Fitch Affirms GFNorte & Subs at 'BBB'/'AA+(mex)', Outlook Stable; Takes Various Actions on Subs

Fri Mar 22, 2013 4:30pm EDT

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(The following statement was released by the rating agency) MONTERREY/NEW YORK, March 22 (Fitch) Fitch Ratings has affirmed Grupo Financiero Banorte's (GFNorte) and Banco Mercantil del Norte S.A.'s (Banorte) Viability ratings (VR) at 'bbb' and their long- and short-term Issuer Default Ratings (IDRs) at 'BBB'/'F2', respectively. Ixe Banco, S.A.'s (Ixe) VR was upgraded to 'bb+' from 'bb'. The National scale ratings for these two banks, as well as those of certain non-bank subsidiaries that are driven by support from GFNorte, were affirmed at 'AA+(mex)' and 'F1+(mex)'. The Rating Outlook on the long-term ratings of all these entities remains Stable. A full list of rating actions is at the end of this rating action commentary. RATING ACTION RATIONALE The affirmations of Banorte's VR and long-and short-term IDRs were due to its overall adequate financial condition, gradually improving and consolidating franchise and competitive position, as well as its still moderate loss absorption capacity. The Support rating and Support Rating Floor were affirmed at '2' and 'BBB-', respectively, given Banorte's systemic importance and its role as the largest domestically-owned bank. Fitch's support rating floors indicate a level below which the agency will not lower the bank's Long term IDRs as long as the assessment of the support factors does not change. The affirmations of GFNorte's VR and IDRs reflect that its financial profile is highly correlated with Banorte's, its largest subsidiary. The company's Support rating and Support rating floors were affirmed at '5' and 'NF', in view of GFNorte's nature as a holding company, indicating that, although possible, external support cannot be relied upon. Ixe Banco's VR rating was upgraded driven by its improved individual profile, recently enhanced operating performance, together with reduced though still high borrower concentrations, and reasonable capital metrics. The IDRs were also affirmed. The IDRs and Support rating affirmations reflect the institutional support that it could receive form GFNorte, if needed. Ixe's hybrid securities have been affirmed along with Banorte's hybrid securities, both driven by Fitch's approach to rate these subordinated securities, which incorporate the relative subordination and non-performance risk of these securities. The long- and-short-term National scale ratings of GFNorte's non-banking subsidiaries: Arrendadora y Factor Banorte, , S.A. de C.V. SOFOM, E.R. (AyF Banorte), Almacenadora Banorte, S.A. de C.V., Organizacion Auxiliar de Credito, Gpo Financiero Banorte (Almacenadora Banorte), Casa de Bolsa Banorte-Ixe, S.A de C.V., Grupo Financiero Banorte (Casa de Bolsa Banorte-Ixe), and Fincasa Hipotecaria, were affirmed, reflecting GFNorte's legal obligation to support its subsidiaries, as well as the core role that these entities represent to the group. The ratings of Ixe Automotriz, S.A. de C.V. were affirmed at the same level and simultaneously withdrawn, as a result of the recent merger of this entity into AyF Banorte. KEY RATING DRIVERS Banorte's VR reflects its overall adequate financial condition, reliable and resilient strategy, and gradually improving and consolidating franchise and competitive position, both organically and inorganically. The ratings also consider Banorte's still moderate loss absorption capacity and the challenges to sustain capital and liquidity metrics in view of its most recent acquisition, higher expected loans, and relatively moderate, though improving, profitability. The Stable Outlook reflects Banorte's enhanced franchise and gradual positive impact on the bank's revenue diversification and overall risk profile after the acquisition of Afore Bancomer (pension fund formerly owned by Spain BBVA), as well as Fitch's expectation of a gradual rebuilding of capital metrics to pre-acquisition levels. GFNorte's ratings factor in its enhanced and consolidating franchise and business profile after diverse acquisitions in recent years, its operating performance, which is slightly better than Banorte's, due to the higher profitability of its non-bank subsidiaries and the moderate double leverage expected by Fitch at around 110% at the holding company level by the end of 2013. In addition, the ratings also reflect the group's ongoing corporate restructuring in order to simplify its operations. These ratings drivers as well as the Stable Outlook are in turn underpinned by GFNorte's major subsidiary, Banorte. Ixe's IDRs reflect the core strategic importance of Ixe Banco to GFNorte, the legal obligation that the latter has to support any of its financial subsidiaries, as well as the fact that Ixe will soon be merged with the group's main subsidiary, Banorte. Ixe's VRs are driven by Ixe's strong business model, well-contained impaired loans and sound liquidity, its improved but still relatively low capital adequacy and the slightly worsening trend in asset quality metrics, as well as high borrower concentrations, common to small-sized banks. Banorte's subordinated debt is rated three notches below its National long-term rating and it has thus been affirmed along with Banorte's VR. Ixe's junior subordinated debt has also been affirmed and remains four notches below the bank's supported IDR. These ratings are driven by Fitch's approach to factor in the degree of subordination and non-performance risk. The ratings of GFNorte's non-banking subsidiaries (AyFr Banorte, Casa de Bolsa Banorte-Ixe, Fincasa Hipotecaria, and Almacenadora Banorte) factor in GFNorte's legal obligation to support its subsidiaries, as well as their core role to the Group. RATING SENSITIVITIES - IDRS, NATIONAL RATINGS AND SENIOR DEBT Banorte's VRs and IDRs could be affected by further material declines in the bank's capital metrics, such as Fitch core capital-to-risk-weighted assets below 10.5% and/or the bank's inability to sustain adequate asset quality metrics in the medium term; an NPL ratio over 3% may also result in a downgrade of the bank's ratings. Once capital adequacy is restored to pre-acquisition levels, Banorte's ratings could benefit over the medium term from sustained and material improvements in loss absorption capacity, further consolidation of its franchise, business and competitive position, as well as an enhancement to its liquidity profile. GFNorte's IDRs are aligned with Banorte's and its VR could be positively affected by a potential upgrade of its main banking subisidiary (Banorte) together with material improvements of its loss absorption capacity, further consolidation of its franchise, an enhanced liquidity profile, as well as adequate performance of its subsidiaries. Further material declines in the group's capital metrics, such as tangible common equity-to-tangible assets below 6.5%, double leverage level constantly over 115% and/or pressures on its liquidity profile may result in a negative rating action. The group's inability to sustain adequate asset quality metrics over the medium term may also result in a downgrade. Ixe's VR, IDRs and Support rating will be equalized to those of Banorte and withdrawn when the merger of Ixe into Banorte is completed, which is expected in the short term. Banorte's Support rating and Support rating floor ratings are sensitive to a change in Mexico's sovereign rating and/or a change in the expected propensity of support from the Mexican government; both factors with a low probability of occurrence. A potential upgrade of GFNorte's Support rating and Support rating floor is limited, in view of GFNorte's nature as a holding company, since external support cannot be relied upon although it is possible. Banorte and Ixe's subordinated debt ratings will likely mirror any change in GFNorte's IDRs, as these are expected to maintain the same relevance to the group's credit rating. A potential upgrade or downgrade of GFNorte's non-banking subsidiaries (AyF Banorte, Casa de Bolsa Banorte-Ixe, Fincasa Hipotecaria, and Almacenadora Banorte) will be driven by any potential changes on Banorte's ratings, or changes in the legal framework that could alter the propensity of GFNorte to support them, a scenario that seems unlikely at present. The rating actions are as follows: GFNorte: --Long-term foreign and local currency IDRs affirmed at 'BBB'; --Short-term foreign and local currency IDRs affirmed at 'F2'; --Viability rating affirmed at 'bbb'; --Support rating affirmed at '5'; --Support rating floor affirmed at 'NF'. Banorte: --Long-term foreign and local currency IDRs affirmed at 'BBB'; --Short-term foreign and local currency IDRs affirmed at 'F2'; --Viability rating affirmed at 'bbb'; --Support rating affirmed at '2'; --Support rating floor affirmed at 'BBB-'; --National-scale long-term rating affirmed at 'AA+(mex)'; --National-scale short-term rating affirmed at 'F1+(mex)'; --National-scale long-term rating for a local issue of subordinated unsecured debt affirmed at 'A+(mex)'. Ixe: --Long-term foreign and local currency IDRs at 'BBB'; --Short-term foreign and local currency IDRs at 'F2'; --Viability rating upgraded to 'bb+' from 'bb'; --Support rating affirmed at '2'; --USD120 million junior subordinated perpetual notes affirmed at 'BB-'; --USD120 million 10-year junior subordinated securities affirmed at 'BB-'; --National-scale long-term rating affirmed at 'AA+(mex)'; --National-scale short-term rating affirmed at 'F1+(mex)'. AyF Banorte: --National-scale long-term rating affirmed at 'AA+(mex)'; --National-scale short-term rating affirmed at 'F1+(mex)'; --National-scale long-term rating for local issues of senior unsecured debt affirmed at 'AA+(mex)'; --National-scale short-term rating for local issues of senior unsecured debt affirmed at 'F1+(mex)'. Almacenadora Banorte: --National-scale long-term rating affirmed at 'AA+(mex)'; --National-scale short-term rating affirmed at 'F1+(mex)'. Fincasa Hipotecaria: --National-scale long-term rating affirmed at 'AA+(mex)'; --National-scale short-term rating affirmed at 'F1+(mex)'. Casa de Bolsa Banorte-Ixe: --National-scale long-term rating affirmed at 'AA+(mex)'; --National-scale short-term rating affirmed at 'F1+(mex)'. Ixe Automotriz: --National-scale long-term rating affirmed at 'AA+(mex)' and withdrawn; --National-scale short-term rating affirmed at 'F1+(mex)' and withdrawn; --National-scale short-term rating for local issues of senior unsecured debt affirmed and withdrawn at 'F1+(mex)'. The Outlook for the long-term ratings is Stable. Contact: Monica Ibarra (Primary Analyst - GFNorte, Banorte, Ixe Banco, Casa de Bolsa Banorte-Ixe) Director +52 818 8399 9150 Fitch Mexico SA de CV Prol. Alfonso Reyes 2612, Edificio Conexity Piso 8 Col. Del paseo Residencial 64920 Monterrey, N.L., Mexico Alejandro Garcia, CFA (Secondary Analyst - GFNorte, Banorte, Ixe Banco, Casa de Bolsa Banorte-Ixe, Fincasa) Senior Director +52 818 8399 9146 Ricardo Aguilar (Primary Analyst - Almacenadora Banorte, Arrendadora y Factor Banorte) Analyst +52 818 8399 9175 Gilda de la Garza (Primary Analyst - Fincasa Hipotecaria) Associate Director +52 818 8399 9160 Veronica Chau (Secondary Analyst- Arrendadora y Factor Banorte) Director +52 818 8399 9169 Angel Maass (Secondary Analyst - Almacenadora Banorte) Associate Director +52 818 8399 9148 Committee Chairperson Franklin Santarelli Managing Director +1 212 908 0739 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria and Related Research: -- 'Global Financial Institutions Rating Criteria' (Aug. 15, 2012); -- 'Finance and Leasing Companies Criteria' (Dec. 11, 2012); -- 'Securities Firm Criteria' (Aug. 15, 2012); -- 'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012); -- 'Rating Bank Regulatory Capital and Similar Securities' (Dec. 15, 2011); -- 'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 05, 2012); -- 'National Ratings Criteria' (Jan. 19, 2011). Applicable Criteria and Related Research National Ratings Criteria here Rating FI Subsidiaries and Holding Companies here Securities Firms Criteria here Finance and Leasing Companies Criteria here Global Financial Institutions Rating Criteria here 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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