Despite early signs of a less benign environment, the major banks in Western Europe are still poised to report strengthening performance in the first half of 2006, and continue to show positive ratings momentum. The structural improvements that have been seen over the past few years are likely to partly offset the expected cyclical softening in certain markets, and should underpin overall performance at levels consistent with ratings.
Key trends that have supported recent positive rating actions are the growing diversity of revenue streams, increased focus on operational efficiency, improved ability to manage more effectively across business lines and borders, and risk management processes that, while not providing total insulation, should help the industry to absorb cyclical swings. These strong fundamentals are still key drivers of positive outlooks for some banks; and ratings are expected to continue to move upward on a selective basis in the second half of 2006, as they have done in the second quarter, assuming banks demonstrate relative resilience in the face of less favorable market conditions.
Most banks demonstrated strong performance in the first quarter of 2006, with all indications still of increased profitability in the second quarter of 2006 despite the onset of market turbulence toward the end of the period. As in 2005, strong income growth, well controlled costs, and generally improving bad debts combined to produce strong increases in pretax profits.
The big question is whether the recent turn in the financial markets signals the end of the benign period that has underpinned bank profit growth. Banks with relatively large exposures to capital markets are likely to demonstrate slower earnings growth going forward, but the momentum created by strong performance for most of the first half of the year, and the benefits accruing from business diversification, should help maintain good group-level outcomes for 2006. Some banks with larger exposures to capital markets could report moderately lower earnings in 2007, however, if less favorable market conditions persist.
Standard & Poor's still expects an eventual "normalization" of corporate credit quality (although this is not yet showing through at banks) and recognizes that more difficult capital market conditions will inevitably restrain profit growth. Rising interest rates in the Eurozone could also slow lending growth and affect asset quality (although they will also improve interest margins at some banks). The positive structural trends within the banking sector should help offset some of these cyclical features, however.
Barring marked and prolonged downturns across a range of business classes, which would give rise to higher than expected increases in risk charges and a severe slowdown in earnings, bank ratings should exhibit little downward pressure. Current ratings incorporate an expectation that profit growth will reduce to more normal levels (and possibly show moderate declines at some banks that have recently reported exceptionally high profits) as certain market-related earnings slow and as credit charges increase cyclically.
Benign first quarter to be followed by manageable challenges
Not all of the top 50 banks report on a quarterly basis (the main exceptions are the U.K. and Irish banks and some mutual and cooperative organizations), but those that do reported generally strong numbers for the first quarter of 2006, building on improvements in 2005. Many of those banks not reporting on a quarterly basis have also indicated that performance into 2006 has been stronger overall than in the same period of 2005.
The first quarter of 2006 continued the positive trends seen in 2005. Economic growth was generally supportive of retail banking (except for the impact of a slower environment in the U.K.), while financial market conditions supported business lines such as asset management, private banking, and bancassurance. Capital market income also grew strongly in the first quarter, with many banks reporting stronger wholesale and investment banking earnings, and benefiting from the strong environment for M&A, leveraged loans, and private equity. Several banks also enjoyed nonrecurring gains from sales of assets.
Capital market conditions helped banks for most of the period
As was the case in 2005, those banks with larger exposures to capital market conditions fared particularly well in the first quarter of 2006. These include Deutsche Bank AG, UBS AG, Credit Suisse Group, and the large French banks, which benefited from fast-expanding investment banking, and stronger asset management and private banking businesses. Although not a quarterly reporter, Barclays Bank PLC also indicated an "excellent" performance in its investment banking and asset management operations into 2006.
Clearly some of these business lines will perform more weakly in the current less favorable market conditions. Standard & Poor's does not yet expect marked reversals in overall performance, however, as banks should continue to benefit from decent growth in other business lines. Even within their investment banking operations, negative effects on certain product classes are likely to be offset to some extent by better performance elsewhere. For example, volatility can be a positive for several product lines. The increased diversification and deepening of the banks' investment banking operations in recent years (where we have seen growth in product and geographic coverage) should help maintain acceptable performance, although banks may find it difficult to adapt their cost bases appropriately if there is a sustained market correction, and some banks may start to report earnings declines from current exceptionally high levels. The most active capital market participants have not announced material changes in their earnings guidance since the turn in the markets, suggesting that the impact to date has been digestible.
Appetite for "bolt-on" foreign acquisitions still strong
Another earnings trend for many groups has been the growing contribution from foreign banking operations. This helps earnings diversification, and if the subsidiaries are managed well, it creates a stronger and more resilient banking group. Standard & Poor's considers that digestible acquisitions based on well-founded strategic arguments typically sustain and bolster group ratings.
Execution risk can constrain ratings, however, as at UniCredito where the negative outlook reflects the integration risk associated with the Bayerische Hypo- und Vereinsbank AG (HVB) acquisition and its dilutive effect on profitability, although the acquisition has created a significantly more diversified group. The recent volatility in some developing economies' financial markets has also reminded banks that potentially high-growth banking markets can also carry higher risks than their home markets. The potential for large transformational M&A transactions brings an element of event risk that is difficult to factor into rating expectations, however, as the structures and effects of these combinations are hard to predict.
While much of the growing importance of foreign operations is due to recent acquisitions, there has also been improved organic performance at several subsidiaries (such as at Santander, and at HSBC where its U.S. consumer finance operations are showing signs of stabilization following a difficult year for the industry in 2005).
The trend toward cross-border expansion continues. Of particular note in the second quarter of 2006 were BNP Paribas' acquisition of Banca Nazionale del Lavoro SpA (BNL), Crédit Agricole's offer for Emporiki Bank of Greece while also deciding not to pursue the U.K.-based Alliance & Leicester PLC, Banco Bilbao Vizcaya Argentaria, S.A.'s (BBVA) move into Texas and Dexia's proposed acquisition of Turkish DenizBank. Standard & Poor's expects to see continued selective foreign acquisitions, although the probability of any major transformational cross-border merger is still unclear.
Growing focus on cost control should help in less buoyant conditions
Cost control continues to be a major focus. Although we note that some seasonal factors flatter cost levels in the first quarter (many costs tend to be loaded toward the latter part of the year), most of the major banks reported improved cost-to-income ratios in the first quarter of 2006 compared with the same period in 2005 (see chart 1). Organic cost growth remains below income growth almost universally, although some institutions are still investing considerably in certain business lines, and compliance and regulatory-related costs are growing for all banks. The main instances where cost growth exceeded revenue growth were due to the acquisition of less efficient subsidiaries (such as Danske Bank's Irish acquisitions).
Major improvements in group cost-to-income ratios are unlikely in the second half of 2006 given the shifts in business mix at some large groups, the impact of acquisitions, the likely increase in some seasonal costs in the latter part of 2006, the nonrecurrence of some asset disposal gains seen in the early part of 2006, and a slowing contribution from some market-related products. Despite this, we expect to see increased focus on operational efficiency, which should underpin overall profitability. This trend is already evident at the Irish banks (where domestic cost inflation is relatively high, forcing greater cost discipline) and in the U.K. (where slower retail banking earnings momentum is encouraging a review of some business processes).
Corporate credit quality charges still "as good as it gets", but some signs of future pressure
Adjusting for the switchover to IFRS (most banks give comparable data for the first quarter of 2005), there have been sustained low levels of credit problems in most personal sector categories (barring U.K. unsecured lending, where it is still too early to call a stabilization of credit card and unsecured personal loan asset quality), combined with cyclically very low corporate asset quality charges. (Several banks continued to report high levels of recoveries against their corporate loan books, although this source is likely to be effectively exhausted now and unlikely to drive further improvements in profitability. Danske Bank, a notable beneficiary, has even guided for a modest decline in group profitability in 2006 as this positive effect is reversed.)
Most banks are still indicating that their corporate loan books show little early signs of weakening, but Standard & Poor's notes that credit terms have been under pressure in the corporate lending markets, and that corporate ratings trends suggest that corporate asset quality is likely to weaken. This effect is unlikely to be heavy in 2006, but should become more noticeable in 2007. Most major banks have become better at managing large corporate exposures, which limits downside risk, but our ratings incorporate the expectation that impairment charges should start to constrain profit growth from the recent cyclically high levels.
Consumer pressures should not derail banks
Rising interest rates in the Eurozone have raised concerns over how consumer demand will react to tighter monetary conditions, and the uptick in inflationary pressures, and how this will affect banking sector earnings. The U.K. is at a different point in the rate cycle, and retail banking profit growth has already been challenging for the past 18 months.
Although higher interest rates may discourage consumer borrowing and push up consumer bad debt charges, this effect should come through more in 2007 than 2006, and may not have a major effect in countries where overall leverage is still at lower levels (such as Italy, where structural factors have encouraged recent retail banking growth even when overall economic conditions have been subdued) or where consumer confidence and general economic performance is still resilient (as is the case in most European countries). Some slowdown in lending growth in countries such as Ireland and Spain could actually be positive for the banks, which have had to manage and fund rapid credit expansion.
Standard & Poor's still considers the Irish and Spanish property markets (and related lending) to be growing at faster than sustainable levels. Consumer asset quality in these markets will be affected by higher interest rates, but this effect should be manageable for the banks if, in line with current expectations, the rate rises are slow and moderate and are combined with continued overall strong performance in the domestic economies (particularly if employment patterns remain good). Asset quality strains are likely to be felt in the unsecured lending markets before the residential markets, as has been seen in the U.K.
The U.K. experience shows that slower lending growth and higher consumer bad debts do hinder retail banking profitability, but the banks have benefited from improved earnings from savings and insurance products (even if insufficient to offset entirely the higher bad debt costs), and are also likely to respond with greater focus on operational efficiency. We can also expect higher Eurozone interest rates to improve net interest margins, offsetting some of the impact of slowing consumer demand. Overall, retail banking should continue to be a fundamental and relatively sustainable contributor to bank earnings.
Profit growth still at cyclically high levels
Even though the first quarter of 2006 saw many European banks build on their very strong performances in 2005 (see chart 2), Standard & Poor's recognizes that some of the improvement has been cyclical and therefore the existing ratings do factor in an ability to absorb less stellar profits as the cycle turns. Standard & Poor's considers that growth into 2006 has remained above average and expects slower growth. However, we consider that structural improvements at many of these banks are positive drivers of the stability and predictability of earnings and of their resilience to less attractive market conditions. This should underpin the existing ratings, and could also help ratings rise in selected cases even if the external environment appears less helpful.
Ratings still on an upward trend
Changes in long-term ratings have continued to reflect these fundamental improvements. For the largest-50 Western European banks (see charts 3 and 4), no bank has been downgraded, while nine were upgraded in the first half of 2006 (and one other, Sanpaolo IMI SpA, on July 5, 2006).
Upgrades in recent months have been due to:
Banks coming through restructuring and demonstrating enhancements to risk management (Dresdner Bank AG, Credit Suisse)
Improved earnings mix and diversification with good oversight over subsidiaries (Banco Santander Central Hispano, S.A., HSBC Holdings PLC, Standard Chartered Bank)
Improved performance and sustainability of earnings (all of the above plus Sanpaolo IMI).
With the upgrade of Sanpaolo IMI to "AA-" on July 5, 2006 (which is not shown in charts 3 and 4), 26 of the top 50 banks are now rated "AA-" or above, putting the median rating clearly in the "AA-" category.
The balance of outlooks on the long-term ratings is also strongly positive. Positive outlooks (11) outweigh negative outlooks (three) among the 50-largest European banks (see chart 5), while one bank is on CreditWatch with positive implications (Natexis Banques Populaires, pending changes in its legal and organizational structure). Since the end of June, one bank that had a positive outlook (Sanpaolo IMI) has been upgraded and now has a stable outlook, while the outlook on Bank of Ireland was revised to positive from stable on July 3, 2006.)
Key themes supporting positive outlooks are:
Improved earnings mix and diversification (Santander, Société Générale, Bank of Ireland, Crédit Agricole, Skandinaviska Enskilda Banken AB (SEB))
Improved focus on efficiency (Crédit Mutuel member banks, Caja de Ahorros y Monte de Piedad de Madrid (Caja Madrid), Bank of Ireland, SEB)
Clearer strategy and more coherent management across a group (Bank of Ireland, Crédit Mutuel)
Improving sustainability of earnings in core markets Swedbank (ForeningsSparbanken AB) (Swedbank), Caja Madrid, Caja de Ahorros y Pensiones de Barcelona (la Caixa))
The positive outlook on BNL is also linked to the themes of improved diversification and management within a group, as it is likely to become increasingly integrated into the BNP Paribas group.
The three banks with negative rating outlooks are HVB and Unicredito (based on their integration) and Banco Popular Español, S.A. (AA/Negative/A-1+: where there has been a downward trend in capitalization and profitability versus lower rated peers). These factors are bank-specific rather than indicative of emerging systemic pressures.
Issuer Review
Table 1
Major Western European Banks
Company
Rating
Analyst
Comments
Country
ABN Amro Bank N.V.
AA-/Stable/A-1+
Bernd Ackermann
The stable outlook reflects Standard & Poor's expectation that ABN AMRO's earnings will continue to benefit from efficiency improvements generated by the group shared services initiative (GSS). The success of the downsized and further integrated wholesale clients business will be key in determining future performance, as will the strengthening of non-mortgage-related revenues for the U.S. business. A measured process of acquisitions that maintains the bank's current financial profile--such as the recent acquisition of Banca Antonveneta--will not affect the ratings. On the contrary, a more aggressive acquisition strategy, particularly in emerging markets, which would add execution and financial risks to the balance sheet and leverage its capital position, would probably have negative rating implications.
Netherlands
Allied Irish Banks PLC
A+/Stable/A-1
Michelle Brennan
The stable outlook reflects AIB's significant focus on improving the integrity of risk-management procedures and practices, and strengthened integration. Standard & Poor's expects to see further improvements in efficiency ratios across AIB, continued margin management, greater internal capital generation, and continued progress in risk and compliance initiatives. Improved risk focus should lead to less earnings volatility than historically. Despite rapid lending growth, Standard & Poor's expects AIB to manage lending risk in a controlled manner. Core capitalization is tight, but the stable outlook expects a stabilization of core capital measures. The outlook could be revised to positive if risk management and productivity improvements continue to deliver high-quality earnings consistently, and if internal capital generation strengthens sufficiently to offset the concentrations in the business portfolio. The outlook could be revised to negative if asset quality deteriorates sharply, or if the ability to self-finance growth is undermined.
Ireland
Banca Intesa SpA
A+/Stable/A-1
Alberto Buffa di Perrero
The stable outlook reflects our expectation that Banca Intesa will continue to deliver good profitability. The new business plan targets improving the cost-to-income ratio to 50% and boosting net income to €3 billion by year-end 2007. Such targets might prove to be challenging, given weak economic fundamentals in Italy. The bank's ongoing improvements in commercial performance and in cost controls, however, are likely to help to further improve earnings generation. Credit provisioning reached a cyclical low in 2005, but could rise in 2006 if Italy's economic fragility persists; we nevertheless expect credit risk costs to remain much below those of 2000-2004. An unexpected sharp deterioration in domestic asset quality or operational and financial risk related to a major acquisition in or outside Italy could negatively affect the ratings. Conversely, considerably higher profitability coupled with the maintenance of low credit risk and satisfactory capitalization could put upward pressure on the ratings.
Italy
Banca Monte dei Paschi di Siena SpA
A/Stable/A-1
Renato Panichi
The stable outlook reflects our expectation that, in the next few quarters, MPS will confirm the sustainability of its improved 2005 operating performance, leveraging on its solid franchise in retail and small and midsize enterprises. Although the Italian economy's mediocre medium-term growth prospects may weigh on MPS' cost of credit risk, we expect credit losses to remain moderate. MPS' capital position is set to remain very weak, but is unlikely to deteriorate further. In the near to medium term, the ratings could come under downward pressure if the recovery in profitability reverses or asset quality unexpectedly deteriorates. The current ratings do not factor in any acquisitions or mergers that could affect the group's risk profile. The potential for an upgrade is slim, given the group's lower earnings and weaker capital position than for peers.
Italy
Banca Nazionale del Lavoro SpA
AA-/Positive/A-1+
Renato Panichi
The positive outlook reflects the possibility that we could raise the long-term rating on BNL to 'AA' and equalize it with that on BNP Paribas in the medium term, if the French banking group achieves targeted acquisition-related synergies and demonstrates that integration is proceeding as planned. Conversely, the outlook could be revised to stable if BNP Paribas proves unable to reach synergy and integration targets or if BNL's financial profile deteriorates meaningfully, which could result primarily from an unexpected worsening of asset quality.
Italy
Banco Bilbao Vizcaya Argentaria, S.A.
AA-/Stable/A-1+
Jesus Martinez
The stable outlook reflects Standard & Poor's expectation that BBVA will maintain its strong operating performance, particularly in Spain and Mexico. Moreover, we expect BBVA to maintain its core capital objective of 6%. The outlook takes into account BBVA's willingness to continue to conservatively manage its exposure to Latin America. We expect the bank to be able to withstand a meltdown in one of the small Latin American markets, should this occur. A severe stress in Mexico, while unexpected, would, however, have negative rating implications. Standard & Poor's base case is one of stable ratings for BBVA. An upgrade would depend on BBVA showing a more balanced business profile with lower reliance on emerging markets, while obtaining a solid financial performance in all its business lines.
Spain
Banco Comercial Portugues, S.A.
A/Stable/A-1
Elena Iparraguirre
The stable outlook reflects our expectations that Millennium bcp will continue to make good progress in the implementation of its sensible strategy. The group's profitability and capital position are expected to continue strengthening, with credit quality remaining well under control despite the Portuguese economy's still-low growth prospects. We expect the branch expansion process in Poland and Greece to be managed smoothly, to enable continued growth in their profit contribution to the group. Further divestments of noncore assets will take place. The outlook also takes into consideration the bank's potential acquisition of BPI. Such an acquisition could significantly strengthen Millennium bcp's position in the Portuguese market and its opportunities for profitability improvement through cost cuts. It could also, however, involve the integration risks inherent in such transactions. The achievement of a stronger and less sensitive capital base and higher recurrent returns could lead to ratings upside. Conversely, a weaker commitment by management to capital discipline or failure to deliver sound profits could negatively affect the ratings.
Portugal
Banco Popular Espanol, S.A.
AA/Negative/A-1+
Elena Iparraguirre
The negative outlook reflects the downward trend in the bank's profitability and core capital position, narrowing the considerable gap that once existed compared with lower-rated peers. Although the prevailing low interest-rate environment and the demanding provisioning requirements mandated by regulators partly explain pressures on the bank's bottom-line results, Standard & Poor's believes that Popular's performance has also been affected by the shift in the bank's funding profile toward wholesale resources, the dilutive effect of its Portuguese subsidiary, and the offering of more competitive pricing to attract new clients. Rapid volume growth, in turn, primarily explains the declining trend in the bank's core capital position. The key factors that will drive future rating actions on the bank, and that Standard & Poor's will therefore monitor over the next year, are the evolution of the bank's profitability and core solvency measures. Further deterioration would prompt a lowering of the long-term rating. Conversely, if Popular succeeds in preserving healthy returns, stabilizing them at current, above-average levels, and manages to reverse the downward trend in capital, the outlook could be revised to stable. In that sense, the capital increase completed in 2005 and the recently announced more moderate growth plans are viewed positively. Other issues that could trigger a rating downgrade are an aggressive acquisition that stretches solvency or signs of meaningful loan deterioration, neither of which is expected.
Spain
Banco Santander Central Hispano, S.A.
AA-/Positive/A-1+
Jesus Martinez
The positive outlook reflects the potential continued improvement in the group's performance in the medium term, which could warrant an upgrade. This would be driven by Abbey's ability to increase its revenues, and the Santander group's continued improvement in risk and revenue diversification, and maintenance of good overall asset quality. Ongoing changes in Abbey's organization and culture could lead to improving operating performance. Standard & Poor's Ratings Services also expects Santander to continue strengthening its capital position through internal capital generation and the sale of noncore assets. The outlook could be revised to stable if Santander is unable to achieve stronger profitability at Abbey, or if there is a fundamental deterioration in one of its major markets. Manageable acquisitions that maintain the bank's current financial profile will not affect the ratings. A large, unexpected acquisition that would introduce execution risks to the balance sheet and leverage Santander's capital position, however, would reduce the potential for an upgrade, or even have negative rating implications.
Spain
Bank of Ireland
A+/Positive/A-1
Nigel Greenwood
An upgrade would be warranted if BOI continues to manage the growth of its Irish, U.K., and wholesale operations without a material weakening in capitalization, asset quality, or liquidity. Successful implementation of the Strategic Transformation Programme, and a lowering of the cost-to-income ratio toward 50%, will also help to better position the bank relative to higher rated peers. Rapid growth in property-related lending remains a cause for potential concern, but Standard & Poor's expects BOI to continue to manage lending risk in a controlled manner. If the ratings on BOI are raised, then the short-term rating on Bristol & West, which Standard & Poor's now considers to be a core subsidiary of BOI, would be raised to 'A-1+'. Likely drivers of a revision of the outlook back to stable would be the inability to successfully finance future growth and a greater than expected acquisition appetite.
Ireland
Barclays Bank PLC
AA/Stable/A-1+
Nick Hill
The stable outlook reflects the expectation that earnings will remain good overall. Arrears on U.K. personal sector lending are rising, but should remain manageable. Barclays has an interest in value-creating corporate activity, however, and in organic expansion (for example, in BarCap). Standard & Poor's will continue to monitor the effect of this strategy on earnings quality, capitalization, and the risk profile as it could in some circumstances put pressure on the outlook. A positive rating action would require continued improvements in the diversity and sustainability of Barclays' earnings, and clarity regarding the changing international profile. However, tight capital policy will be likely to restrain the ratings. A negative rating action could follow if risk charges jump dramatically, or if the balance sheet is leveraged excessively to finance an acquisition.
U.K.
Bayerische Hypo- und Vereinsbank AG
A/Negative/A-1
Stefan Best
The outlook on HVB and its related subsidiaries reflects that on Unicredito. The ratings on Unicredito and HVB may be lowered if the new group fails to achieve tangible improvements in consolidated earnings and capital ratios over the next two years. Unicredito's successful integration of the HVB group and the further restructuring of German business, including HVB's real estate loans of about €110 billion ($134 billion), are also crucial factors. Conversely, the outlook could revert to stable if the group successfully restores its earnings and capital ratios. At the same time, a turnaround in HVB's performance and closer integration of HVB within the new group could lead to a convergence of ratings with those on Unicredito over time. Standard & Poor's will also monitor the development of the new group's organizational structure and its implications on HVB's and BA's business and financial profiles.
Germany
Bayerische Landesbank
A/Stable/A-1
Harm Semder
The stable outlook reflects Standard & Poor's expectation that the Bavarian savings banks (BSBs) and BayernLB maintain the momentum achieved to improve cohesiveness and cooperation of the group, and, eventually, to further improve its aggregate risk profile and financial strength. It also reflects that progress in BayernLB's transformation will further improve its weaker financial and risk profile compared with the BSBs. The BSBs are expected to maintain their strong competitive position and sound earnings, but prospects for revenue growth in 2006 remain very narrow in the current domestic market environment. Standard & Poor's would consider negative rating implications if cohesiveness within the group were to weaken, although this is not expected. BayernLB's failure to offset the negative impact from the loss of the guarantees through repositioning, a recurrence of considerably asset quality problems, or the BSBs' failure to successfully address competitive pressures could also have negative implications.
Germany
BNP Paribas
AA/Stable/A-1+
Sylvie Dalmaz
The stable outlook reflects our expectation that BNP Paribas will maintain its robust financial profile and preserve its credit-risk-averse culture, despite a likely moderate rise in loan loss provisions from their cyclical, unsustainable lows in 2004 and 2005. The outlook also factors in our belief that the expansion policy of the group will not significantly hurt its risk profile or further weaken its capital position. Although the proposed BNL acquisition entails some execution risks, we expect BNP Paribas to manage the integration process well, in line with the group's successful track record. We could revise the outlook to negative if these expectations are not met. Conversely, we could revise it to positive if the group further diversifies its businesses and earnings without damaging its risk profile or capital position. This would particularly hinge on BNP Paribas' ability to demonstrate that BNL's integration is proceeding as planned.
France
Caisse Centrale du Credit Mutuel
A+/Positive/A-1
Xavier Got
The positive outlook on CCCM and CM-CIC's other core entities reflects the steady benefits arising from tighter coherence and greater efficiency within the group. As CIC moves toward a more efficient structure, prospects for better cost control are becoming more tangible. We believe that CMCEE has the size and diversification to absorb the equity derivative-related losses revealed by CIC in the first half of 2005 without a prolonged weakening in its financial profile. If Crédit Mutuel's retail-banking activities continue to perform well, and if CMCEE strengthens risk management in its market activities in 2006, while its active development strategy yields more tangible results, the ratings on all the core entities of the group could be raised to the 'AA' category. Conversely, if these hypotheses are not met, the outlook could be revised to stable.
France
Caisse Nationale des Caisses d'Epargne et de Prevoyance
AA/Stable/A-1+
Elisabeth Grandin
The stable outlook on CNCE is based on Standard & Poor's opinion that GCE will continue to improve profitability, while maintaining a sound risk profile and strong capitalization--with the Tier 1 ratio at a minimum 9%. To accomplish that, we expect GCE to cautiously develop its corporate and investment banking and small and midsize enterprise (SME) businesses. The outlook does not take into account the Natixis venture, where the outcome is still uncertain. Any agreement would require approval by CNCE's strategic shareholder, Caisse des Dépôts et Consignations (AAA/Stable/A-1+), which has expressed initial opposition to the idea. We would consider as negative rating factors GCE's failure to demonstrate improvements in profitability or unexpected risk management issues at IXIS CIB or with the SME business; or a more aggressive wholesale development strategy or any material decline in the group's capital ratios resulting from the Natixis venture.
France
Caja de Ahorros y Monte de Piedad de Madrid
A+/Positive/A-1
Angela Cruz
The positive outlook reflects the likelihood of an upgrade if the bank maintains current performance trends, keeping solid credit risk and stable core capitalization. Caja Madrid is well poised to exceed the challenging profit and efficiency targets of its 2004-2006 plan, supported by ongoing emphasis on expanding parabanking products (including insurance), enhancing service quality, and further improving efficiency. At the same time, Caja Madrid's expansion plans, including to continue widening its presence outside its core region, are fairly gradual and easily manageable. Continued stability in core solvency, underpinned by the bank's policy to not let capital leverage increase, would be an additional positive factor for the ratings. Caja Madrid is likely to maintain comparatively sound performance of its loan book (with respect to that of its peers) throughout the cycle, due to its low risk profile and adequate risk management. Standard & Poor's will monitor any changes in the bank's permanent equity stake portfolio.
Spain
Caja de Ahorros y Pensiones de Barcelona
A+/Positive/A-1
Elena Iparraguirre
The positive outlook reflects the possibility of an upgrade if the current positive trends are maintained--in particular, the improving trend in the performance of the banking business. In addition, we will look for core solvency to be maintained and sound asset quality to be preserved. Conversely, a meaningful increase in la Caixa's equity exposure, downward pressure on capital levels, failure to improve banking returns, or loss of market power, none of which is currently expected, could have negative implications for the institutions' outlook or ratings.
Spain
Commerzbank AG; Eurohypo AG
A-/Stable/A-2
Stefan Best
The stable outlook on Commerzbank is based on Standard & Poor's expectation of reduced earnings volatility for Commerzbank and that Eurohypo's profitability will continue to benefit from asset shifts to higher margin business and acceptable provisioning needs. The purchase price and funding of the acquisition of Eurohypo was in line with the group's plan. Standard & Poor's expects that capital will be gradually replenished through earnings retention to improve the group's ACE and ATE ratios to more than 5% and 6%, respectively, over the next two years, although a rebound to pre-acquisition ACE ratios is unlikely. For Standard & Poor's to consider an upgrade, the new group would have to demonstrate stronger core earnings momentum to catch up with higher-rated international peers. This would be helped by an improvement in the domestic economic and competitive environment and still fragile real estate markets, which is as yet uncertain. Conversely, a deterioration of asset quality and earnings could have negative rating implications.
Germany
Credit Agricole S.A.; Calyon; Credit Lyonnais
AA-/Positive/A-1+
Xavier Got
The positive outlook on CASA and Crédit Agricole's other core entities reflects our expectation that the group will focus on leveraging its enhanced business position to improve operating performance. The earnings recovery of the wholesale-banking unit in 2004 and 2005 is expected to continue--even though the targeted rise in Calyon's revenues and profitability will be challenging to attain. We believe that the cost of risk in CIB, even after returning to more "normal" levels in the medium term, will remain favorable. We expect the group rapidly to restore its core solvency ratios to current levels if its announced cash offer for 100% of Emporiki Bank of Greece S.A. shares is successfully completed. In that case, we would expect a clear slowdown in Crédit Agricole's external growth policy for the following quarters. If both Calyon and Crédit Lyonnais achieve sustainable stronger earnings, while the group continues to maintain a low risk profile, the ratings could be raised. Conversely, unexpected significant risk management issues in CIB, or operational or financial risks related to a large acquisition, could translate into an outlook revision or put downward pressure on the ratings.
France
Credit Suisse Group; Credit Suisse
A+/Stable/A-1; AA-/Stable/A-1+
Nick Hill
The stable outlook on CSG reflects its major and sustained improvement in profitability, which has led to a material increase in capitalization, which Standard & Poor's expects will improve further on the sale of Winterthur. The outlook also reflects some potential for franchise development through the integration of its banking businesses, which should lead to greater coordination and cross selling over the medium term. A positive change in the ratings would be subject to a further major improvement in the profitability of the group, particularly in the investment bank, which must show sustained structural improvement, coupled with a stable risk profile and continued strong performance in the private bank and asset management divisions. Conversely, negative ratings implications could arise from unexpectedly large market losses, litigation charges, or a failure to deliver results from the integration of its banking businesses.
Switzerland
Danske Bank A/S
AA-/Stable/A-1+
Miguel Pintado
The stable outlook is based on the expectation of sustained earnings and efficiency, despite the prolonged low interest rate environment and heightened competition. The loan portfolio should continue to exhibit strong asset quality. Capital was strained by the Irish acquisitions, but high earnings stability, in combination with the decision to exit large parts of the wholesale banking operations, have allowed a swift restoration of capital ratios to acceptable levels for the risk profile, even though capital targets are now slightly lower. An unexpected sharp deterioration of asset quality or failure to further integrate the acquired Irish operations could have a negative impact on the outlook or the ratings. A positive ratings action would require additional uplifts to earnings quality to compare more strongly with 'AA' rated peers, strengthened capitalization, and evidence of success in the integration and enhancement of the operations in Ireland, confirming the credibility of the international retail-banking strategy. A positive rating action is unlikely given the current business concentrations, however.
Denmark
Deutsche Bank AG
AA-/Stable/A-1+
Bernd Ackermann
The stable outlook reflects Standard & Poor's expectation that Deutsche Bank should be able to maintain sound earnings in a less favorable capital-market environment given the diversification achieved within Corporate Banking and Securities (CB&S), and the enhanced absolute bottom-line contribution from its other business lines. Management is expected to remain committed to further progress in businesses outside investment banking. Moreover, the bank's drive to manage capital more aggressively is expected to be curbed, and the improvement in adjusted common equity and adjusted total equity as a result of the disposal of its stake in Eurohypo AG (A-/Stable/A-2) is likely to be sustainable. Significant and sustainable progress in delivering continued profitable growth across business lines--but most importantly in the noninvestment banking divisions--would have positive rating implications. A failure to demonstrate the sustainability of sound earnings, particularly in its investment-banking division, would be considered negative. A significant increase in leverage would also have negative rating implications, also if litigation risk were to affect the bank's capital position significantly. Deutsche Bank is increasingly eager to grow retail operations in emerging markets. If the bank were to embark on a major acquisition, such a transaction would have to be assessed in light of the impact on its financial profile, the strategic fit, and Deutsche Bank's track record in the respective markets.
Germany
Dexia Bank S.A.; Dexia Banque Internationale a Luxembourg; Dexia Credit Local
AA/Stable/A-1+
Sylvie Dalmaz
The stable outlook reflects our expectation that Dexia will continue to focus primarily on low-risk businesses and wealthy geographical areas, as well as maintain satisfactory profitability and capitalization. Although Dexia will continue to seek acquisition opportunities, the current ratings reflect our expectation that the group will refrain from large moves. We expect that Dexia will maintain satisfactory operating profitability in 2006, thanks to its diversified business profile and low cost of risk. The group's public finance business line is likely to continue to affirm its status as a leading contributor to earnings, while personal financial services are expected to benefit from strong commercial dynamism in the Belgian network. The outlook could be revised to negative if these expectations are not met, and specifically if difficulties arise in integrating DenizBank or if the bank further significantly expands in emerging markets.
Belgium
DnB NOR Bank ASA
A+/Stable/A-1
Miguel Pintado
The stable outlook reflects our expectation that DnB NOR will be able to deliver solid core earnings in the medium term. Furthermore, we expect DnB NOR to be able to maintain sound asset quality through the business cycle, as loan losses will not likely remain at current low levels. Capital ratios should remain satisfactory. The ratings could be raised if, while maintaining a similar conservative risk profile, DnB NOR demonstrates ability to deliver sustainable profitability through productivity gains and dynamic fees and commissions from life insurance and asset management. The ratings could come under pressure in the event of a sharp deterioration of asset quality either as a result of a macroeconomic shock in Norway or in any of the industries to which DnB NOR is most exposed. Furthermore, while we favor geographical diversification, the rating could be lowered if the current conservative risk profile became significantly altered in the quest for growth and market share in Eastern Europe through the recently established joint venture DnB NORD.
Norway
Dresdner Bank AG
A+/Stable/A-1
Volker von Kruechten
The stable outlook reflects the expectation that Dresdner's retail banking operations in particular should gradually benefit from intensified cooperation within the Allianz group. In addition, the closer integration of Dresdner's wholesale operations, which account for the major part of the bank's business, should help to stabilize the operating performance of the investment-banking business, which remains reliant on a favorable capital market environment, however. To consolidate the bank's position as an integral part of the Allianz group, a significantly higher and sustainable level of profitability will be needed. The outlook could be changed to positive if the bank's reorganization were to allow Dresdner to build up considerable revenue momentum and narrow the significant earnings gap to major peers. Conversely, if the bank failed to tackle its weak cost efficiency, the ratings on Dresdner might be adversely affected. If, contrary to expectations, Allianz were to reconsider its commitment to Dresdner's wholesale business, rating implications would also be negative.
Germany
DZ BANK AG Deutsche Zentral-Genossenschaftsbank
A/Stable/A-1
Bernd Ackermann
The stable outlook is based on Standard & Poor's expectation that the improvements in profitability, asset quality, and capitalization, achieved by Germany's cooperative banking sector are sustainable, and that solidarity within the sector will remain unchanged. Improved risk management across the sector that has lowered the number of banks requiring new support, and the consolidation trend among local cooperative banks underpin the stable outlook. Moreover, the strong recovery in DZ BANK's intrinsic risk and business profile is also expected to be sustainable. More material progress in both improving the profitability of local banks, most likely to be achieved by realizing cost synergies from consolidation and harmonization efforts, and further improvements in DZ BANK's financial profile including continued momentum at strategic sector institutions could have positive rating implications. Conversely, a reversal of the sector's recovery could trigger negative rating actions.
Germany
Fortis Bank
AA-/Stable/A-1+
Elisabeth Grandin
The stable outlook on Fortis Bank reflects Standard & Poor's expectation that Fortis will continue to deliver satisfactory operating results and stabilize capital ratios. The Tier 1 ratio is set to remain at about 7% through 2006. We believe that profitability in banking is likely to remain good in 2006, even if the excellent performance in merchant banking is difficult to sustain. Fortis Bank's cost of risk stands to increase slightly in 2006 from current record lows. We could revise the outlook to negative if Fortis' growth strategy significantly degrades the currently moderate risk profile. Conversely, we could revise the outlook to positive if the group demonstrates its ability to deliver a broad-based improvement in profitability ratios while retaining its moderate risk profile.
Belgium
HBOS PLC; Bank of Scotland; Halifax PLC
AA-/Stable/A-1+; AA/Stable/A-1+; AA/Stable/A-1+
Richard Barnes
The stable outlook reflects Standard & Poor's expectation that HBOS' earnings and balance sheet will remain strong. The cyclical rise in impaired retail loans is likely to continue in the second half of 2006 and into 2007, but the rate of growth should slow as the seasoning effect diminishes. Standard & Poor's fully expects HBOS to revert to a more aggressive underwriting stance once it considers the credit environment to be more favorable. Core capitalization should remain stable as more active capital management, including an initial £750 million share buyback in 2006, offsets increased retentions and slower asset growth.A positive outlook could result from sustained earnings growth and the maintenance of a resilient balance sheet through a more testing credit environment. The outlook could change to negative should asset-quality indicators deteriorate significantly beyond current expectations.
U.K.
HSBC Holdings PLC; HSBC Bank PLC
AA-/Stable/A-1+; AA/Stable/A-1+
Michelle Brennan
Standard & Poor's expects HSBC to underpin its solid profitability and mitigate the risk of economic stress through its very strong geographic and earnings diversification, and continuing organic earnings growth. Standard & Poor's does not expect HSBC to compromise its strong liquidity, healthy capitalization, and sound risk-management principles to chase growth, or to make transformational acquisitions. HSBC Finance's earnings are expected to show better underlying quality going forward, helped by increasing integration into the group. A negative rating action could occur if the group exhibits structural declines in earnings quality or grows rapidly through additional acquisitions in volatile business classes, if risk charges jump dramatically, or if the risk profiles of the emerging market operations deteriorate significantly. A positive rating action would require continued control of risk charges and enhanced franchise development in markets where HSBC is not a top-Tier player.
U.K.
HSH Nordbank AG
A/Stable/A-1
Harm Semder
The stable outlook reflects Standard & Poor's expectation of ongoing implicit state support based on the states' roles as owners and guarantors for grandfathered obligations, and HSH Nordbank's importance for the regional economy as an employer, taxpayer, and credit provider. Furthermore, the outlook on HSH Nordbank also reflects Standard & Poor's expectation that HSH Nordbank will continue its strategy, focusing on defensible core businesses to gradually offset the negative impact of the recent withdrawal of state guarantees. Standard & Poor's would consider negative rating implications of lower implied state support if the state owners' economic interest in HSH Nordbank were to weaken. Furthermore, ratings could be under pressure if HSH Nordbank's fails to achieve expected improvements in earnings retention combined with a reduction in its intrinsic business risk profile.
Germany
ING Bank N.V.
AA/Stable/A-1+
Richard Barnes
The stable outlook reflects Standard & Poor's expectation that ING Bank will sustain the tangible progress achieved in recent years. Although the pace of recent earnings growth will be very difficult to maintain, ING Direct should drive further improvements in profitability. The expansion of retail banking, refocusing of wholesale activities, and implementation of more proactive risk management will continue to benefit the bank's overall risk profile. The priority given to efficiency improvements should help to offset the return of the provision charge to a more normal level. Core capitalization should remain broadly stable, as dividends and balance-sheet growth absorb retained earnings.As a core member of the ING Group, future rating actions on ING Bank would most probably be driven by developments across the group rather than purely within the bank. Rating changes are not considered likely, but could result from a material positive or negative shift in the group's profitability or capitalization/leverage.
Netherlands
KBC Bank N.V.
A+/Positive/A-1
Sylvie Dalmaz
The positive outlook reflects the possibility of an upgrade to 'AA-/A-1+' if KBC Bank sustains its recently improved operating profitability for full year 2006. The outlook also takes into account the bank's ongoing expansion plans in Central Europe, primarily in countries where it already has a foothold, and the likely improvement in its control of subsidiaries owing to the enhanced governance model implemented for the region. We also expect a moderate increase in the cost of credit risk throughout 2006, from the current exceptional low.
The outlook could be revised back to stable, however, if these expectations are not met, for example, due to an expansion strategy in Central Europe that significantly damages the bank's risk profile.
Belgium
Landesbank Baden-Wuerttemberg
A+/Stable/A-1
Bernd Ackermann
The stable outlook reflects the expectation that LBBW's gradual progress in mitigating the negative impact on its financial profile from the loss of its state guarantees will be sustained. The existing cooperation between LBBW and its owner savings banks is also expected to progress further. The trend in LBBW's intrinsic business and financial profile is positive, underpinned by the gradual improvements in its core customer business, cost-cutting initiatives, continued earnings retention, and funding initiatives. However, this would not automatically have positive rating implications unless such progress is more material. This is because Standard & Poor's generally believes that over time, as the transformation process of individual Landesbanks progresses, the importance of a state support element in the ratings on Landesbanks might diminish. This could offset improvements in Landesbanks' intrinsic business and financial profile, in particular at very high rating levels. Negative rating implications could result if the negative impact from the loss of its state guarantees should turn out to be materially higher than expected, or if LBBW were to embark on further sizable acquisitions before a successful completion of the integration of BW-Bank and LRP.
Germany
Lloyds TSB Bank PLC
AA/Stable/A-1+
Richard Barnes
The stable outlook reflects Standard & Poor's expectation that Lloyds TSB will build upon the tangible progress achieved in the recent past. In particular, the outlook assumes that risk-adjusted profitability will remain strong, retained earnings growth will improve further, and core capitalization according to Standard & Poor's measures will strengthen.A negative outlook could result if the expected growth in retained earnings and core capitalization does not materialize, or if there is an unexpectedly sharp rise in loan impairments. A positive outlook would require an immense improvement in balance-sheet strength, which Standard & Poor's does not foresee over the ratings horizon.
U.K.
Natexis Banques Populaires
AA-/Watch Pos/A-1+
Elisabeth Grandin
The CreditWatch placement reflects our view that once transformed into Natixis, NBP will be and will remain a core entity for its two parents, with very strong strategic, financial and operational links with them and with a stronger stand-alone situation. If both partners agree on the Natixis venture, receive the necessary authorizations, and follow the several financial steps to reach a Natixis venture owned 34% by GBP, 34% by GCE, and 32% by the market, Standard & Poor's will likely raise the ratings on NBP by one notch to equalize it with the rating on CNCE, reflecting the combined support of the two parent groups.
France
Norddeutsche Landesbank Girozentrale
A/Stable/A-1
Harm Semder
The stable outlook reflects Standard & Poor's expectation that a legally enforceable regional protection scheme will be introduced by mid–2006 at the latest, and that cooperation will progress between the owner savings banks and NORD/LB. NORD/LB's risk profile is expected to benefit from its de-risking strategy, substantial capital improvements, and cost cutting. This should translate into sustainable earnings after risk in 2006. The owner savings banks are expected to maintain their strong market position and sound earnings levels, but prospects for revenue growth in 2006 remain fairly limited in the current market environment. Standard & Poor's would consider negative rating implications if the group fails to establish its regional protection scheme and closer cooperation. Furthermore, failure to successfully implement NordLB's transformation plan or the owner savings banks' failure to successfully address competitive pressures could also have negative implications.
Germany
Nordea Bank AB; Nordea Bank Finland PLC; Nordea Bank Norge ASA; Nordea Bank Danmark A/S
AA-/Stable/A-1+
Miguel Pintado
The stable outlook reflects our expectation that Nordea will maintain its satisfactory profitability ratios through the business cycle with a more normalized level of loan losses, while maintaining its current low risk profile. We anticipate progress in operational integration to continue in all business areas and similar efficiency levels through operational costs growing in line or at a lower pace than revenues. Moreover, the outlook incorporates our belief that Nordea will keep capitalization levels comfortably above its stated targets. Any unexpected change in the bank's prudent expansion strategy in Eastern Europe, a failure to contain costs, or a sharp deterioration in asset quality could have negative implications for the ratings.
Sweden
Rabobank Nederland
AAA/Stable/A-1+
Michelle Brennan
The stable outlook reflects Standard & Poor's expectation that Rabobank Nederland will continue to demonstrate a stable earnings performance, with low risk charges. The quality of capital is not expected to erode further. The recent Achmea (insurance) and Athlon (car leasing) transactions reflect Rabobank Nederland's search for opportunities outside its traditional core businesses, due to increased competition and limited growth prospects in Dutch financial services. Standard & Poor's will continue to monitor Rabobank Nederland's changing business structure as it seeks to bolster its domestic profile and grow selectively internationally, admittedly in a risk-averse manner. The ratings could come under pressure if the growing insurance and international components weaken future earnings quality, capitalization, and risk profile. Standard & Poor's would assess, for example, the impact of a move toward a full merger with Eureko on the group's risk characteristics and franchise reach.
Netherlands
Royal Bank of Scotland Group PLC (The); National Westminster Bank PLC; Royal Bank of Scotland PLC (The)
AA-/Stable/A-1+; AA/Stable/A-1+; AA/Stable/A-1+; AA/Stable/A-1+
Michelle Brennan
Standard & Poor's expects that efficiency and overall asset quality will remain good (despite the upturn in U.K. personal sector arrears), and that retained earnings generation will remain strong. Margin declines in some businesses should be easily offset by income growth across the group. Standard & Poor's expects RBSG to pace its buybacks in line with profit generation to ensure that capitalization remains stable compared with year-end 2005 levels. The outlook could be revised to negative if core capital is not maintained in line with expectations, be this due to weaker-than-expected earnings generation or additional acquisitions (no material acquisitions are expected, however). Standard & Poor's will also continue to monitor the financing and structuring of ongoing expansion, and its impact on risk and earnings. A positive ratings action would require continued delivery of superior profitability, in absolute terms and mix. RBSG's high leverage is likely to restrain the rating, however.
U.K.
Sanpaolo IMI SpA
AA-/Stable/A-1+
Renato Panichi
The stable outlook reflects Standard & Poor's expectation that the Sanpaolo group will maintain its low risk profile and adequate capital position. Enhanced commercial dynamism coupled with positive long-term growth prospects in the domestic retail business and a favorable interest rate environment should allow the group to maintain the higher level of profitability that it demonstrated in 2005 for full year 2006 and over the medium term. The good performance of Sanpaolo IMI, and of the entire Italian banking sector, contrasts with the sluggish Italian economy and poor state of government finances, reflected in the 'AA-/Negative/A-1+' rating on the Republic of Italy. The credit rating on the Republic of Italy, as a member of the European Monetary Union, does not directly constrain the ratings of Italy-based entities, except in the public sector. Sanpaolo IMI's strong credit risk management would help the bank manage any negative fallout from further worsening in the sovereign's credit profile. Despite the more lively lending policy Sanpaolo IMI has adopted since 2005, we expect the group to preserve its healthy asset quality in the context of the poor growth prospects for the Italian economy. Our view is based on the group's willingness and ability to adopt a selective and proactive approach in credit risk management. Prolonged stress in the domestic economy that hampers group asset quality, while unexpected, would have negative rating implications. The potential for an upgrade is slim, given the group's essentially domestic business profile and the relatively high level of economic risk in the Italian economy. The current ratings do not factor in any acquisitions or mergers that could affect the group's risk profile.
Italy
Skandinaviska Enskilda Banken AB
A/Positive/A-1
Miguel Pintado
The positive outlook reflects our expectation that the bank's increased focus on retail banking and cost efficiency will continue to support the very good financial performance in the near future and over the medium term. We also expect that SEB's robust business positions in corporate and merchant banking in Sweden and the Baltic region will support the sustainability in revenues and earnings through the business cycle. We also anticipate that the bank will conduct its expansion into Eastern European emerging markets in a conservative fashion, keeping core capital at levels at least similar to those reported in the past two years. Although Standard & Poor's still expects the German retail and mortgage operation to underperform relative to the rest of the group in the short to medium term, a sharp deterioration in profitability in Germany or a sharp increase in non-performing and doubtful assets or in risk provisions in Germany, the Baltic countries, or elsewhere could have a negative impact on ratings. If the group demonstrates continued progress through sustained good asset quality and earnings levels in the coming months, indicating a fundamental improvement in performance while preserving prevailing capitalization and risk profile levels, the ratings could be raised.
Sweden
Societe Generale
AA-/Positive/A-1+
Elisabeth Grandin
The positive outlook reflects the potential for an upgrade if SocGen can sustain the stronger operating profitability posted in 2004 and 2005, while maintaining its strong balance sheet and focused strategy. This would require the expansion of the bank's growth platforms to compensate for any pressures on domestic retail revenues. Such improved business diversification would also dilute the weight of CIB in consolidated group profits. We also expect in 2006 a moderate increase in cost of risk; continued small to midsize acquisitions in retail businesses outside France; and a Tier 1 ratio of 7%-7.5%, depending of the risk profile of the acquisitions. The outlook could be revised back to stable, however, if these expectations are not met, due, for instance, to excessive volatility of CIB results.
France
Standard Chartered Bank
A+/Stable/A-1
Nick Hill
The stable outlook on SCB reflects its solid and growing earnings stream. This provides a steady source of capital generation and is expected to enable a gradual rebuilding of capital ratios. Standard & Poor's expects any further acquisitions to be funded with sufficient equity to enable stable capitalization ratios, and organic growth to remain good. Overall credit quality is expected to remain strong despite a likely rise in net impairment charges, as wholesale recoveries fall and losses on Taiwanese credit cards increase. The outlook also reflects SCB's stronger strategic position, and the emerging benefits of the efficiency and investment programs of recent years. A further positive rating action is unlikely given SCB's current operating environment, but could be triggered by a major improvement in balance-sheet strength. Negative rating implications could arise from a significant increase in leverage, a reversal in organic growth, or major structural problems in SCB's core markets.
U.K.
Svenska Handelsbanken
AA-/Stable/A-1+
Martin Noreus
The stable outlook reflects Standard & Poor's expectation of sustained earnings capacity and very high efficiency, as well as a continued low level of problem loans and tight management of large credit exposures. Maintenance of satisfactory core capitalization measures will also remain one of the key factors for the ratings. The stable outlook also assumes that progress will be made in risk- and asset-management and allocation techniques in the insurance operations. It also assume that costs at SPP will continue to be reduced to allow the company to achieve sustainable administrative profitability. Failure to improve the earnings quality of SPP could put some pressure on the ratings.
Sweden
Swedbank (ForeningsSparbanken AB)
A/Positive/A-1
Miguel Pintado
The positive outlook reflects our expectation that the group will continue to report sound earnings, underpinned by its strong franchise in the Swedish retail market. Although capital ratios have been temporarily weakened by the acquisition of the minority interests in Hansabank, Standard & Poor's expects the group to rebuild its tier-one capital base through retained earnings to 7% or more within 12-18 months. The positive outlook also reflects our expectation that the integration process, which has already started on the funding side, will result in stronger oversight of the risks related to the group's Baltic operations, including credit risks. If the bank confirms the recent improvement in earnings over the coming quarters and successfully integrates Hansabank, the ratings will be raised. On the other hand, failure to integrate the Hansabank acquisition or to rebuild the core capital base could prevent an upgrade, or could even put pressure on the ratings.
Sweden
UBS AG
AA+/Stable/A-1+
Richard Barnes
The stable outlook reflects Standard & Poor's Ratings Services expectation that UBS' performance will remain strong, although the powerful revenue growth achieved in the supportive environment of recent years will be hard to match. Even if markets should become less favorable for a prolonged period, the strength and diversity of UBS' main business lines are expected to sustain a robust level of earnings. Close management of lending underpins UBS' credit risk profile, and a probable increase in value-at-risk (VaR) is expected to be closely controlled and relatively modest in the context of group resources. Core capitalization is expected to remain robust. Further bolt-on acquisitions are possible, but Standard & Poor's does not expect a transformational deal. A deterioration in the stability and sustainability of earnings, or a significant increase in UBS' risk appetite or leverage, could have negative rating implications. A positive rating action is unlikely given the sensitivity of revenues to financial market conditions.
Switzerland
UniCredito Italiano SpA
A+/Negative/A-1
Alberto Buffa di Perrero
The negative outlook reflects the possibility of downgrades of UniCredito and its related entities if the enlarged group fails to tangibly improve consolidated earnings and capital ratios over the next two years. Expected progress in UniCredito's earnings largely depends on its successful turnaround of German operations and the reduction of credit risk related to HVB's real estate lending book. Standard & Poor's will closely monitor the pace and efficiency of the integration process, given that the sheer complexity of a cross-border linkup between two large banking groups entails significant execution risks. We expect earnings retention and asset disposals to enable UniCredito to steadily rebuild its capital position over the next two years, in line with the group's prudent capital policy. If the group successfully strengthens its earnings and capital ratios, we could revise the outlook to stable. Unicredito is committed to restoring its consolidated core Tier 1 ratio (excluding hybrid capital) to 6% by year-end 2006 and to its established target of 6.8% thereafter.
Italy
WestLB AG
A-/Stable/A-2
Stefan Best
Standard & Poor's believes that further progress of WestLB's restructuring initiatives and implementation of its revised strategy will lead to closer integration with its owner savings banks, which are expected to retain a majority stake in WestLB, and gradually improve its business and financial profile. At the same time, Standard & Poor's expects WestLB to adapt its business model to reduce earnings volatility and overhead costs, while maintaining its improved risk strategy to mitigate the impact of the loss of the state guarantee. As WestLB was late in starting to tackle this complex task, core earnings were low in 2005 and are expected to improve only gradually in 2006. The owner savings banks are expected to maintain their strong market position and sound earnings, but prospects for revenue growth in 2006 remain fairly limited in the current market environment. Primary factors that would support a view of WestLB and its owner savings banks as a single economic entity in the future are the strengthening of the level of integration and cooperation among the banks over time. This and the successful transformation of WestLB could have positive rating implications. Conversely, WestLB's failure to improve earnings and strengthen operational ties with the savings banks could question its role within the group and ongoing support from its owners, which could have negative rating implications. Furthermore, the owner savings banks' failure to successfully address competitive pressures could also have negative implications.
Germany
Caja de Ahorros y Pensiones de Barcelona (la Caixa)
A+/Positive/A-1
A+/Stable/A-1
April 6, 2006
The outlook revision reflects la Caixa's consolidation as a leading retail player in Spain following its aggressive, but successful, branch enlargement process over the past decade and the consequent improving trend of its recurring banking profitability.
Caja de Ahorros y Monte de Piedad de Madrid
A+/Positive/A-1
A+/Stable/A-1
April 6, 2006
The outlook revision reflects the bank's continued healthy performance, combined with conservative expansion objectives, sound and stable capital, and solid asset quality.
Dresdner Bank AG
A+/Stable/A-1
A/Stable/A-1
April 20, 2006
The upgrade reflects sustained and significant improvement in the bank's asset quality and risk management. Furthermore, after years
of extensive restructuring, Dresdner has stabilized its retail-banking franchise, which is expected to gradually benefit further from the collaboration with its parent Allianz.
Banco Santander Central Hispano S.A.
AA-/Positive/A-1+
A+/Positive/A-1
May 9, 2006
The upgrade reflects the profitability improvement at all Santander business units, as well as on Abbey's successful restructuring program, the rebuilding of Santander's core capital ratios, and the maintenance of good overall asset quality.
Banca Nazionale del Lavoro SpA
AA-/Positive/A-1+
A-/Watch Positive/A-2
May 17, 2006
The upgrade reflects potential support from the bank's new majority shareholder, higher rated BNP Paribas, following successful completion of its public offering for Banca Nazionale del Lavoro's shares. Standard & Poor's deems BNL to be a strategically important entity within the French banking group.
Natexis Banques Populaires
AA-/Watch Positive/A-1+
AA-/Stable/A-1+
May 26, 2006
The CreditWatch placement reflects the announcement by French bank Caisse Nationale des Caisses d'Epargne et de Prévoyance (CNCE) that its strategic shareholder Caisse des Dépôts et Consignations (CDC) has agreed to exit its capital, and that CDC has removed its initial opposition to the Natixis joint venture, making the final approval of the transaction by both partners likely to take place rapidly, and its completion by the end of the year.
Standard Chartered Bank
A+/Stable/A-1
A/Positive/A-1
June 7, 2006
The upgrade reflects the bank's increased international diversity, impressive growth, strong profitability, good track record in stress situations, structural improvements within its core markets in recent years, and the smooth integration of Standard Chartered First Bank Korea Ltd.
Credit Suisse Group/
Credit Suisse
A+/Stable/A-1
AA-/Stable/A-1+
A/Positive/A-1
A+/Positive/A-1
June 14, 2006
The upgrade reflects the sale of Winterthur Swiss Insurance Co., Credit Suisse Group's insurance subsidiary, to French insurer AXA. Material benefits for the group are expected, notably by freeing up capital previously held within Winterthur and by reducing of the overall market risk profile.
HSBC Holdings/
HSBC Bank PLC
AA-/Stable/A-1+
AA/Stable/A-1+
A+/Stable/A-1
AA-/stable/A-1+
June 19, 2006
The upgrade reflects the group's strong and growing earnings diversification, and stabilizing picture at its consumer finance operations.
Bank of Ireland
A+/Positive/A-1
A+/Stable/A-1
July 3, 2006
The outlook revision reflects the clearer evidence of better and more focused performance by BOI's U.K. division to complement its robust domestic franchise.
Sanpaolo IMI
AA-/Stable/A-1+
A+/Stable/A-1
July 5, 2006
The upgrade reflects the improvement in profitability Sanpaolo IMI has achieved in the past few years, while maintaining a low risk profile
and sound balance sheet.
*Actions taken between March. 23, 2006 and July 5, 2006.
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Table 3
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*Articles are available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com.
