(The following statement was released by the rating agency)
Nov 21 - Fitch Ratings has downgraded Confederacion Espanola de Cajas de Ahorros’ (CECA) Long-term Issuer Default Rating (IDR) to ‘BBB-’ from ‘BBB’, Viability Rating (VR) to ‘bbb-’ from ‘bbb’ and Support Rating to ‘5’ from ‘3’. Fitch has simultaneously withdrawn all CECA’s ratings. At the same time, the agency has assigned CECABANK, S.A. (CECABANK) a Long-term IDR of ‘BBB-’ with Negative Outlook and a VR of ‘bbb-'. A full list of rating actions is below.
RATING ACTION RATIONALE - VRs and IDRs
The downgrade of CECA’s VR reflects Fitch’s view that business volumes could decline further as the former Spanish savings banks have consolidated, which could result in a reduced role for CECA as its customers could over time find alternative service suppliers. The downgrade also factors in the higher counterparty risk of CECA’s main counterparties, the former Spanish savings banks.
The withdrawal of CECA’s ratings follows the reorganisation of the rated entity. The bulk of CECA’s assets and liabilities were transferred to the newly-created CECABANK on 12 November 2012. CECA is now owns 89% of CECABANK, with the remaining 11% held by the former associated savings bank members. CECABANK has effectively taken over CECA’s business activities.
RATING ACTION RATIONALE - Support Rating
The downgrade of the Support Rating and the revision of the Support Rating Floor reflects Fitch’s view that CECA’s systemic importance in Spain has reduced. In the agency’s opinion, support from the authorities remains possible but cannot be relied upon.
RATING DRIVERS AND SENSITIVITIES -VRs and IDRS
CECABANK’s IDRs and VR reflect its business of acting as an intermediary in most of its activities. This results in moderate credit and market risk exposure, which to a large extent is secured by collateral or hedged. CECABANK provides banking services as well as repos, custody, clearing and settlement, and payment and collection systems. The bank aims to be a leading domestic player in securities services, but still needs to build up a track record. Its neutrality, as it is not a commercial bank and does not compete with its commercial bank clients, is a key competitive advantage in this business, in Fitch’s view.
Fitch considers CECABANK’s liquidity adequate and well-managed as the bank holds a significant EUR3.2bn portfolio of assets that are eligible for central bank refinancing. However, around 20% of assets at end-June 2012 were invested in Spanish government securities. Fitch considers capitalisation adequate with a core capital ratio of 13.8% at end-June 2012. However, the ratio benefits from the low risk-weighting of a large portion of the bank’s assets.
The Negative Outlook reflects Fitch’s view that CECABANK’s ratings would come under pressure if the bank’s franchise deteriorated materially, which could arise if its customers chose different service providers. Ratings would also come under pressure if the bank’s risk exposure increased substantially, which Fitch currently does not expect, or if liquidity deteriorated.
The Negative Outlook also mirrors the Negative Outlook on Spain’s sovereign rating as the bank’s activities are sensitive to the operating environment in Spain and because of its large portfolio of government debt.
The rating actions are as follows:
Long-term IDR downgraded to ‘BBB-’ from ‘BBB’, Negative Outlook, rating withdrawn
Short-term IDR affirmed at ‘F3’, rating withdrawn
VR downgraded to ‘bbb-’ from ‘bbb’, rating withdrawn
Support Rating downgraded to ‘5’ from ‘3’, rating withdrawn
Support Rating Floor revised to No Floor from ‘BB+', rating withdrawn
Long-term IDR assigned at ‘BBB-', Negative Outlook
Short-term IDR assigned at ‘F3’
VR assigned at ‘bbb-’
Support Rating assigned at ‘5’
Support Rating Floor: No Floor