RPT-Fitch Assigns Credit Suisse Group AG's USD Tier 1 Capital Notes 'BB+' Final Rating
Dec 11 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned Credit Suisse Group AG's (A/Stable/F1/a) USD2.25bn 7.5% Tier 1 capital notes a 'BB+' final rating. The rating is in line with the expected rating assigned on 2 December 2013.
KEY RATING DRIVERS
The notes are issued by Credit Suisse Group, the holding company and are perpetual Tier 1 instruments with a first call option after 10 years, which is subject to regulatory approval. Coupon payment is fully discretionary, and will be prohibited if the bank has insufficient distributable profits, if it would result in a breach of regulatory capital requirements or if the regulator prohibits the bank from making payments.
The notes are subject to full and permanent write-down if the bank has been declared non-viable by the regulator or if it has received state aid to avoid a default. The notes will also be fully and permanently written down if the sum of Credit Suisse Group AG's consolidated Basel III common equity Tier 1 capital (CET1) ratio and the ratio of its "higher-trigger" contingent capital instrument (contingent capital instruments with a 7% CET1 ratio trigger) to risk-weighted assets falls below 5.125%. The notes are structured to qualify as additional Tier 1 instruments under Basel III and as progressive component capital (low-trigger contingent capital instruments) under Switzerland's capital requirement framework for the country's largest banks.
The notes are rated five notches below Credit Suisse Group AG's Viability Rating (VR) in accordance with Fitch's criteria for "Assessing and Rating Bank Subordinated and Hybrid Securities" (dated 5 December 2012). The notching reflects the notes' loss severity and incremental non-performance risk.
Fitch has applied two notches for loss severity given the notes' full and permanent write-down feature. In addition, Fitch has applied three notches for incremental non-performance risk to reflect the instruments' fully discretionary coupon payment, which Fitch considers the most easily activated form of loss absorption.
Fitch has assigned 50% equity credit to the notes to reflect their perpetual nature, their level of subordination and the fully-discretionary coupon payment.
The notes' rating is sensitive to any change in Credit Suisse Group's VR, which itself is currently at the same level as Credit Suisse AG's VR and IDR, in line with Fitch's 'Rating FI Subsidiaries and Holding Companies' criteria (10 August 2012). In November 2013, Credit Suisse Group announced a reorganisation which, among other things, will result in increased debt issuance by the holding company (see "Fitch: Credit Suisse Reorganisation Will Improve Resolvability", dated 21 November 2013 on www.fitchratings.com). The announcement had no immediate rating impact, but over time increased issuance by the holding company of debt with contractual bail-in language might affect the relative position of creditors of the various group entities.
The notes' rating is also sensitive to any change in notching that could arise if Fitch changes its assessment of the probability of the notes' non-performance risk relative to the risk captured in Credit Suisse Group AG's VR. This could reflect a change in capital management or flexibility or an unexpected shift in regulatory buffers, for example.
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