACP is equivalent to its parent's group credit profile (GCP) of 'bbb+'. We continue to view BBVA Compass as a highly strategic subsidiary of BBVA. We typically set the rating for a highly strategic subsidiary at one notch lower than the parent's GCP, unless--as is the case here--the rating on the subsidiary is equal to or higher than the parent's GCP. We could lower our ratings on BBVA Compass if we were to downgrade the parent. We could also lower our ratings on BBVA Compass by one notch to 'BBB' (one OCTOBER 6,

5 notch lower than the parent) if we lower its SACP to 'bbb'. This could occur if we expect that the company's risk profile and asset quality will worsen significantly because of the effect of lower energy prices on the company's energy loans and general lending in Texas. We estimate that BBVA Compass' current energy-funded exposure is moderate at about 6% of total loans, although total commitments are substantially higher than funded amounts and could result in an exposure that pressures the rating. Furthermore, over one-third of its loans are in Texas, a market that relies heavily on the energy sector. As a partial offset to this risk, the company's current financial position is good as it enters into this uncertain period; in particular, the company has relatively low nonperforming assets, steady earnings, and solid capital ratios. We see the possibility of an upgrade of BBVA Compass as unlikely as, all other things being equal, for that to happen the parent's rating would have to be raised by two notches. SANTANDER HOLDINGS U.S.A. Inc. AND SANTANDER BANK N.A. The stable outlooks on Santander Holdings USA (SHUSA) and Santander Bank N.A. mirror the stable outlook on the parent, Santander. We continue to view SHUSA as a highly strategic subsidiary of Santander, partly because of historical and expected capital support. Therefore, we set SHUSA's ratings one notch below Santander's GCP. SHUSA's SACP remains 'bbb-.' We lowered our SACP on SHUSA to 'bbb-' from 'bbb' in September 2015, reflecting the company's high exposure to subprime lending through its majority-owned consumer finance company, Santander Consumer USA Holdings. We expect that SHUSA's ratings direction will be tied to the ratings on its parent (and will be one notch below the parent's GCP), as long as we consider SHUSA a highly strategic subsidiary. SANTANDER CONSUMER FINANCE S.A. The stable outlook on SCF reflects that on parent Banco Santander. For as long as we consider SCF a "highly strategic" subsidiary of Banco Santander, its ratings will remain one notch below those on the parent and will move in tandem. An upgrade, which we consider unlikely at this point, would be triggered by a similar action on the parent or by our revision of the group status of SCF to "core." Conversely, we could lower the ratings on SCF following a similar action on the parent, or if we believe that the parent's commitment to SCF has weakened, leading us to revise downward our view of the subsidiary's long-term strategic importance for the Santander group. IBERCAJA BANCO S.A. The positive outlook on Ibercaja Banco S.A. reflects the possibility of an upgrade if the bank's capital position continues improving and we see potential for its RAC ratio to remain sustainably and comfortably above 4% over the next months. We believe that capital strengthening is more likely to result from organic earnings generation--on the back of a likely OCTOBER 6,

6 more-supportive economic environment--than from specific capital initiatives. We understand that Ibercaja is continuing to explore potential capital enhancing alternatives, including listing its shares in conjunction with a potential capital increase. However, unlike previously, we see those initiatives as less likely to materialize in the short term. We could revise the outlook to stable if the bank proves unable to strengthen its solvency, which we see as weak and structurally constrained by its unlisted status and the limited financial flexibility of its shareholders. This would occur if higher-than-anticipated credit losses or loan growth limit Ibercaja's organic capital generation in 2015 and We could also revise the outlook to stable if the bank were to make additional acquisitions of weaker players that could put pressure on its currently stronger-than-peers' asset quality. CAIXABANK S.A. Our stable outlook on CaixaBank indicates that, although we expect the bank's business and financial profiles to gradually benefit from Spain's more favorable economic environment, improvements are unlikely to be material enough to warrant an upgrade over the next months. We anticipate that CaixaBank's profitability will gradually strengthen, supported by higher revenues, cost-efficiency measures, and lower credit impairments. As a result, we expect our RAC ratio for CaixaBank to remain at a level consistent with our "moderate" assessment at year-end 2016 (5%-7%). We also expect CaixaBank to continue reducing its stock of problematic assets, with nonperforming loans (NPLs) reaching 6%-7% of total loans by We expect CaixaBank to continue benefiting from comfortable problematic assets coverage and to maintain a balanced funding profile and comfortable liquidity. Although our base-case scenario is for the ratings to remain at the current level, an upgrade could occur if the bank's capital position strengthens more than we anticipate, with the RAC ratio sustainably being above 7%. Conversely, the ratings could come under pressure if the bank's capital position meaningfully weakened or its risk profile no longer compared favorably with that of domestic peers. CECABANK S.A. The stable outlook on Cecabank reflects our expectation that its solvency position will remain strong over the next months and that its use of central bank financing, if any, will be limited. We also believe that Cecabank's business and profitability prospects will remain resilient on the back of the bank's recent diversification efforts. Although unlikely at this point, we could upgrade Cecabank if its stand-alone creditworthiness further strengthened on the back of improved capital or risk position. Conversely, we could lower our ratings if Cecabank's business prospects deteriorated sharply or if its risk appetite were to increase substantially, putting pressure on the bank's currently strong capital. OCTOBER 6,

7 RELATED CRITERIA AND RESEARCH Related Criteria Group Rating Methodology, Nov. 19, 2013 Banks: Rating Methodology And Assumptions, Nov. 9, 2011 Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 Bank Capital Methodology And Assumptions, Dec. 6, 2010 Revised Market Risk Charges for Banks in Our Risk-Adjusted Capital Framework, June 22, 2012 Bank Hybrid Capital and And Nondeferrable Subordinated Debt Methodology and Assumptions, Jan. 29, 2015 Quantitative Metrics for Ratings Banks Globally: Methodology and Assumptions, July 17, 2013 Criteria for Assigning 'CCC+', 'CCC', And 'CC' Ratings, Oct. 1, 2012 Ratings Above the Sovereign-Corporate and Government Ratings: Methodology and Assumptions, Nov. 19, 2013 Bank Rating Methodology And Assumptions: Additional Loss-Absorbing Capacity, April 27, 2015 Use Of CreditWatch And Outlooks, Sept. 14, 2009 Principles For Rating Debt Issues Based On Imputed Promises, Dec. 19, 2014 Related Research Banking Industry Country Risk Assessment Update: April 2015, April 13, 2015 Banking Industry Country Risk Assessment: Spain, April 22, 2015 Banking Risk Indicators: March 2015 Update, April 2, 2015 Ratings On Spain At 'BBB/A-2'; Outlook Stable, April 10, 2015 Kingdom of Spain Upgraded To 'BBB+' On Reforms; Outlook Stable, Oct. 2, 2015 RATINGS LIST Upgraded; To From Banco Santander S.A. Counterparty Credit Rating A-/Stable/A-2 BBB+/Stable/A-2 Senior Unsecured(1) A- BBB+ Subordinated(1) BBB BBB- Junior Subordinated(1) BB+ BB Preferred Stock(1) BB+ BB Preference Stock(1) BB BB- Commercial Paper(1) A-2 A-2 OCTOBER 6,

8 Santander Consumer Finance S.A. Santander Holdings U.S.A Inc. Santander Bank, N.A. Counterparty Credit Rating BBB+/Stable/A-2 BBB/Stable/A-2 Banco Bilbao Vizcaya Argentaria S.A. Counterparty Credit Rating BBB+/Stable/A-2 BBB/Stable/A-2 Senior Unsecured(2) BBB+ BBB Subordinated(2) BBB- BB+ Preferred Stock(2) BB- B+ Commercial Paper(2) A-2 A-2 BBVA Compass Bancshares, Inc. Compass Bank Counterparty Credit Rating BBB+/Stable/A-2 BBB/Stable/A-2 Ratings CaixaBank S.A. Cecabank S.A. Counterparty Credit Rating Ibercaja Banco S.A. Counterparty Credit Rating BBB/Stable/A-2 BB/Positive/B (1)Guaranteed by Banco Santander S.A. (2)Guaranteed by Banco Bilbao Vizcaya Argentaria, S.A. NB. This list does not include all ratings affected. Additional Contact: Financial Institutions Ratings Europe; Complete ratings information is available to subscribers of RatingsDirect at and at spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) ; London Press Office (44) ; Paris (33) ; Frankfurt (49) ; Stockholm (46) ; or Moscow 7 (495) OCTOBER 6,

9 Copyright 2015 Standard & Poor's Financial Services LLC, a part of McGraw Hill Financial. All rights reserved. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and and (subscription) and (subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at OCTOBER 6,