(The following statement was released by the rating agency)
Dec 20 -
Summary analysis -- Banco de Sabadell S.A. ------------------------ 20-Dec-2012
CREDIT RATING: BB/Negative/B Country: Spain
Primary SIC: Commercial banks,
Mult. CUSIP6: 059568
Credit Rating History:
Local currency Foreign currency
15-Oct-2012 BB/B BB/B
30-Apr-2012 BB+/B BB+/B
13-Feb-2012 BBB-/A-3 BBB-/A-3
15-Dec-2011 BBB/A-2 BBB/A-2
11-Oct-2011 A-/A-2 A-/A-2
04-Mar-2009 A/A-1 A/A-1
Ratings Score Snapshot
Issuer Credit Rating BB/Negative/B
Business Position Adequate (0)
Capital and Earnings Weak (-1)
Risk Position Moderate (-1)
Funding and Liquidity Below Average
and Adequate (-1)
GRE Support 0
Group Support 0
Sovereign Support +2
Additional Factors 0
Major Rating Factors
-- High systemic importance.
-- Funding support from the European Central Bank.
-- Attractive retail franchise in Spain.
-- Expertise in lending to small and midsize enterprises (SMEs).
-- Management’s proven execution capabilities.
-- Weak capital.
-- Higher credit risk than domestic peers’.
-- Deteriorating asset quality.
-- Exposure to inherently riskier SME lending.
-- Lower level of diversification than that of large universal banks.
-- Challenges to restore Banco CAM’s damaged franchise.
Standard & Poor’s Ratings Services’ negative outlook on Banco de Sabadell S.A. primarily reflects that on the Kingdom of Spain (BBB-/Negative/A-3). A negative rating action on Spain would likely trigger a similar action on the bank because, everything else being equal, we would no longer incorporate the one-notch uplift for extraordinary government support.
The negative outlook also reflects the possibility that we could downgrade Sabadell if we lowered our assessment of Sabadell’s stand-alone credit profile (SACP). This could occur if we saw that:
-- The operating environment in Spain were becoming more difficult than we currently anticipate;
-- The bank’s internal capital generation were undermined by significant credit losses and/or revenue decline, leading to a risk-adjusted capital ratio lower than 3%;
-- Sabadell’s asset quality during the current downturn were weaker than we expect, or we thought the bank unable to manage the execution risks arising from the integration of Banco CAM;
-- The bank were unable to rebalance its funding structure and significantly reduce its high reliance on funding from the European Central Bank (ECB). This would mean that by the time the ECB’s long-term refinancing operations (LTROs) expire Sabadell would likely show a comparatively high reliance on short-term central bank funding; or
-- The bank were to undertake additional meaningful acquisitions that in our view weaken its creditworthiness.
We currently view an outlook revision to stable as unlikely in the next 12-18 months. Still, we could revise the outlook on Sabadell to stable if we revised the outlook on Spain to stable and we observed that the pressures on the SACP were abating and the economic and operating environment in Spain were improving.
If Sabadell manages to successfully reduce its reliance on central bank financing, while not accumulating other imbalances on its funding profile, all other things being equal, the ratings on the bank would likely remain unchanged. This is because we would likely change our assessment of the bank’s funding to “average” from “below average” and remove the one-notch uplift for short-term funding support.
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.
-- Banco de Sabadell Affirmed At ‘BB/B’ Despite Spain’s Rising Economic Risk; Outlook Negative, Nov. 23, 2012
-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
-- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011
-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011
-- Bank Capital Methodology And Assumptions, Dec. 6, 2010