TEXT-S&P cuts SNS REAAL ratings, outlook is negative

Fri Nov 16, 2012 1:04pm EST

Overview
     -- In our view, Dutch banks are exposed to the potential of a more 
protracted downturn in The Netherlands and the wider eurozone.
     -- We are therefore revising our economic risk score for The Netherlands 
and our Banking Industry Country Risk Assessment to '3' from '2'.
     -- SNS Bank's asset quality track record to date has been particularly 
sensitive to this environment, making the group's repayment of government 
capital securities more onerous.
     -- As a result, we are lowering by one notch our long-term ratings on 
parent SNS REAAL N.V. and SNS Bank N.V.
     -- We are also lowering by one notch the financial strength and issuer 
credit ratings on the group's insurance subsidiaries SRLEV N.V. and REAAL 
Schadeverzekeringen N.V. to 'BBB' from 'BBB+'. The insurance ratings remain on 
CreditWatch developing due to the uncertainty of their position within the 
group under the group's strategic review.
     -- The negative outlook on SNS REAAL and SNS Bank is based on our view 
that the possible sale of some of the group's business activities could weaken 
its overall business profile.

Rating Action
On Nov. 16, 2012, Standard & Poor's Ratings Services lowered to 'BBB-' from 
'BBB' its long-term counterparty credit ratings on Netherlands-based 
bancassurance group SNS REAAL N.V. (SNS REAAL, or the group) and its
core insurance holding company REAAL Verzekeringen N.V.

We also lowered our long-term ratings on SNS REAAL's core operating 
subsidiary, SNS Bank N.V., and insurance operations SRLEV N.V. and REAAL 
Schadeverzekeringen N.V., to 'BBB' from 'BBB+'. We lowered our short-term 
rating on SNS Bank to 'A-3' from 'A-2'.

We lowered by two notches the non-deferrable and junior subordinated debt 
ratings of SNS REAAL and SNS Bank. The junior subordinated debt ratings remain 
on CreditWatch negative, where they were placed on July 20, 2012, and we have 
placed the non-deferrable subordinated debt ratings on CreditWatch negative. 
We lowered by one notch the subordinated debt ratings of SRLEV's issues. The 
insurance operations and their issues remain on CreditWatch developing, where 
they were placed on July 20, 2012. The outlook on all other entities is 
negative.

Rationale
The downgrade of SNS REAAL and the group's core entities reflects our view of 
the effect of moderately higher economic risks on SNS Bank's stand-alone 
credit profile (SACP). This follows our review of the Banking Industry Country 
Risk Assessment (BICRA) on The Netherlands. Against the backdrop of a 
potentially more protracted downturn in The Netherlands and wider eurozone, we 
have revised our economic risk score for The Netherlands and our BICRA 
assessment to '3' from '2'. (For more information, see "Various Rating Actions 
Taken On Dutch Banks Due To Increased Economic Risks," published Nov. 16, 2012 
on RatingsDirect on the Global Credit Portal).

The rating actions also take into account the strategic review the group is 
currently undertaking, and our view of some erosion in the bank's franchise 
over the past two years. We believe that the group may be considering options 
such as the sale of parts of or all of its insurance operations, which we view 
as having a stronger credit profile compared with the bank. We understand that 
the group is also considering various measures to enhance its capital base. 

The strategic review is underpinned by the bank's initial commitment to 
repurchase, by end-2013, the capital securities received from the Dutch 
government in November 2008. As we said earlier this year, we believe that the 
current economic backdrop makes the commitment to repurchase the government 
securities a more onerous undertaking, despite the group's rapid progress 
against its initial capital release program.

The ratings on SNS REAAL are based on our view of the combined strength of its 
banking and insurance operations. They are underpinned, to some extent, by our 
view of the stronger profile of the insurance operations compared to the bank. 
The group's life and non-life operations, SRLEV N.V. and REAAL 
Schadeverzekeringen N.V., currently have a SACP of 'a', compared with the 
bank's SACP of 'bb+'. We believe that the disposal of some insurance assets 
could lead to a weakening of the overall group's franchise. 

We have revised our assessment of systemwide risks that Dutch banks are 
exposed to, which has led us to lower our anchor--or starting point for our 
ratings--for commercial banks operating in The Netherlands, including SNS 
Bank, to 'bbb+' from 'a-'. In our view, SNS Bank's performance since mid-2011 
somewhat reflects the weaker domestic environment. We have also revised our 
assessment of the bank's business position to "moderate" from "adequate". 
While its deposit franchise remains sound, we note that the bank's lending 
market shares, including in its core retail business, have decreased. As a 
result, we have lowered our SACP on the bank to 'bb+' from 'bbb'.

Under our criteria, the issuer credit rating on SNS Bank benefits from two 
notches of group support above its SACP, underpinned by our view of the 
relatively stronger profile of its sister insurance companies. As a result of 
this group support, we do not factor any uplift for potential extraordinary 
government support into the ratings on SNS Bank. Nevertheless, we consider 
that the bank has "moderate" systemic importance in The Netherlands, a country 
that we consider to be "supportive" of its banking system, as our criteria 
define these terms. As a result, the rating on the bank--if we were to exclude 
any group support--could still benefit from a one-notch uplift above its SACP 
under our government support approach.

We rate SNS REAAL one notch below the operating entities in line with our 
criteria for rating nonoperating holding companies.

Outlook
The negative outlook on SNS REAAL and SNS Bank primarily reflects our view 
that the group's overall franchise may somewhat erode over the next two years. 
Among other things, it takes into consideration our understanding that SNS 
REAAL may consider selling parts of the business as a result of its strategic 
review.

We could lower the ratings in the event of the performance of the insurance 
operations deteriorating or a sale by the group of a material portion of these 
operations. A negative rating action could also arise from a marked 
deterioration in the group's capital or liquidity positions.

We would likely revise our outlook to stable if we saw:

     -- A reduction in the bank's impairment charges to a level that we 
consider to be more supportive of meaningful capital generation by the bank;
     -- An extension of the deadline for the repayment of the government 
capital securities without materially adverse conditions being imposed by the 
Dutch or European authorities; or
     -- Other evidence of the group's ability to meet its capital repayment 
commitment without materially eroding its franchise.

CreditWatch: Subordinated Instruments
We expect to resolve the CreditWatch placements on the ratings on SNS REAAL 
and SNS Bank's subordinated instruments once we have more clarity as to the 
likely outcome of the strategic review and its potential impact on the risk 
profiles of these instruments, possibly by first-quarter 2013.

Resolution of the CreditWatch could result in a downgrade of the instruments 
by at least one notch. If we were to include uplift for government, rather 
than group, support in the issuer credit ratings on both entities--for 
example, if the group were to sell a large part or all of its insurance 
operations--we would not factor any government support into the ratings on the 
hybrids. If the group were granted an extension of the deadline for the 
repayment of the government capital securities, we would also assess whether 
possible European Commission-imposed conditions might affect these instruments.

CreditWatch: Insurance Operations
In July 2012 the group mooted that, among other options also being considered 
as part of a strategic review, some or all of the insurance operations could 
be sold. We therefore placed the insurance ratings on CreditWatch with 
developing implications. We now understand that the strategic review will 
possibly not be completed until early 2013. We expect to resolve our 
CreditWatch when the review is concluded and the group's strategy becomes 
clear.

Should the insurance operations be sold as a unit, their SACPs would likely 
remain unchanged. The ratings would depend on the identity of the new owner 
and the financing structure of the new group. Given that the SACPs are higher 
than the ratings, the insurance operations could potentially be upgraded. 
However, we do not consider this to be sufficiently likely to merit a 
CreditWatch positive placement.

A negative rating action on SRLEV and REAAL Schadeverzekeringen could also 
follow their partial sale, because their ratings would then depend on their 
SACPs following such a transaction, as well as their strategic role within SNS 
REAAL or a new owner group. We could also lower the ratings if the credit 
profile of the SNS REAAL group were to weaken--if the insurance operations 
remained within the group. Alternatively, parts of the insurance operations 
could be sold separately. Any rating would then depend on how they were split.

Related Criteria And Research
     -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
     -- Group Rating Methodology And Assumptions, Nov. 9, 2011
     -- Banking Industry Country Risk Assessment Methodology And Assumptions, 
Nov. 9, 2011
     -- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011
     -- Bank Capital Methodology and Assumptions, Dec. 6, 2010
     -- Interactive Ratings Methodology, April 22, 2009
     -- Principles Of Credit Ratings, Feb. 16, 2011
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009
     -- Holding Company Analysis, June 11, 2009
     -- Group Methodology, April 22, 2011
     -- Various Rating Actions Taken On Dutch Banks Due To Increased Economic 
Risks, Nov. 16, 2012

Ratings List
Downgraded
                                        To                 From

SNS Bank N.V.
 Counterparty Credit Rating             BBB/Negative/A-3   BBB+/Negative/A-2
 Certificate Of Deposit
  Foreign Currency                      BBB/A-3            BBB+/A-2
  Local Currency                        BBB/A-3            BBB+/A-2

SNS REAAL N.V.
 Senior Unsecured                       BBB-               BBB
 Junior Subordinated                    BB-/Watch Neg      BB+/Watch Neg

SNS Bank N.V.
 Senior Unsecured                       BBB                BBB+
 Junior Subordinated                    BB/Watch Neg       BBB-/Watch Neg
 Commercial Paper                       A-3                A-2

REAAL Schadeverzekeringen N.V.
SRLEV N.V.
 Counterparty Credit Rating
  Local Currency                        BBB/Watch Dev/--   BBB+/Watch Dev/--
 Financial Strength Rating
  Local Currency                        BBB/Watch Dev/--   BBB+/Watch Dev/--

REAAL Verzekeringen N.V.
 Counterparty Credit Rating             BBB-/Watch Dev/--  BBB/Watch Dev/--

SRLEV N.V.
 Subordinated*                           BB+/Watch Dev      BBB-/Watch Dev
 Junior Subordinated*                    BB+/Watch Dev      BBB-/Watch Dev

*Guaranteed by SNS REAAL N.V.

Downgraded; CreditWatch/Outlook Action
                                        To                 From
SNS REAAL N.V.
 Subordinated                           BB/Watch Neg       BBB-

SNS Bank N.V.
 Subordinated                           BB+/Watch Neg      BBB

Downgraded; Ratings Affirmed
                                        To                 From
SNS REAAL N.V.
 Counterparty Credit Rating             BBB-/Negative/A-3  BBB/Negative/A-3



Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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