UPDATE 2-German-U.S. bond yield gap widest since dawn of millennium, French bonds win respite
* French centrist Bayrou pulls out of presidential election (Updates with move in French bonds)
Dec 14 - Fitch Ratings has upgraded the Long-term Issuer Default Ratings (IDRs) of Turkey's three largest privately-owned banks - Turkiye Is Bankasi A.S. (Isbank), Turkiye Garanti Bankasi A.S. (Garanti) and Akbank T.A.S. (Akbank) - to 'BBB' from 'BBB-'. Yapi ve Kredi Bankasi A.S.'s (Yapi Kredi) Long-term IDRs have been affirmed at 'BBB', and the Outlook revised to Stable from Negative. The rating actions have been driven by the upgrades of the four banks' Viability Ratings (VR) to 'bbb' from 'bbb-'. Fitch has also upgraded the IDRs of subsidiaries of Isbank, Garanti and Akbank. A full list of rating actions is at the end of this commentary. RATING ACTION RATIONALE AND DRIVERS: IDRS, VRS, DEBT RATINGS The rating actions on the four banks' IDRs and debt ratings are driven by the upgrades of their VRs. This in turn reflected the reduced near-term risks for the Turkish economy, which has achieved a 'soft landing' in 2012 and is set to return to higher growth rates from 2013, and the reduction in sovereign risk, reflected in the recent upgrade of Turkey to 'BBB-' (see 'Fitch Upgrades Turkey to Investment Grade' dated 5 November 2012 at www.fitchratings.com). The VRs also consider the banks' strong franchises, sound management and generally strong financial metrics in terms of capitalisation, asset quality, performance, liquidity and funding. The still moderate level of systemic risks and imbalances in the broader Turkish banking system is also a supporting factor for the ratings. Following the upgrades, the banks' VRs and Long-term IDRs are one notch higher than Turkey's foreign currency Long-term IDR, restoring the rating relativity that existed before the sovereign upgrade (although the banks' ratings are now in line with the sovereign's local currency Long-term IDR of 'BBB'). The rating of the banks above the sovereign reflects their very strong all-round credit profiles, and in particular the depth and stability of their deposit franchises. In light of these strengths, Fitch believes the banks would be likely to retain the capacity to service their obligations even during a period of considerable macroeconomic stress, including a potential sovereign default. The banks' VRs and Long-term IDRs are constrained by risks related to their own growth, future macroeconomic stability and the sovereign credit profile. The banks' recent rapid expansion has resulted in some moderation of previously very strong capital and funding ratios, and planned further growth may result in continued (albeit slower) erosion of these metrics. Loan books are also largely unseasoned, although Fitch expects asset quality to deteriorate only moderately in the near term given still limited corporate and household leverage, continued economic growth, the absence of foreign currency retail lending and generally sound credit underwriting. Although Fitch's base case is for GDP growth to rebound to3.8% in 2013 after a slowdown to 3% in 2012, the agency expects the economy to remain more volatile than investment grade peers, and believes that at some point an external financing shock and recession are likely. In Fitch's view, the banks' strong credit fundamentals make them relatively well placed to withstand such shocks. However, some volatility in their performance is probable. Although the sovereign rating does not act as a cap for the banks' ratings, it nevertheless constrains the potential level of their VRs and IDRs because of the strong correlation between sovereign and bank profiles. The banks are inevitably highly exposed to the domestic economy and also have considerable direct exposure to the sovereign in the form or large holdings of government debt. Operating (pre-tax) return on assets for the four banks were between 2.1% and 2.7% in Q312 (slightly higher at Garanti than at peers). Impaired loans have remained moderate at all banks, but were slightly higher at Yapi Kredi (3.4% at end-Q312), reflecting the bank's strong position in higher-yielding unsecured consumer and SME loans, and lowest at Akbank (1.5%). Funding structures are solid, with customer deposits representing around two-thirds of non-equity liabilities, and liquidity is well managed, although loans/deposits ratios have increased, most notably at Akbank and Yapi Kredi (both 1.2x at end-Q312). Capital ratios are sound at each of the banks, but particularly strong at Akbank (Fitch core capital/weighted risks ratio of 16.1% at end-Q312) and Garanti (15.4%). Yapi Kredi's ratio was a more moderate 9.6%, although the bank plans to support this through retained earnings and the sale of its insurance subsidiary. RATING SENSITIVITIES: IDRS, VRS, DEBT RATINGS The VRs and local currency Long-term IDRs of Isbank, Garanti and Akbank could be upgraded by one more notch, to 'bbb+'/'BBB+', if the banks are able to broadly maintain their current sound financial metrics as they continue to grow, and asset quality remains good as loan books season. Macroeconomic stability and less volatile economic growth would also be favourable for the banks' credit profiles. However, the banks' foreign currency Long-term IDRs and debt ratings are capped at the 'BBB' Country Ceiling, and would not be upgraded even if the VRs were upgraded. The VRs and Long-term IDRs of Isbank, Garanti and Akbank could be downgraded if they mismanage future growth, resulting in significantly higher balance sheet leverage, weaker credit underwriting and a major deterioration in asset quality. However, Fitch currently views such a scenario as unlikely. Upside potential for Yapi Kredi's VR is more limited than for its three peers because of moderately weaker capital, asset quality and funding ratios. At the same time, downside risk for Yapi Kredi's IDRs is also limited, as these are underpinned at the 'BBB' level by potential support from Unicredit (UC; 'A-'/Negative), which holds a 50% stake in Yapi Kredi's holding company. Yapi Kredi's IDRs would only be downgraded in case of both a downgrade of the bank's VR and a weakening of potential support from UC. The VRs and IDRs of all four banks would also be sensitive to changes in Turkey's sovereign ratings. A sovereign downgrade would be likely to result in a lowering of the bank's ratings, while a sovereign upgrade could create scope for a further upgrade of the banks. However, no changes in the sovereign ratings are currently anticipated, reflected in the Stable Outlook. RATING DRIVERS AND SENSITIVITIES: SUPPORT RATING AND SUPPORT RATING FLOOR The Support Ratings of Isbank, Garanti and Akbank have been affirmed at '3', and the Support Rating Floors (SRFs) of these banks have been revised to 'BB+' from 'BB'. This reflects Turkey's improved ability to provide support to the country's systemically important private sector banks, should it be required. In assessing potential sovereign support for Isbank, Garanti, and Akbank, Fitch considers the still relatively small size of Turkey's banking sector (loans/GDP of 53%), the banks' systemic importance (combined, they account for loan and deposit market shares of 39% and 37%, respectively) and the Turkish authorities' still strongly supportive stance in respect to the country's banks. At the same time, the probability of support is somewhat reduced by the banks' private ownership and ongoing global changes in governments' approach towards supporting failed banks. The SRFs could be lowered in case of a sovereign downgrade or a marked change in the authorities' support stance. Further upgrades of the SRFs are unlikely unless the sovereign's Long-term foreign currency IDR is upgraded. Yapi Kredi's Support Rating of '2' is based on potential support from UC and is sensitive to a multinotch downgrade of UC's Long-term IDR and/or a change of its international policy, whereby Yapi Kredi's strategic importance within the group would be reduced. RATING ACTION RATIONALE, DRIVERS AND SENSITIVITIES: SUBSIDIARIES The IDRs of Is Finansal Kiralama A.S., Garanti Finansal Kiralama A.S., Ak Finansal Kiralama A.S. and Is Yatirim Menkul Degerler A.S. are support-driven and equalised with those assigned to the parents. Fitch views these companies as core subsidiaries given their close integration, common management and integral strategic importance. The ratings of the subsidiaries are sensitive to changes in the parents' ratings. Fitch has also upgraded Turkiye Sinai Kalkinma Bankasi A.S.'s (TSKB) Long-term IDR to 'BBB-' from 'BB+'. TSKB's IDRs are driven by potential support from its 50.1% shareholder, Isbank. The rating is one notch lower than that of Isbank due to the high level of minority ownership, the moderate degree of integration with the parent, TSKB's niche franchise in development lending and the lack of common branding. Fitch also views sovereign support for TSKB as probable given the bank's policy role and the fact that the bulk (in excess of 90%) of its non-equity funding is already guaranteed by the Turkish sovereign. The ratings actions are as follows: Isbank, Garanti, Akbank Long-term foreign and local currency IDR: upgraded to 'BBB' from 'BBB-'; Outlook Stable Short-term foreign and local currency IDR: affirmed at 'F3' Short-term local currency IDR: affirmed at 'F3' National Long-term rating: affirmed at 'AAA(tur)'; Stable Outlook Viability Rating: upgraded to 'bbb' from 'bbb-' Support Rating: affirmed at '3' Support Rating Floor: revised to 'BB+' from 'BB' Senior unsecured debt: upgraded to 'BBB' from 'BBB-' Subordinated debt (Isbank only): upgraded to 'BBB-' from 'BB+' Yapi Kredi Long-term foreign and local currency IDR: affirmed at 'BBB'; Outlook revised to Stable from Negative Short-term foreign and local currency IDR: affirmed at 'F3' National Long-term rating: affirmed at 'AAA(tur)'; Outlook changed to Stable from Negative Viability Rating: upgraded to 'bbb' from 'bbb-' Support Rating: affirmed at '2' Senior unsecured debt: affirmed at 'BBB' Subordinated debt: affirmed at 'BBB-' TSKB Long-term foreign and local currency IDR: upgraded to 'BBB-' from 'BB+'; Outlook Stable Short-term foreign and local currency IDR: upgraded to 'F3' from 'B' National Long-term rating: upgraded to 'AAA(tur)' from 'AA+(tur)' Outlook Stable Support Rating: upgraded to '2' from '3' Is Yatirim Menkul Degerler A.S. National Long-term rating: affirmed at 'AAA(tur)' Outlook Stable Is Finansal Kiralama A.S. Long-term foreign and local currency IDR: upgraded to 'BBB' from 'BBB-'; Outlook Stable Short-term foreign currency and local currency IDR: affirmed at 'F3' National Long-term rating: affirmed at 'AAA(tur)'; Outlook Stable Support Rating: affirmed at '2' Garanti Finansal Kiralama A.S. Long-term foreign and local currency IDR: upgraded to 'BBB' from 'BBB-'; Outlook Stable Short-term foreign currency and local currency IDR: affirmed at 'F3' National Long-term rating: affirmed at 'AAA(tur)'; Outlook Stable Support Rating: affirmed at '2' Ak Finansal Kiralama A.S. Long-term foreign and local currency IDR: upgraded to 'BBB' from 'BBB-'; Outlook Stable Short-term foreign currency and local currency IDR: affirmed at 'F3' National Long-term rating: affirmed at 'AAA(tur)'; Outlook Stable Support Rating: affirmed at '2' Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria, 'Global Financial Institutions Rating Criteria' dated August 2012, available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria
* French centrist Bayrou pulls out of presidential election (Updates with move in French bonds)
* ABB estimates will take $100 mln charge against 2016 results
NEW YORK, Feb 22 Bidding at Wednesday's $13 billion U.S. two-year floating-rate Treasury note auction was the weakest in nearly a year, Treasury data showed.