Rating Action: Moody's downgrades Australian bank subordinated debt on increasing bail-in risk Global Credit Research - 05 Sep 2013

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Rating Action: Moody's downgrades Australian bank subordinated debt on increasing bail-in risk Global Credit Research - 05 Sep 2013 Sydney, September 05, 2013 -- Sydney, September 04, 2013 -- Moody's Investors Service downgraded the subordinated debt (Lower Tier II) ratings and selected junior subordinated debt (Upper Tier II) ratings for the Basel II compliant securities of eight Australian banking groups. The banks' senior obligation ratings and their standalone baseline credit assessments were not affected. Moody's removed uplift for systemic support from subordinated debt ratings in Australia, concluding a review commenced on 3 June 2013. As a consequence, the subordinated debt ratings of Australia's larger banks were lowered by two notches, while the subordinated debt ratings of regional banks were lowered by one notch. The rating outlooks for all the banks are now stable. A list of affected ratings can be found at the end of this press release. RATINGS RATIONALE "The downgrade reflects the increasing international trend of selectively imposing losses on holders of juniorranking securities (creditor "bail-in") as a pre-condition for an ailing bank to receive public-sector support", says Patrick Winsbury, a Moody's Senior Vice President. "We recognize that Australian bank supervisors have, in the past, acted in a manner to support all bank creditors", adds Winsbury. "However, the global financial crisis has demonstrated that support can be provided selectively and bank recapitalisation costs shared with subordinated creditors without triggering any contagion, as was previously feared". In crisis-hit countries, this was in some cases accomplished through the introduction of laws or regulations allowing authorities to impose losses on subordinated debt holders through bail-in or resolution regimes. In other cases, governments were able to convince investors to voluntarily enter into distressed exchanges without any such legal powers. Moody's observes that the Australian bank regulator does not have the explicit legal power to selectively impose losses on bank creditors outside of a liquidation. However, as the Financial Stability Board noted in its 2 September 2013 report Progress and Next Steps Towards Ending "Too-Big-To-Fail", Australia has made substantive progress in the implementation of the Key Attributes of Resolution Regimes. For instance, larger banks have been required to prepare "living wills". APRA also has the power to wind up and/or restructure an ailing bank's operations. In doing so, its primary mandate is to protect Australian depositors, ahead of creditors. In Moody's view, in the case of one or more banks experiencing severe stress -- which their high ratings indicate to be a low probability event -- such recourse could be used to coerce subdebt holders into a distressed exchange, if not for the outright imposition of losses on them outside of liquidation. "Accordingly, while some systemic support may still be available for subordinated debt in Australia, we view its predictability to have declined to the point where it is no longer appropriate to incorporate any uplift in the subordinated debt ratings of Australian banks", concludes Winsbury. This rating action relates only to Moody's view on the potential for systemic support for the banks' junior securities. It does not reflect any change in the banks' intrinsic credit quality. Moody's continues to rate Australian banks amongst the very strongest in the world on a stand-alone basis. Additionally, the rating agency continues to incorporate the potential for systemic support into the ratings of their senior obligations. BACKGROUND In recent years, losses have been imposed on the holders of junior securities during the resolution of troubled

banks in crisis-hit countries. In the majority of cases, investors have suffered losses as a result of distressed exchanges, which do not necessarily require a developed resolution framework to be in place. Furthermore, experience has shown that such a framework can be developed quickly at times of stress. As a consequence, Moody's approach globally is now to assume, as a starting point, that no government support would be extended to the subordinated debt holders of a distressed bank, except where particular circumstances justify. In the case of Australian banks, Moody's concluded that Basel II compliant subordinated debt ratings should appropriately be positioned in line with its regular global approach. A detailed rationale for this decision can be found in a forthcoming report entitled "The World Has Changed: The Support Probability for Bank Subordinated Debt in Asia-Pacific Has Significantly Diminished". RATINGS AFFECTED Australia and New Zealand Banking Group: Junior subordinated debt: downgraded from (P)A2/A2(hyb) to (P)A3/A3(hyb) Commonwealth Bank of Australia: Bank of Western Australia Ltd (Original issuer of debt assumed by Commonwealth Bank of Australia): Backed subordinated debt: downgraded from Aa3 to A2 National Australia Bank: Junior subordinated debt: downgraded from (P)A1/(P)A2 to (P)A3/(P)A3 Westpac Banking Corporation: Junior subordinated debt: downgraded from (P)A2/A2(hyb) to (P)A3/A3(hyb) Westpac Banking Corporation (London Branch) Subordinated debt: downgraded from (P)Aa3 to (P)A2 Junior subordinated debt: downgraded from (P)A2 to (P)A3 St.George Bank Limited (Original issuer of debt assumed by Westpac Banking Corporation): Subordinated debt: downgraded from Aa3 to A2 Westpac Trust Capital NZ Limited: Subordinated debt: downgraded from (P)Aa3 to (P)A2 Macquarie Group Limited: Subordinated debt: downgraded from (P)Baa1 to (P)Baa3 Macquarie International Finance Limited: Subordinated debt: downgraded from (P)Baa1 to (P)Baa3 Macquarie Bank Limited: Subordinated debt: downgraded from (P)A3/A3 to (P)Baa2/Baa2

Suncorp-Metway Limited: Subordinated debt: downgraded from (P)A2 to (P)A3 Junior subordinated debt: downgraded from (P)A3/A3(hyb) to (P)Baa1/Baa1(hyb) Pref. Stock Non-cumulative: confirmed at Baa2(hyb) Bank of Queensland Limited: Subordinated debt: downgraded from (P)Baa2/Baa2 to (P)Baa3/Baa3 Bendigo and Adelaide Bank: Subordinated debt: downgraded from (P)A3/A3 to (P)Baa1/Baa1 The principal methodology used in these ratings was Global Banks published in May 2013. Please see the Credit Policy 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 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. The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings. 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. Patrick J Winsbury Senior Vice President Financial Institutions Group Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 Stephen Long

MD - Financial Institutions Financial Institutions Group JOURNALISTS: (852) 3758-1350 SUBSCRIBERS: (852) 3551-3077 Releasing Office: Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: (612) 9270-8102 SUBSCRIBERS: (612) 9270-8100 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable, including, when appropriate, independent third-party

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