TEXT-S&P affirms rtgs on Banco Santander and some subs; otlks neg

Fri Nov 23, 2012 4:34am EST

Rationale

The affirmations follow our review of the wider implications for economic risk and industry risk in the Spanish banking sector of our two-notch downgrade of the Kingdom of Spain (BBB-/Negative/A-3) on Oct. 10, 2012. We believe banks operating in Spain face higher credit risk, not only from their increasing exposure to a weaker public sector, but also owing to a riskier, less resilient private sector, which will suffer the effects of the economic recession, austerity measures, and high unemployment.

To reflect the higher credit risk we now see in the Spanish market we lowered our Banking Industry Country Risk Assessment (BICRA) for Spain to group '6' from '5' and revised our economic risk score, a component of the BICRA, to '7' from '6' (see " Various Rating Actions On Spanish Banks Due To Rising Economic Risks," published Nov. 23, 2012)

Our view of the higher economic risks that Spanish banks face had no impact on our assessment of Santander's stand-alone credit profile (SACP), which remains at 'a-'. Santander has wide geographic diversification, which makes its financial profile less exposed than domestic banks to negative developments in its home market. We have not changed any of the factors underlying Santander's SACP. The anchor for Santander remains at 'bbb-', one notch above the anchor for institutions operating primarily in Spain.

We have maintained our views of the bank's "very strong" business and risk position, "moderate" capital and earnings, "above average" funding, and "adequate" liquidity.

Our ratings on Santander remain one notch above those on Spain. We seldom rate financial institutions above the foreign currency rating of the country where they are based. In the rare cases when we do, such as this one, we generally limit the rating differential between the sovereign rating and the bank rating to one notch, as we see a strong connection between banks' creditworthiness and that of their country of domicile.

Outlook

The negative outlook on Santander, and consequently Banesto and SCF, mirrors that on the long-term rating on Spain. A downgrade of the sovereign would very likely trigger a similar action on Santander, Banesto, and SCF.

The challenging operating environment in Spain might lead us to lower Santander's SACP in the future reflecting, for example, an even more difficult environment in Spain or increasing risks in other important markets where the group has operations. We might also consider lowering Santander's SACP if the bank underperformed our profitability, capital, and asset quality expectations, or if it made an acquisition that we believed undermined its financial strength or significantly increased its risk profile. However, the two-notch gap between Santander's SACP and ratings means we believe it is unlikely that a downward SACP revision would trigger a downgrade of the bank.

Our negative outlook on Totta mirrors that on The Republic of Portugal (BB/Negative/B). We cap the ratings on Totta at the level of the sovereign ratings on Portugal.

An outlook revision to stable on Santander would hinge on a similar action on Spain.

Ratings Score Snapshot

Issuer Credit Rating BBB/Negative/A-2

SACP a-

Anchor bbb-

Business Position Very Strong (+2)

Capital and Earnings Moderate (-1)

Risk Position Very Strong (+2)

Funding and Liquidity Above Average and Adequate (0)

Support 0

GRE Support 0

Sovereign Support -3

Additional Factors +1

Related Criteria And Research

-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011

-- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011

-- Group Rating Methodology And Assumptions, Nov. 9, 2011

-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011

-- Bank Capital Methodology And Assumptions, Dec. 6, 2010

-- Use Of CreditWatch And Outlooks, Sept. 14, 2009

-- General Criteria: Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011

-- Various Rating Actions On Spanish Banks Due To Rising Economic Risks, Nov. 23, 2012

-- Various Rating Actions on Spanish Financial Institutions Following Sovereign Downgrade, Oct. 15, 2012

-- Spain Ratings Lowered to 'BBB-/A-3' On Mounting Economic And Political Risks; Outlook Negative, Oct. 10, 2012

Ratings List

Ratings Affirmed

Banco Santander S.A.

Banco Espanol de Credito S.A.

Counterparty Credit Rating BBB/Negative/A-2

Banco Santander S.A.

Certificate Of Deposit BBB/A-2

Banco Espanol de Credito S.A.

Certificate Of Deposit BBB/A-2

Banco Santander Totta S.A.

Counterparty Credit Rating BB/Negative/B

Certificate Of Deposit BB/B

Santander Consumer Finance S.A.

Counterparty Credit Rating BBB-/Negative/A-3

Certificate Of Deposit BBB-/A-3

Banco Santander S.A.

Subordinated BBB-

Certificate Of Deposit A-2

Commercial Paper A-2

BCH North American Capital Corp.

Commercial Paper* A-2

BST International Bank, Inc.

Preference Stock(4) B

Banco Espanol de Credito S.A.

Senior Unsecured BBB

Preferred Stock BB

Preference Stock BB

Banco Santander Totta S.A.

Senior Unsecured BB

Commercial Paper B

Banesto (DE) Inc.

Commercial Paper(4)* A-2

Banesto Banco de Emisiones S.A.

Subordinated(4)* BBB-

Banesto Financial Products PLC

Senior Unsecured(4)* BBB

Commercial Paper(4)* A-2

Banesto Issuances Ltd.

Commercial Paper(4)* A-2

Santander Central Hispano Finance (Delaware) Inc.

Commercial Paper* A-2

Santander Central Hispano International Ltd.

Senior Unsecured* BBB

Commercial Paper* A-2

Santander Central Hispano Issuances Ltd.

Subordinated* BBB-

Santander Commercial Paper, S.A. Unipersonal

Commercial Paper* A-2

Santander Consumer Finance S.A.

Senior Unsecured BBB-

Subordinated BB+

Commercial Paper A-3

Santander Finance Capital S.A. Unipersonal

Preferred Stock* BB

Santander Finance Preferred S.A. Unipersonal

Preferred Stock* BB

Preference Stock* BB

Santander International Debt, S.A. Unipersonal

Senior Unsecured* BBB

Subordinated* BBB-

Santander International Preferred S.A. Unipersonal

Preferred Stock BB

Santander Issuances S.A. Unipersonal

Subordinated* BBB-

Santander Perpetual, S.A. Unipersonal

Junior Subordinated* BB

Santander U.S. Debt S.A. Unipersonal

Senior Unsecured* BBB

Totta & Acores Financing Ltd.

Preference Stock(4) B

Totta Ireland PLC

Commercial Paper(4) B

*Guaranteed by Banco Santander S.A.

(4)Guaranteed by Banco Santander Totta S.A.

(4)*Guaranteed by Banco Espanol de Credito S.A.