November 23, 2012 / 11:21 AM / in 5 years

TEXT-S&P affirms rtgs on CaixaBank, La Caixa; off watch;otlks neg


The affirmations follow our review of the wider implications for economic risk and industry risk in the Spanish banking sector of our two-notch downgrade of the Kingdom of Spain (BBB-/Negative/A-3) on Oct. 10, 2012. We believe banks operating in Spain face higher credit risk, not only from their increasing exposure to a weaker public sector, but also owing to a riskier, less resilient private sector, which will suffer the effects of the economic recession, austerity measures, and high unemployment.

To reflect the higher credit risk we now see in the Spanish market we lowered our Banking Industry Country Risk Assessment (BICRA) for Spain to group ‘6’ from ‘5’ and revised our economic risk score, a component of the BICRA, to ‘7’ from ‘6’ (see “Various Rating Actions On Spanish Banks Due To Rising Economic Risks,” published Nov. 23, 2012)

Consequently, we also revised our anchor, the starting point for our ratings on financial institutions operating primarily in Spain, including Caixabank, to ‘bb+’ from ‘bbb-'.

In the context of heightened credit risk in the economy, we believe Caixabank’s capital position has deteriorated according to our methodology. Accordingly, we have revised our assessment of Caixabank’s capital and earnings to “weak” from “moderate.” We now estimate that Caixabank’s risk-adjusted capital (RAC) ratio before diversification will stand around 4.5% by the end of 2013.

Our view of Caixabank’s weaker capital position has led to a lowering of our assessment of Caixabank’s stand-alone credit profile (SACP) to ‘bbb-’ from ‘bbb’. However, the lowering of the bank’s SACP has not affected Caixabank’s long-term rating, which already stood at ‘BBB-’ because we cap it at the level of the long-term rating on Spain.

We have also reviewed the funding and liquidity of Spanish banks, aiming to differentiate to a greater extent our assessments of these factors for the banks, in line with the approach we communicated earlier this year (see “ECB’s Funding ”Bazooka“ Gives Eurozone Banks Time To Reshape Their Business Models And Balance Sheets,” published on Feb. 29, 2012, and “CreditWatch Actions On Four Spanish Banks On Potential Implications Of State Recapitalization,” published on Aug. 7, 2012). As a result, we revised our assessment of Caixabank’s funding to “above average” from “average,” while we maintained our view on liquidity as “adequate.” However, this revision has not led to an improvement in Caixabank’s SACP, as we typically only revise upward the SACP of banks that combine “above-average” funding and “strong” liquidity, whereas we continue to see Caixabank’s liquidity as “adequate.”

Our improved assessment of Caixabank’s funding reflects our belief that Caixabank has a more balanced funding structure than the average of rated domestic peers. Notably, Caixabank’s ratio of loans to total retail funding stood at 110% on Aug. 30, 2012. We also take into account Caixabank’s lower-than-system-average reliance on European Central Bank funding (which represented about 10% of total funding on Aug. 30, 2012). Our assessment also incorporated our opinion that Caixabank has maintained an extremely low reliance on short-term wholesale financing, as evidenced by the long-term funding ratio remaining steadily above 90% in recent quarters.

We have not changed our assessment of the other factors that make up Caixabank’s SACP and therefore maintain our view of its “strong” business position and “strong” risk position.

We continue to analyze Caixabank and its controlling holding company, la Caixa, on a consolidated basis, using la Caixa’s consolidated financial information, in accordance with our criteria. We consider Caixabank to be the group’s core operating entity. We also continue to rate la Caixa two notches below Caixabank’s long-term rating to reflect the structural subordination of la Caixa’s creditors to those of Caixabank.

Our ratings on Caixabank’s hybrid capital instruments are derived by notching down from the bank’s long-term counterparty credit rating. For this reason the lowering of the SACP has no implications for these ratings.


The negative outlook on Caixabank primarily mirrors that on the long-term rating on Spain. A downgrade of the sovereign would very likely trigger a similar action on Caixabank as we rarely rate financial institutions above our long-term sovereign rating on their countries of domicile due to the strong connection between banks’ creditworthiness and that of their country of domicile.

The negative outlook also reflects the possibility that we could revise downward Caixabank’s SACP--and hence lower the rating--if the operating environment in Spain became even more difficult than we currently forecast. We might also consider lowering Caixabank’s SACP if the bank’s asset quality deteriorated faster than we currently anticipate and at levels closer to the domestic banking sector average. We could also lower our assessment of Caixabank’s SACP if credit losses exceeded the bank’s capacity to absorb losses and impaired its solvency position, triggering a lowering of its RAC ratio to a weaker level than we currently incorporate in the ratings.

We currently view an outlook revision to stable as unlikely in the next 12-18 months. We could revise the outlook to stable if we revised our outlook on Spain to stable, if economic and operating conditions in Spain improved, and if Caixabank preserved its financial profile through the downturn.

The negative outlook on the long-term rating on la Caixa mirrors that on the group’s core operating entity, Caixabank. A downgrade of Caixabank would trigger a similar action on la Caixa.

Ratings Score Snapshot

To From

Issuer Credit Rating BBB-/Negative/A-3 BBB-/Watch Neg/A-3

SACP bbb- bbb

Anchor bb+ bbb-

Business Position Strong [+1] Strong [+1]

Capital and Earnings Weak Moderate

Risk Position Strong [+1] Strong [+1]

Funding Above Average Average

Liquidity Adequate Adequate

Support 0 -1

GRE Support 0 0

Group Support 0 0

Sovereign Support 0 -1

Additional Factors 0 0

Related Criteria And Research

-- Various Rating Actions On Spanish Banks Due To Rising Economic Risks, Nov. 23, 2012

-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011

-- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011

-- Group Rating Methodology And Assumptions, Nov. 9, 2011

-- Bank Capital Methodology And Assumptions, Dec. 6, 2010

-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011

-- General Criteria: Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011

-- Use Of CreditWatch And Outlooks, Sept. 14, 2009

-- Analytical Approach To Assessing Nonoperating Holding Companies, March 17, 2009

-- Various Rating Actions on Spanish Financial Institutions Following Sovereign Downgrade, Oct. 15, 2012

-- Spain Ratings Lowered to ‘BBB-/A-3’ On Mounting Economic And Political Risks; Outlook Negative, Oct. 10, 2012

Ratings List

Ratings Affirmed; CreditWatch Action

To From

CaixaBank S.A.

Counterparty Credit Rating BBB-/Negative/A-3 BBB-/Watch Neg/A-3

Caja de Ahorros y Pensiones de Barcelona

Counterparty Credit Rating BB/Negative/B BB/Watch Neg/B

Certificate Of Deposit BB/B BB/Watch Neg/B

CaixaBank S.A.

Senior Unsecured BBB- BBB-/Watch Neg

Preferred Stock BB- BB-/Watch Neg

Caixa Preference Ltd.

Preferred Stock* BB- BB-/Watch Neg

Caja de Ahorros y Pensiones de Barcelona

Subordinated B+ B+/Watch Neg

Ratings Affirmed

Caja de Ahorros y Pensiones de Barcelona

Commercial Paper B

*Guaranteed by CaixaBank S.A.

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