(The following statement was released by the rating agency)
Oct 10 - Within our rated universe of banking groups, it is highly unusual for a financialinstitution (FI) subsidiary to be rated above its parent operating company. According to aCredit FAQ titled "Rating A Financial Institution Subsidiary Above Its Bank Parent," publishedearlier today on RatingsDirect, this is because there are often strongbusiness and financial links between subsidiaries and the wider group that gobeyond simple ownership.
Even when this is not the case, a subsidiary could well be vulnerable to adegree of franchise contagion from credit issues elsewhere in its group, theparent could use its ownership to influence the financial position of thesubsidiary, or, ultimately, the subsidiary could potentially be drawn into theinsolvency of the parent. At any rate, a weak parent is unlikely to providesupport to the extent that a strong one could. For these reasons, whenStandard & Poor's Ratings Services downgrades a parent, it often downgradesthe most highly rated subsidiaries as well.
Such downgrades are not automatic, though. Rather, any rating action on an FIsubsidiary involves a comprehensive analysis of the specific situation, andthe parent/subsidiary rating relationship can diverge under variouscircumstances. The criteria that describe this analysis are detailed in "GroupRating Methodology And Assumptions," and "Banks: Rating Methodology AndAssumptions," both published on Nov. 9, 2011.
The number of subsidiaries rated above their bank parents, though low today,is gradually rising. This is because of a combination of weakening parentalcreditworthiness and host-country regulatory initiatives to protect pools ofcapital and liquidity in domestic subsidiaries (and potentially branches) offoreign banks. This article discusses the types of situations where asubsidiary can be rated higher than its parent operating entity.
Related Criteria & Research -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011 -- Group Rating Methodology And Assumptions, Nov. 9, 2011 -- Bank Capital Methodology And Assumptions, Dec. 16, 2010
-- Guarantee Default: Assessing The Impact On The Guarantor's IssuerCredit Rating, May, 11, 2012
-- Banking Industry Country Risk Assessment Methodology And Assumptions,Nov. 9, 2011
-- Analytical Approach To Assessing Nonoperating Holding Companies, March17, 2009