June 13, 2012 / 8:17 PM / 7 years ago

TEXT-Fitch takes actions on Banco Santander's Latin American subsidiaries

June 13 - Fitch Ratings has taken various rating actions on Banco Santander
 (SAN)'s subsidiaries in Latin America, following the recent downgrade
of SAN's Issuer Default Ratings (IDR) and Viability Rating (VR) on June 11,
2012. The rating actions differ across subsidiaries and countries. A complete
detail of the rating actions for each individual subsidiary is included at the
end of this release.	
	
Fitch believes Latin America remains strategically important to SAN. SAN
benefits from the geographic diversification of its Latin American subsidiaries,
which gives SAN the capacity to generate earnings internationally and make up
for the muted results in Spain. SAN's international subsidiaries are
self-funded. This helps SAN's liquidity and minimizes contagion risk, giving
them the capacity to issue from different jurisdictions. Growth prospects for
emerging markets have been revised down and they are not entirely immune to
global economic trends, but it is expected that earnings from these markets will
continue to contribute significantly to group earnings.	
	
On June 11 2012, Fitch downgraded SAN's Long-term Foreign Currency IDR to 'BBB+'
from 'A', and maintained the Negative Outlook on the company. This followed a
three-notch downgrade of Spain's sovereign Long-term IDR (see 'Fitch Downgrades
Spain to 'BBB'; Outlook Negative', dated June 7, 2012 at
'www.fitchratings.com').	
	
SAN's downgrade reflects similar concerns concerning the downgrade of the
Spanish sovereign rating. In particular, Spain is forecasted to remain in
recession through the remainder of this year and 2013 compared to the previous
expectation that the economy would benefit from a mild recovery in 2013, which
directly affects the banks' activities in Spain. The Negative Outlook mirrors
that of the sovereign rating. SAN's Long-term IDRs and VRs are sensitive to a
further downgrade of Spain's sovereign rating (see 'Fitch Downgrades Santander &
BBVA to 'BBB+'/Negative Outlook on Sovereign Action', dated June 11, 2012 at
'www.fitchratings.com').	
	
Some of SAN's subsidiaries in Latin America, currently exhibit a better
intrinsic financial profile than the parent (measured by their VR's) and hence,
their IDRs are no longer derived from the expected support from its parent;
although it's evident such subsidiaries remain a core asset for SAN. This is the
case for Banco Santander Chile (SAN Chile) and Banco Santander Mexico (SAN
Mexico).	
	
In several cases, and considering the systemic importance of some of the
subsidiaries in their home markets, Fitch has assigned a Support Rating Floor
(SRF) given the vested interests from the Brazilian, Chilean and Mexican
sovereigns to preserve the health of their financial system. This should provide
support it should be required. However, at this moment, the VRs of all the
entities remain above their respective SRF as evidence of their good financial
profiles. Fitch's SRF's indicate a level below which the agency will not lower
the bank's Long-term IDRs.	
	
In general terms, all of SAN's rated subsidiaries in Latin America show robust
financial conditions, strong local franchises, and self-funded natures mostly
within their home markets. The subsidiaries also exhibt good profitability and
capitalizations, while not relying on their parent in order to pursue their
day-to-day business, and while their management teams and Board of directors
enjoy a high degree of operating independence. Also, the improved reputation,
efficiency and monitoring of local regulators in Brazil, Chile and Mexico acts
as sufficient ring-fencing protecting against any possible negative events that
may originate from the subsidiaries' parent and/or from their parent's
sovereign. Also important, is the fact that exposure of SAN' subsidiaries in
Latin America to their parent is negligible and tightly controlled by stringent
local regulations.	
	
Fitch recognizes that the reputations of the parent and its subsidiaries in
Latin America are somewhat interdependent and correlated; hence, it's impossible
to completely dissociate the ratings of the parent and its subsidiaries. In such
cases, further downgrades at the parent level or changes in market perception
concerning its subsidiaries in Latin America, may trigger further reviews of the
ratings. This is the reason behind the Negative Outlooks on many of the ratings
outlined in Fitch's criteria report, 'Rating Foreign Banking Subsidiaries Higher
than Parent Banks or Bank Holding Companies', published on June 12, 2012.	
	
In turn, some of SAN's Latin American subsidiaries' IDRs are still
support-driven by its parent, and consequently have been downgraded and remain
on Negative Outlook, reflecting the weakening of SAN's ability to provide
support.	
	
Given the current rating of the parent, Country Ceiling limitations are no
longer constraining any IDRs.	
	
Fitch has taken rating actions on the following BBVA subsidiaries:	
	
Banco Santander Chile (SAN Chile):	
	
SAN Chile's IDRs and National Scale Ratings remain driven by its 'a+' VR. They
do not factor any support from its parent. SAN Chile's IDRs, National Ratings
and VR reflect its market-leadership position and its strong franchise within
Chile, whose economy continues to perform well. The ratings also reflect the
subsidiary's healthy asset quality, strong profitability and independent
management, funding and capital positions. Liquidity has been significantly
strengthened and SAN Chile benefits from a sizeable, historically stable, and
well-diversified retail deposit base. In addition, SAN Chile has significantly
reduced refinancing risk and exposure to more price-sensitive deposits by
building a liquidity cushion while maintaining access to local capital markets
without any apparent rise in funding costs.	
	
Fitch has revised the Outlook on SAN Chile's international long-term IDR and
long-term National to Negative from Stable. This reflects the inherent linkage
of a subsidiary and its parent, as SAN Chile's IDR is currently three notches
above the rating of its parent, which is the maximum Fitch considers prudent
according to its rating criteria.	
	
The rating may be affected if the parent is downgraded further or if there is a
deterioration of SAN Chile's financial position. This can result in a downgrade
of its VR and IDR's.	
	
Fitch has affirmed the Support Rating (SR) at '1'. As the largest bank in Chile,
it is highly likely that the Chilean government (FC and LC IDR 'A+'/'AA-';
Outlook Stable) will provide support should it be required. As such Fitch rates
SAN Chile's SRF 'A-'.	
	
Banco Santander Mexico (SAN Mexico):	
	
SAN Mexico's IDRs, National Scale Ratings are now driven by its 'bbb+' VR;
similar to the IDR of its parent. The rating Outlook remains Negative;
reflecting the Outlook of its parent. The bank's VR reflects Fitch's opinion
that SAN Mexico has the financial strength to merit a rating above its parent
(under a scenario of mild parent downgrades) absent a significant deterioration
of market sentiment. SAN Mexico's VR is driven by its relevant and growing
franchise, strong risk management, sound capital ratios and improving
profitability, although it also considers the company's lower than peers margins
and the challenges arising from above average loan growth recently. The Support
Rating (SR) was downgraded to '2' from '1'. But as the third largest bank in
Mexico (FC and LC IDR 'BBB'/'BBB+'; Outlook Stable) with a market share of 13.5%
of system assets, it is highly likely that the Mexican government will provide
support it should be required. As such Fitch rates SAN Mexico's SRF 'BBB-'.	
	
Casa de Bolsa Santander, S.A. de C.V. (SAN Casa de Bolsa Mexico):	
	
Fitch has affirmed SAN Casa de Bolsa Mexico's 'AAA(mex)'/'F1+(mex)' National
Ratings, and believes this securities firm is an integral part of SAN Mexico's
franchise. The agency makes no distinction between the credit risk of SAN Casa
de Bolsa Mexico and SAN Mexico.	
	
Banco Santander Brasil (SAN Brasil):	
	
SAN Brasil's IDRs and National Ratings are driven by SAN Brasil current 'bbb'
VR, which is one notch below its parent ('BBB+'). SAN Brasil remains strategic
for SAN, having contributed around 28% of consolidated net income in 2011. SAN
Brasil's VR reflects it's healthy capital and independent funding position
supported by its growing franchise and conservative lending strategy and risk
controls. SAN Brasil's Foreign Currency Long-term IDR is no longer constrained
by Brazil's Country Ceiling (rated 'BBB+' by Fitch) and was downgraded to 'BBB'
from 'BBB+'.	
	
The rating Outlook on the Long-term IDR is Negative, reflecting the Outlook of
its parent company. Fitch believes a one notch difference between the Long-term
IDR of SAN Brasil and its parent is appropriate at this rating level. If the
parent company is further downgraded, Fitch will review its effect over SAN
Brasil's current rating. Fitch has affirmed the Support Rating (SR) at '2'. As
the fourth largest bank in Brazil (FC and LC IDR 'BBB'/'BBB'; Outlook Stable)
with a deposit market share of 7% of deposits, it is highly likely that the
Brazilian government will provide support it should be required. As such Fitch
rates SAN Brasil's SRF 'BBB-'.	
	
Santander Leasing S.A. Arrendamento Mercantil (SAN Leasing Brasil):	
	
Fitch has affirmed the National Ratings of SAN Leasing Brasil. The ratings are
driven by potential support from SAN Brasil. Fitch believes SAN Leasing Brasil
is an integral part of SAN Brasil's franchise and does not differentiate between
the credit risk of the Brazilian subsidiaries.	
	
However, Fitch has downgraded the Long-term rating to 'AA+(bra)' from
'AAA+(bra)' on the plain vanilla subordinated debt issued by SAN Leasing Brasil,
in order to incorporate Fitch's loss severity assumption in case of liquidation
and the reduced support capacity of its parent.	
	
Fitch has taken the following rating actions:	
	
Banco Santander Chile:	
--Foreign and local currency Long-term Issuer Default Rating (IDR) affirmed at
'A+'; Outlook revised to Negative from Stable;	
--Foreign and local currency short-term IDRs affirmed at 'F1'	
--Viability Rating affirmed at 'a+';	
--Support affirmed at '1';	
--Support rating floor assigned at 'A-';	
--Long-term national rating affirmed at 'AAA(cl)'; Outlook revised to Negative
from Stable;	
--Short-term national rating affirmed at 'N1+(cl)';	
--Senior unsecured bonds foreign currency long-term rating affirmed at 'A+';	
--National long-term rating of senior unsecured bonds affirmed at 'AAA(cl)';	
--National long-term rating of Subordinated bonds affirmed at 'AA(cl)';	
--National equity rating affirmed at 'Primera Clase nivel 1'.	
	
Banco Santander (Brasil):	
--Foreign currency Long-term Issuer Default Rating downgraded to 'BBB' from
'BBB+'; Outlook revised to Negative from Stable;	
--Foreign currency short-term IDR affirmed at 'F2';	
--Local currency long-term IDR downgraded to 'BBB' from 'A-'; Outlook Negative;	
--Local currency short-term IDR downgraded to 'F2' from 'F1';	
--Viability rating affirmed at 'bbb';	
--Support rating affirmed at '2';	
--Support rating floor assigned at 'BBB-';	
--National Long-term rating affirmed at 'AAA(bra)'; Rating Outlook revised to
Negative from Stable;	
--National short-term rating affirmed at 'F1+(bra)';	
Senior notes due 2015:	
--Long-term Foreign Currency rating downgraded to 'BBB' from 'BBB+'.	
Senior notes due 2016:	
--Long-term Foreign Currency rating downgraded to 'BBB' from 'BBB+'.	
Senior notes due 2017	
--Long-term Foreign Currency rating downgraded to 'BBB' from 'BBB+'.	
	
Santander Leasing S.A. Arrendamento Mercantil:	
--National long-term rating affirmed at 'AAA(bra)'; Rating Outlook revised to
Negative from Stable;	
--National short-term rating at affirmed 'F1+(bra)'.	
4th and 5th Debentures Issue	
--National long-term rating downgraded to 'AA+(bra) from 'AAA(bra)'.	
Santander Leasing S.A. Arrendamento Mercantil (Ex ABN AMRO Arrendamento
Mercantil S.A.) -	
4th, 5th and 6th Debentures Issue	
--National long-term rating downgraded to 'AA+(bra)' from 'AAA(bra)'.	
	
Banco Santander (Mexico):	
--Long Term Foreign Currency Issuer Default Rating downgraded to 'BBB+' from
'A-'; Outlook Negative;	
--Long Term Local Currency Issuer Default Rating downgraded 'BBB+' from 'A-';
Outlook Negative;	
--Short Term Foreign and Local currency Issuer Default Rating downgraded to 'F2'
from 'F1';	
--Viability Rating affirmed at 'bbb+';	
--Support Rating downgraded to '2' from '1';	
--Support Rating Floor assigned at 'BBB-';	
--Long-term national rating affirmed at 'AAA(mex)'; Outlook Stable;	
--Short-term national rating affirmed at 'F1+(mex)';	
--Long-term national rating for local currency senior unsecured debt issues
affirmed at 'AAA(mex)';	
--Long-term national rating for local issues of market linked securities
affirmed at 'AAA(emr)(mex)'.	
	
Casa de Bolsa Santander, S.A. de C.V.	
--Long-term national rating affirmed at 'AAA(mex)'; Outlook Stable;	
--Short-term national rating affirmed at 'F1+(mex)'.	
	
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 and Related Research:	
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);	
--'National Ratings Criteria' (Jan. 19, 2011);	
--'Treatment of Hybrids in Bank Capital Analysis' (July 11, 2011);	
--'Rating Bank Regulatory Capital and Similar Securities' (Dec. 15, 2011).	
--'Rating Foreign Banking Subsidiaries Higher than Parent Banks and Parent Bank
Holding	
Companies' (June 12, 2012)	
	
Applicable Criteria and Related Research:	
Global Financial Institutions Rating Criteria	
National Ratings Criteria	
Treatment of Hybrids in Bank Capital Analysis	
Rating Bank Regulatory Capital and Similar Securities	
Rating Foreign Banking Subsidiaries Higher Than Parent Banks or Bank Holding
Companies
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below