TEXT - Fitch 4 Spanish banks' issuer default ratings
(The following statement was released by the rating agency) Dec 21 - Fitch Ratings has placed the Long-term Issuer Default Ratings (IDRs), Support Ratings and Support Rating Floors (SRF) of Banco Mare Nostrum, S.A. (BMN), Banco Grupo Caja 3 (BCaja3), Liberbank, S.A. and Liberbank's 75%-owned banking subsidiary Banco Castilla-La Mancha (Banco CLM) on Rating Watch Negative (RWN). At the same time, Fitch has downgraded the Viability Ratings (VR) of BMN, BCaja3 and Liberbank to 'f from 'ccc'. A full list of rating actions is at the end of this comment. RATING ACTION RATIONALE - IDRS, SUPPORT RATINGS, SRFS The RWN reflects Fitch's view that under the context of the large scale restructuring of the Spanish financial system, closely monitored by the European Commission (EC), these banks will decrease in size and become less systemically important. Also, Fitch expects the propensity to support an entity that has already received state assistance to diminish. Banco CLM's Long-term IDR and Support Rating are on RWN, driven by the RWN on Liberbank. RATING ACTION RATIONALE - VR The downgrade of the VRs of BMN, BCaja3 and Liberbank to 'f' from 'ccc' is based on the approval by the EC of their respective restructuring plans which involve state aid. Under Fitch's rating definitions and criteria, these banks have failed, and would have defaulted had they not received extraordinary support. Fitch considers extraordinary support received by the banks to take the form of the following: any form of public capital support either in the form of direct capital injections or the issue of Contingent Convertible Bonds (CoCos), Subordinated Liability Exercises (SLEs or burden-sharing by subordinated and hybrid debt holders) and the transfer of real estate assets to an Asset Management Company (Sareb). All these actions have been agreed as conditions in the Memorandum of Understanding (MoU) signed between Spain and the Eurogroup on July 2012. BMN will receive EUR730m in ordinary share capital from Spain's Fund for Orderly Bank Restructuring (FROB), once SLEs and the transfer of real estate assets to Sareb are considered. At the same time, BMN has EUR915m in convertible preferred stock subscribed by the FROB. BCaja3 will receive EUR407m of CoCos after transferring real estate assets to Sareb and conducting SLEs. The 20 December 2012 EC press release approving the banks' restructuring plans states that BCaja3 will be fully integrated into Ibercaja Banco, S.A. (not rated by Fitch). Liberbank will receive EUR124m of CoCos and will have to transfer assets to Sareb and conduct SLEs. Banco CLM's IDRs are in line with those of its 75% parent, Liberbank (and have been affirmed at that level), because Fitch considers it as a core subsidiary of the group. RATING SENSITIVITIES - IDRS, SUPPORT RATINGS, SRFS BMN's, BCaja3's and Liberbank's IDRs, SR and SRF are sensitive to any change in Fitch's assumptions around the level of support available to the banks or to a downgrade of the Spanish sovereign rating. Unless integrated into a much larger, stronger banking group, there is little likelihood that these banks' Support Ratings will be upgraded. In the longer term and under Fitch's 'higher of' rating approach, these banks' IDRs will ultimately reflect Fitch's opinion of their default risk based on the higher of a) their VRs and b) the likelihood that banks would be supported, if needed. Fitch expects to resolve the RWNs once it has been able reassess the banks' credit risk and financial profile and its systemic importance following restructuring and recapitalisation. If BCaja3 advances in its merger plan with Ibercaja Banco, S.A., the IDRs could be based on support from the new parent. Fitch will then reassess its Support Rating, SRF and IDRs. While the merger is expected for Q113, it could take place subsequent to six months afterwards. RATING SENSITIVITIES - VR Once support measures are executed, the agency will reassess the banks' VRs and upgrade them to a level commensurate with their post-support credit and financial profile. The initial scope for this upgrade is likely to be constrained by weak economic conditions and by the close relationship between sovereign and bank ratings. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The subordinated debt and preference shares of these institutions and their subsidiaries (as applicable) are rated at 'CC' and 'C', respectively, as these form part of the burden sharing of losses and is considered by Fitch to be a distressed debt exchange. The ratings of these issues will be withdrawn once they have been extinguished in the exchange. The rating actions are as follows: BMN: Long-term IDR: 'BB+', placed on RWN Short-term IDR: affirmed at 'B' Viability Rating: downgraded to 'f' from 'ccc' Support Rating: '3', placed on RWN Support Rating Floor: 'BB+', placed on RWN Commercial Paper Long-term rating: affirmed at 'BB+', placed on RWN Commercial Paper Short-term rating: affirmed at 'B' Senior unsecured debt Long-term rating: affirmed at 'BB+', placed on RWN Senior unsecured debt Short-term rating: affirmed at 'B' Subordinated lower Tier 2 debt: affirmed at 'CC' Preferred stock: affirmed at 'C' State-guaranteed debt: affirmed at 'BBB' Covered bonds: The impact, if any, on BMN's covered bonds will be covered in a separate comment. BCaja3: Long-term IDR: 'BB+', placed on RWN Short-term IDR: affirmed at 'B' Viability Rating: downgraded to 'f' from 'ccc' Support Rating: '3', placed on RWN Support Rating Floor: 'BB+', placed on RWN Subordinated lower Tier 2 debt: affirmed at 'CC' Liberbank: Long-term IDR: 'BB+', placed on RWN Short-term IDR: affirmed at 'B' Viability Rating: downgraded to 'f' from 'ccc' Support Rating: '3', placed on RWN Support Rating Floor: 'BB+', placed on RWN State-guaranteed debt: affirmed at 'BBB' Banco CLM: Long-term IDR: 'BB+', placed on RWN Short-term IDR: affirmed at 'B' Support Rating: '3', placed on RWN Senior unsecured debt: 'BB+', placed on RWN Subordinated lower Tier 2 debt: affirmed at 'CC' Subordinated upper Tier 2 debt: affirmed at 'C' (Caryn Trokie, New York Ratings Unit)
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