Fitch: No Rating Impact from Sumitomo Mitsui Trust's Share Buy-back

Mon Mar 11, 2013 12:57am EDT

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(The following statement was released by the rating agency) TOKYO, March 10 (Fitch) Fitch Ratings says there is no rating impact on Sumitomo Mitsui Trust Bank, Limited (SMTB, A-/Stable) from Sumitomo Mitsui Trust Holdings, Inc.'s (SMTH) repayment of public funds through a buy-back of its common stocks owned by Resolution and Collection Corporation (100%-owned by Deposit Insurance Corporation of Japan). From a short-term perspective, the buy-back is credit-negative for the group, through resulting in lower capital levels. However, Fitch believes SMTH's capital will be rebuilt over the longer term through retained earnings in a low-growth environment. The agency expects moderate internal capital generation in the medium term, given the group's modest risk appetite and solid asset quality that is consistent with its trust banking business model. In addition, SMTH maintains some capital flexibility, as it will retain half the shares bought back as treasury stocks. Public funds were injected into predecessor banks of SMTB through an issue of preferred stocks, which were subsequently converted into common stocks in 2009. The total buy-back amount (about JPY200bn) is equivalent to 9% of SMTH's Tier 1 capital as of end-December 2012. About half of those common stocks bought back will be written off shortly, and the rest will be retained as treasury stocks. Fitch estimates the buy-back will shave approximately 1% point off SMTH's capitalisation, resulting in a Fitch core capital (FCC) ratio of about 7% at end-March 2013. Fitch expects SMTH's Basel III-compliant common equity Tier 1 (CET1) ratio to remain somewhat lower than that of Japanese mega banks, partly due to its conservative risk-weighting under Foundation Internal Ratings-based approach. Nevertheless, SMTH's CET1 ratio is likely to exceed 7% (minimum requirement of 4.5% and capital buffer of 2.5%) by end-March 2016, compared with a low 6% at end-September 2012, on a fully-implemented basis. Contacts: Miki Murakami Director +81 3 3288 2686 Fitch Ratings Japan Limited Kojimachi Crystal City East Wing 3F 4-8 Kojimachi, Chiyoda-ku, Tokyo 102-0083 Reiko Toritani Senior Director +81 3 3288 2673 Media Relations: Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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