Fitch Revises RBS Subsidiaries' Outlook to Negative from Stable

Thu Mar 27, 2014 1:39pm EDT

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(The following statement was released by the rating agency) LONDON, March 27 (Fitch) Fitch Ratings has revised the Outlook on the Royal Bank of Scotland Group's (RBSG, A/ Negative/F1) subsidiaries to Negative from Stable. The Long-term Issuer Default Ratings (IDR) and the Short-term IDRs of these subsidiaries have been affirmed: The Royal Bank of Scotland NV (RBS NV) and The Royal Bank of Scotland International Limited (RBSIL) at 'A'/'F1'; and Ulster Bank Limited (UBL), Ulster Bank Ireland Limited (UBIL), and RBS Securities Inc (RBSSI) at 'A-'/ 'F1'. The institutionally-driven Support Ratings of RBS NV, UBL and UBIL have been affirmed at '1'. A full list of rating actions is provided in the attached spread-sheet. All other ratings are unaffected. KEY RATING DRIVERS: IDRS AND SENIOR DEBT All these subsidiaries' ratings are either equalised or notched down from the support-driven Long-term IDRs of RBSG and today's rating action follows the revision of RBSG's (and of the Royal Bank of Scotland plc's and National Westminster Bank plc's) Outlook to Negative from Stable, as outlined in "Fitch Revises Outlooks on 18 EU Commercial Banks to Negative on Weakening Support" dated 26 March 2014. These banks' Long-term IDRs are likely to be downgraded in the next one to two years in line with that of RBSG's, as their IDRs are currently driven by assumptions around sovereign support flowing through from their parent bank to them. As RBSG's Long-term IDR is likely to become driven by its Viability Rating, currently at 'bbb', it is likely that the Short-term IDRs and senior short-term debt ratings of these subsidiaries will also be downgraded to 'F2' or 'F3', in accordance with Fitch rating correspondence table. The Short-term ratings will ultimately depend also on the bank's liquidity profile and access to liquidity at the time. Royal Bank Of Scotland NV (RBS NV) RBS NV is a former ABN Amro Bank legal entity, which is in the process of being wound down. Much of its business, which was acquired by RBS, has now been transferred to RBS plc's balance sheet. Its IDRs are aligned with those of RBS because of its high operational integration and the extremely high likelihood it would be supported by RBS if needed. Fitch believes it cannot be meaningfully analysed on a standalone basis (it has no VR). Royal Bank Of Scotland International Limited (RBSIL) RBSIL provides core offshore banking operations for the RBSG group. RBSIL's IDRs are the same as those of its parent RBSG, reflecting its ownership, the alignment of risk management procedures and operating platforms with RBSG, and the close alignment of RBSIL's activities with those of RBSG's UK banks, RBS and National Westminster. In Fitch's opinion, there is an extremely strong likelihood of support being provided by RBSG to RBSIL should it ever be required. UBL, headquartered in Northern Ireland, is reliant on its parent for funding, liquidity and capital. Its Long-term IDR is notched down once from its parent's, reflecting Fitch's view that this subsidiary is still strategically important, particularly its operations in Northern Ireland, and that support will continue to flow through from the parent. Ulster Bank Ireland Limited (UBIL) Ulster Bank Ireland's Long- and Short-term IDRs reflect Fitch's view that RBSG's strategy includes maintaining a presence in the Republic of Ireland. UBIL has no VR as Fitch believes its operations cannot be meaningfully analysed on a standalone basis given its strong reliance on the parent for funding. RBS Holding USA Inc The rating on RBS Holdings USA Inc's commercial paper programme is equalised with the Short-term IDR of RBSG, reflecting unconditional guarantee provided by the ultimate parent. RBS Securities Inc RBSSI is a wholly-owned subsidiary of RBSG and its ratings are notched down once from RBSG's Long-term IDR, reflecting Fitch's view that this is a strategically important subsidiary in the group's markets business. RBSSI relies on the parent for contingent funding, capital and liquidity needs. Without such support, its ratings would be materially lower on a standalone basis. As it operates as an integral part of RBS's market business, no VR is assigned. Furthermore, the ratings incorporate RBS's continuing demonstrated support in the form of previous capital injections and outstanding credit lines. The one notch differential between RBSSI's and RBSG's IDRs reflects the former being domiciled outside the UK and as a result support may diminish over time. Fitch believes that the UK government will continue to allow support to flow through to RBSSI, if required. However, retail bank subsidiaries may have priority for support in an extreme stress scenario. RATING SENSITIVITIES - IDRS AND SENIOR DEBT The Long-term IDRs of RBS NV, RBSIL, UBL, UBIL and RBSSI are driven by the same sensitivities as those of RBSG and, as with the parent, are sensitive to a weakening assumption around the propensity of the UK to provide timely support. However, in addition, Fitch views the Long-term IDRs of UBIL and UBL to also be sensitive to the group's importance of maintaining a presence in Ireland (Northern Ireland and/or the Republic of Ireland) or potential ownership changes. In the case of RBSSI, the ratings are also sensitive to reduced support deriving from the development around the ring-fencing of retail banking and investment banking activities. This could reduce support for RBSSI and cause Fitch to review its ratings. If RBSSI were no longer deemed strategically important to RBS, RBSSI's ratings would be downgraded, potentially by multiple notches. Fitch believes the Federal Reserve's recently finalised rule for foreign banking organisations may prompt changes in the size and composition of RBSSI's balance sheet, as well as its business strategy. Given its current size, RBSSI would be subject to the most restrictive set of parameters under the rule, which would require the creation of an intermediate holding company and additional capital and risk management requirements. As the company responds to the new regulation, Fitch will assess changes in its business and any potential reduction in importance to RBS's overall franchise and strategy, which may ultimately impact RBSSI's ratings. KEY RATING DRIVERS AND SENSITIVITIES: SUPPORT RATINGS The SRs of '1' on these subsidiaries reflects Fitch's view that these subsidiaries are either 'core' (RBSIL and RBSNV) or strategically important (UBG, UBIL and RBSSI) to their parent. The SRs are sensitive to changes in the ability and propensity of RBSG to provide support. With a downgrade of RBSG's IDR to a 'BBB'-range, the ability of the parent to support its subsidiary is deemed to have diminished and the Support Rating will be downgraded to a '2'. Furthermore, the downgrade could be greater if Fitch believes that the propensity of the shareholder to provide support has also diminished. Today's rating actions are: RBS NV Long-term IDR: affirmed at 'A'; Outlook revised to Negative from Stable Senior unsecured debt: affirmed at 'A' Senior unsecured market linked securities: affirmed at 'Aemr' Short-term IDR: affirmed at 'F1' Support Rating: affirmed at '1' RBS International Ltd Long-term IDR: affirmed at 'A'; Outlook revised to Negative from Stable Short-term IDR: affirmed at 'F1' Ulster Bank Limited Long-term IDR affirmed at 'A-'; Outlook revised to Negative from Stable Short-term IDR affirmed at 'F1' Support Rating affirmed at'1' Ulster Bank Ireland Limited Long-term IDR affirmed at 'A-''; Outlook revised to Negative from Stable Short-term IDR affirmed at 'F1' Senior unsecured Long-term and Short-term debt, including CPs, affirmed at 'A-/F1' Support Rating affirmed at '1' RBS Securities Inc Long-term IDR affirmed at 'A-'; Outlook revised to Negative from Stable Short-term IDR affirmed at 'F1' RBS Holding USA Inc CP programme rating: affirmed at 'F1' Contact: Primary Analysts Claudia Nelson (RBS NV, RBSIL, UBL, UBIL and RBS Holdings Inc) Senior Director +44 20 3530 1191 Fitch Ratings Limited 30 North Colonnade London E14 5GN Ilya Ivashkvov CFA (RBSSI) Senior Director +1-212-908-0769 Fitch Ratings One State Street Plaza New York 10004 Secondary Analysts Denzil de Bie (RBS NV, RBSIL, UBL, UBIL and RBS Holdings Inc) Director +44 20 3530 1592 Claudia Nelson (RBSSI) Senior Director +44 20 3530 1191 Committee Chairperson Maria Jose Lockerbie Managing Director +44 20 3530 1083 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 31 January 2014, are available on ww.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status 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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