Fitch Affirms Credit Suisse AG & UBS AG's Covered Bonds on Criteria Amendments

Mon Apr 14, 2014 11:27am EDT

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(The following statement was released by the rating agency) FRANKFURT/LONDON, April 14 (Fitch) Fitch Ratings has affirmed Credit Suisse AG and UBS AG's Swiss covered bonds programmes at 'AAA' with a Stable Outlook. The rating actions follow the implementation of the agency's revised Covered Bonds Rating Criteria dated 10 March 2014 to programmes issued by Swiss banks. As part of its updated covered bonds analysis, the agency has assigned Issuer Default Rating (IDR) uplift to each programme, where applicable. The Swiss FINMA Banking Insolvency Ordinance allows for the conversion of debt capital into equity capital but excludes secured claims to the extent that they are secured. Fitch has been able to confirm with the regulator that covered bonds issued by Swiss institutions, independent of the issuer's structure (i.e. including those under the Special Purpose Vehicle template), are exempt from this convertibility. The rating actions also take into account the Stable Outlooks on Credit Suisse AG & UBS AG's IDRs (see "Fitch Takes Rating Action on Global Trading and Universal Banks Following Peer Review" dated 26 March 2014 at www.fitchratings.com). KEY RATING DRIVERS The affirmation of Credit Suisse AG's mortgage covered bonds at 'AAA'/Stable is based on the bank's IDR of 'A'/Stable, a newly assigned IDR uplift of 2, an unchanged D-Cap of 3 (moderate high discontinuity risk) and the asset percentage (AP) taken into account by the agency providing more protection than the breakeven AP. The affirmation of UBS AG's mortgage covered bonds at 'AAA'/Stable is based on the bank's IDR of 'A'/Stable, a newly assigned IDR uplift of 2, an unchanged D-Cap of 3 (moderate high discontinuity risk) and the AP taken into account by the agency providing more protection than the breakeven AP. The IDR uplift expresses Fitch's judgement regarding the degree of protection in the event of a bank's resolution that would be available to prevent the source of covered bonds payments switching from the issuer to the cover pool. It is derived from the following factors: Fitch's opinion regarding the relative ease and motivations for resolution methods other than liquidation, the importance of covered bonds to the financial markets in a given jurisdiction and the extent of the buffer offered by senior unsecured debt. Fitch's view on the use of resolution methods other than liquidation contributes to the IDR uplift assigned to the programmes of Credit Suisse AG and UBS AG, which benefit from Global Systemically Important Bank status. Switzerland is deemed by Fitch not to be a covered bonds intensive jurisdiction and thus is not contributing to the IDR uplift for Swiss contractual covered bonds rated by Fitch. Protection from the level of senior unsecured debt is reflected in the IDR uplift assigned to both Credit Suisse AG and UBS AG. This is based on Fitch's estimate of long-term non-retail placed senior unsecured debt exceeding 5% of total adjusted assets on the latest available financial information. RATING SENSITIVITIES The 'AAA' rating of Credit Suisse AG's mortgage covered bonds would be vulnerable to a downgrade if any of the following occurs: (i) the IDR is downgraded by three or more notches to 'BBB' or below; or (ii) the D-Cap is lowered by three categories to 0 (full discontinuity); or (iii) the AP that Fitch considers in its analysis increased above Fitch's 'AAA' breakeven level of 85.0%. The 'AAA' rating of UBS AG's mortgage covered bonds would be vulnerable to a downgrade if any of the following occurs: (i) the IDR is downgraded by three or more notches to 'BBB' or below; or (ii) the D-Cap is lowered by three categories to 0 (full discontinuity); or (iii) the AP that Fitch considers in its analysis increased above Fitch's 'AAA' breakeven level of 86.0%. Contact: Primary Analyst Kai-Uwe Richter, CFA, FRM Associate Director +49 69 7680 76131 Fitch Deutschland GmbH Taunusanlage 17 D-60325 Frankfurt am Main Secondary Analyst Mathias Pleissner Director +49 69 7680 76133 Committee Chairperson Rebecca Holter Senior Director +49 69 7680 76261 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: christian.giesen@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria 'Covered Bonds Rating Criteria', dated 10 March 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds 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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