BUENOS AIRES, Argentina--(BUSINESS WIRE)--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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Treatment of Hybrids in Bank Capital Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=641269
Rating Bank Regulatory Capital and Similar Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656371
Rating Foreign Banking Subsidiaries Higher Than Parent Banks or Bank Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=681270
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