TEXT-Fitch affirms N M Rothschild at 'BBB+', outlook stable

Fri Nov 23, 2012 12:23pm EST

Nov 23 - Fitch Ratings has affirmed N M Rothschild & Sons Limited's (NMR)
Long-term Issuer Default Rating (IDR) at 'BBB+' with a Stable Outlook. The
Short-term IDR has also been affirmed at 'F2'. A full list of rating actions is
at the end of this commentary.

RATING ACTION RATIONALE
The affirmation takes into account the bank's subdued earnings and weak asset
quality. This is balanced by strong liquidity and acceptable capitalisation in
light of the bank's risk profile. The ratings also benefit from NMR's strong
European advisory franchise, which supports its 'bbb+' VR.

RATING DRIVERS AND SENSITIVITIES - IDR, VR AND SENIOR DEBT
NMR's IDR is driven by the bank's standalone strength. Strong liquidity and
acceptable capitalisation are key rating drivers underpinning the 'bbb+'
Viability Rating (VR). Liquidity is supported by the ongoing loan book
reduction, while the Rothschild Reserve term retail deposits have added
diversity and longer tenor to the funding base. Market funding dependence is
limited. NMR held a reasonable buffer of highly liquid securities at 30
September 2012. Fitch believes capitalisation is acceptable at current levels
and able to absorb potential future losses from asset quality deterioration.

Fitch views the macroeconomic and operating environment as a source of
vulnerability for the bank's earnings. The recent lower profitability stems from
revenue pressure as a result of slow market conditions in the bank's main global
financial advisory business and impairment charges arising from weaker asset
quality. Fitch considers that risks remain in NMR's legacy commercial property
and leveraged finance portfolios and could require further provisions in the
short to medium term. The ratings could be downgraded if advisory fees look set
to remain at a lower level for a prolonged period, which would damage Fitch's
view of NMR's long-term ability to deliver a stable source of internal capital
generation.

Upward rating pressure is unlikely in the medium term, given the inherent risks
in the bank's lending book. NMR's loan book is relatively concentrated to
leveraged loans and commercial property loans with high average loan-to-value
ratios and could experience future impairments.

RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
NMR's Support Rating of '5' and Support Rating Floor of 'No Floor' reflect
Fitch's view that while support from the authorities is possible, it cannot be
relied upon.

SUSBIDIARY AND AFFILIATED COMPANY RATING DRIVERS AND SENSITIVITIES
NMR guarantees the perpetual subordinated notes of its subsidiary, Rothschilds
Continuation Finance Plc (RCF), which on-lends the proceeds to NMR.

RCF's senior unsecured ratings are equalised with those of NMR based on Fitch's
belief that NMR will support debt issued by RCF. The ratings are broadly
sensitive to the same considerations that affect NMR's IDR.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
In line with Fitch's criteria, RCF's subordinated upper Tier 2 notes are rated
three notches below NMR's VR, reflecting its relative subordination (one notch)
and incremental non-performance risk characteristics (two notches).

The rating actions are as follows:
NMR
Long-term IDR: affirmed at 'BBB+'; Outlook Stable
Short-term IDR: affirmed at 'F2'
VR: affirmed at 'bbb+'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'

RCF
Senior unsecured long-term rating (guaranteed by NMR): affirmed at 'BBB+'
Senior unsecured short-term rating (guaranteed by NMR): affirmed at 'F2'
Hybrid debt (guaranteed by NMR): affirmed at 'BB+'

Additional information is available on www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15
August 2012, 'Treatment of Hybrids in Bank Capital Analysis', dated 09 July 2012
and 'Rating Bank Regulatory Capital and Similar Securities', dated 15 December
2011, are available at www.fitchratings.com.

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Treatment of Hybrids in Bank Capital Analysis
Rating Bank Regulatory Capital and Similar Securities
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.