(The following statement was released by the rating agency)
Oct 10 - Fitch Ratings has placed NCG Banco SA's (NCG) Support Rating (SR) of '3' and its Support Rating Floor (SRF) of 'BB+' on Rating Watch Negative (RWN). As a result, its Long-term Issuer Default Rating (IDR) of 'BB+', which is based on the moderate probability of the authorities supporting the bank, and its Short-term IDR of 'B', have also been placed on RWN. At the same time, Fitch has affirmed NCG's Viability Rating (VR) of 'c'. A full list of rating actions is at the end of this comment.
RATING ACTION RATIONALE AND DRIVERS - IDRs, SUPPORT RATING and SRF
The rating actions reflect Fitch's belief that there is a moderate probability that NCG will continue to be supported by Spain's Fund of Orderly Bank Restructuring (FROB) with the ultimate goal of restoring the bank's viability, after undergoing a restructuring plan and transferring its real estate exposure to an asset management company.
However, because of the bank's problems and high recapitalisation needs, there is heightened risk that an orderly resolution could take place. This could include a recapitalisation plan for NCG's future sale, but also alternative scenarios that, even if customer depositors are fully compensated as the agency would expect, could still qualify as some form of default or 'restricted default' under Fitch's definitions and criteria. As a result, the Support Rating, SRF and IDRs have been placed on RWN. NCG has relatively few non-customer deposit senior unsecured liabilities on which it might be considered politically acceptable or rational to enforce losses.
RATING ACTION RATIONALE AND DRIVERS - VR
NCG's VR has been affirmed at 'c' to reflect the exceptionally high levels of fundamental credit risk that remain and that the failure of the bank (under Fitch's definitions) is imminent or inevitable. Its exposure to the stressed Spanish real estate market means NCG is in need of substantial recapitalisation, as was confirmed recently by the results of the stress test undertaken by Oliver Wyman published at end-September 2012.
DATED SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
NCG's dated subordinated debt has been downgraded to 'C' from 'CC' to reflect a high risk of large losses being enforced onto these instruments in line with the burden sharing laid out in the MOU and in Royal Decree Law 24/2012. Its upper Tier 2 debt and preferred stock have been affirmed at 'C' for the same reason.
RATING SENSITIVITIES - SUPPORT RATING, SRFs and IDRs
On the downside, NCG's IDRs, SR and SRF are sensitive to a downgrade of the Spanish sovereign rating or to any change in Fitch's assumptions around the level of support available to the bank, and in the near term, one of the alternative orderly resolution scenarios arising.
On the upside, NCG's IDR could ultimately be affirmed or upgraded were the bank to be recapitalised and its VR upgraded to 'bb+' or higher or if the bank were to be recapitalised and sold to a higher-rated bank.
RATING SENSITIVITIES - VR
Upon the confirmation or execution of any recapitalisation plan (due by end-November 2012) Fitch would downgrade NCG's VR to 'f', reflecting the bank's failure under Fitch's definitions. After recapitalisation, the agency will re-assess NCG's VR and upgrade it to a level commensurate with its post-support credit profile.
The rating actions are as follows:
NCG: Long-term IDR: 'BB+' placed on RWN Short-term IDR: 'B' placed on RWN Viability Rating: affirmed at 'c' Support Rating: '3' placed on RWN Support Rating Floor: 'BB+' placed on RWN Senior unsecured debt long-term rating: 'BB+' placed on RWN Senior unsecured debt short-term rating and commercial paper: 'B' placed on RWN Subordinated lower tier 2 debt: downgraded to 'C' from 'CC' Subordinated upper tier 2 debt: affirmed at 'C' Preferred stock: affirmed at 'C' State-guaranteed debt: affirmed at 'BBB' For all of Fitch's Eurozone Crisis commentary go to
(Caryn Trokie, New York Ratings Unit)