We continue to factor into the ratings our view that the government of Switzerland (Swiss Confederation unsolicited ratings AAA/Stable/A-1+) will likely provide extraordinary government support to systemically important Swiss banks. This is although the Swiss regulator recently implemented a new bank resolution regime with effect from Nov. 1, 2012 (see "How The Swiss Bank Resolution Regime Affects Government Support For Its Banks," published on Nov. 29, 2012, on RatingsDirect).
We have affirmed the ratings on all 14 banks, although we still believe that recent real estate price developments in Switzerland pose a risk for domestic banks with sizable mortgage portfolios. Our assessment of economic risk remains unchanged, however.
The pace of residential real estate price increases has quickened since 2009, but the average increase is still in line with our previous assessment. The same is true for real estate loan growth. We believe that the Swiss regulator's initiatives on new mortgage lending should lead to a lower level of new house purchases, and consequently a decrease in private-sector lending growth and presumably also house prices. We saw house prices start to cool down in the second quarter, and we expect this trend to continue into 2013.
Nevertheless, we think that the risk of a sharp correction in house prices is low. We anticipate housing demand remaining fairly robust in light of immigration-led population growth, leading to very low vacancy rates in view of a limited supply of new housing. We also think the conservative risk and lending culture of many Swiss lending institutions helps to mitigate the risk of a property price bubble.
Our assessment of industry risk remains unchanged.
We have maintained negative outlooks on nine Swiss banks since July 3, 2012, owing to their significant residential real estate loan exposures. We could lower our ratings on many Swiss banks if contrary to our expectation, property price rises do not slow. Moreover, we believe that Switzerland may not be immune to a widespread economic downturn of its main trading partners in the eurozone (European Economic and Monetary Union). This could also lead us to lower our ratings on most Swiss banks. We might revise the outlook on the nine banks to stable if we believed the overall economic trend would improve and that the risks from a drop in house prices would have only a minor effect on them.
The variety of outlooks on our ratings on the other five Swiss banks reflects their lower reliance on domestic real estate exposures and the combination of sector trends and factors specific to individual banks.
The stable outlook on UBS takes into account UBS' announced plans to comprehensively reshape the investment banking division's operating model and reduce risk exposures, but reflects our view that, while these measures may support the ratings over the medium term, we see no immediate rating implications.
The negative outlook on Credit Suisse reflects the uncertainty of the bank's business position given international pressures on cross-border tax collection. In addition, persistent macroeconomic deterioration and regulatory pressures are suppressing revenues and activity in the capital markets and remain a threat to the bank's business model.
The negative outlook on Vontobel still reflects our belief that the bank will likely actively participate in market consolidation, weakening its currently strong capital position. We also anticipate continuous pressure, owing to likely subdued market activities.
The stable outlook on Banque Cantonal de Geneve (BCGE) reflects our view that BCGE will maintain an adequate risk profile and strong capitalization, supported by a contained increase in customer loans, and that profitability will improve over the next 18-24 months, but remain subdued because of low interest rates. The outlook also reflects our view that BCGE it will continue to benefit from implicit support from the Republic and Canton of Geneva (AA-/Stable/--).
Our ratings on the Safra group are on CreditWatch with positive implications because we believe the group's acquisition of Bank Sarasin will allow it to benefit from its larger size and scale, wider geographic coverage, and increased competitiveness in tax-compliant assets.
RELATED CRITERIA AND RESEARCH
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BICRA SCORE SNAPSHOT*
BICRA Group 1 1
Economic risk 1 1
Economic resilience Very low Very low
Economic imbalances Very low Very low
Credit risk in the economy Low Low
Industry risk 2 2
Institutional framework Low Low
Competitive dynamics Low Low
Systemwide funding Very low Very low
*Banking Industry Country Risk Assessment (BICRA) economic risk and industry risk scores are on a scale from 1 (lowest risk) to 10 (highest risk). For more details on our BICRA scores on banking industries across the globe, please see "Banking Industry Country Risk Assessment Update," published monthly on RatingsDirect.
Counterparty Credit Ratings AAA/Negative/A-1+
Banque Cantonale Vaudoise
Counterparty Credit Ratings AA/Negative/A-1+
Counterparty Credit Ratings AA+/Negative/A-1+
Counterparty Credit Ratings A/Negative/A-1
Counterparty Credit Rating A/Stable/A-1
Credit Suisse AG
Counterparty Credit Rating A+/Negative/A-1
Vontobel Holding AG
Counterparty Credit Rating A/Negative/A-1
Bank Vontobel AG
Counterparty Credit Rating A+/Negative/A-1
J. Safra Holding AG
Counterparty Credit Rating BBB+/Watch Pos/A-2
Banque Safra - Luxembourg
Counterparty Credit Rating A-/Watch Pos/A-2
Banque Cantonale de Geneve
Counterparty Credit Rating A+/Stable/A-1
NB: This list does not include all the ratings affected.