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Research Update:
SNS REAAL And SNS Bank Ratings Placed On
Watch Neg Pending Announcement; Subordinated
Debt Lowered
Overview
· On Jan. 28, 2013, SNS REAAL provided a brief market update on its
progress in finding a comprehensive solution to enhance its capital base
and reduce property finance-related risks.
· We believe there is mounting pressure for the group to announce a
solution and that, as time passes, the risk of government intervention
increases, which in our view would limit the group's strategic options.
· We are therefore placing on CreditWatch negative our ratings on SNS REAAL
N.V. and SNS Bank N.V., and lowering the subordinated and hybrid debt
ratings on both entities while maintaining them on CreditWatch negative.
· Today's rating action does not affect our ratings on the group's
insurance subsidiaries, SRLEV N.V. and REAAL Schadeverzekeringen N.V.,
which remain on CreditWatch developing due to the uncertainty of their
position within the group under the group's strategic review.
· We expect to resolve the CreditWatch by around mid-February when the
group is due to announce its annual results. We expect an update on the
strategic review by that date.
Rating Action
On Jan. 29, 2013, Standard & Poor's Ratings Services placed on CreditWatch
negative its 'BBB-/A-3' long- and short-term counterparty credit ratings on
Netherlands-based bancassurance group SNS REAAL N.V. (SNS REAAL, or the group)
and the 'BBB/A-3' long- and short-term counterparty credit ratings on the
group's banking subsidiary, SNS Bank N.V.
At the same time, we lowered our ratings on the non-deferrable debt of SNS
Bank and SNS REAAL to, respectively, 'B' and 'B-' from 'BB+' and 'BB'. The
ratings on the instruments remain on CreditWatch negative, where they were
placed on Nov. 16, 2012. We also lowered our junior subordinated debt ratings
of SNS Bank and SNS REAAL to 'CCC' from 'BB' and 'BB-', respectively. The
ratings on these instruments also remain on CreditWatch negative, where they
were initially placed on July 20, 2012.
Today's rating action does not affect our ratings on the group's insurance
subsidiaries, SRLEV N.V. and REAAL Schadeverzekeringen N.V., which remain on
CreditWatch developing due to the uncertainty of their position within the
group under the group's strategic review.
Standard & Poor's JANUARY 29, 2013 2
1068689 | 300021798
Rationale
The CreditWatch placement of SNS REAAL and SNS Bank is based on our view of
possible negative implications for the group's overall franchise and the
bank's stand-alone credit profile (SACP) as a result of the protracted
strategic discussions currently taking place. Through these discussions, we
understand that the group aims to put in place measures to enhance its capital
base and reduce property finance-related risks. We also believe that the risks
of some form of government intervention and of imposed remedies--possibly
affecting the group's overall franchise—could rise. For example, a sale of
some or all of the insurance operations would lead us to remove any related
group support from our ratings on SNS REAAL and SNS Bank.
We continue to believe that support from the authorities to the group or the
bank would be forthcoming if needed, based on the bank's material retail
deposit share (about 10%) and its assessment as a systemically important
institution by the Dutch authorities. However, we lowered our ratings on SNS
REAAL and SNS Bank's non-deferrable and junior subordinated debt instruments
to reflect our view of a greater risk of losses on these instruments--whether
in the form of coupon omission or write-down--being forced by the authorities
if additional government support was required. Our view takes into
consideration the Dutch Intervention Act implemented in June 2012, which gives
the authorities wide-ranging powers to intervene with financial institutions
that face material difficulties. Our action also incorporates the possibility
of subordinated liability exercises initiated by the group, which we could
consider as a distressed exchange offer under our criteria.
On Nov. 16, 2012, we lowered the ratings on SNS REAAL and SNS Bank, and
assigned a negative outlook. Our action reflected our view of moderately
higher economic risks in The Netherlands and of some erosion in the bank's
franchise. We also noted that the strategic review could lead to the sale of
parts of or all of the group's insurance operations, which we view as having a
strong credit profile compared with the bank (see "SNS REAAL N.V. And Core
Subs Downgraded On Economic, Strategic Risks; Outlook Negative; Subordinated
Debt on Watch Neg"). Since the last rating action, we believe that there is
mounting pressure on the group to announce a solution, even if the likely
outcome is still unclear. We consider that a range of options are still
possible, some based on private sector involvement, although the ultimate
approval of any solution by the national and European authorities will be
required. In our view, any structure designed to insulate the bank from
property-related risks would likely result in a material immediate
crystallization of losses, in turn leading to some need for additional
capital.
Our ratings on SNS REAAL are based on our view of the combined strength of its
banking and insurance operations. They are underpinned, to some extent, by our
view of the stronger profile of the insurance operations compared to the bank.
The group's life and non-life operations, SRLEV N.V. and REAAL
Schadeverzekeringen N.V., currently have a SACP of 'a', compared with the
Standard & Poor's JANUARY 29, 2013 3
1068689 | 300021798
Research Update: SNS REAAL And SNS Bank Ratings Placed On Watch Neg Pending Announcement;
Subordinated Debt Lowered
bank's SACP of 'bb+'. We believe that the current uncertainty around the
likely outcome of the strategic review is exerting negative pressure on the
bank's SACP.
The issuer credit rating on SNS Bank includes two notches of group support
above its SACP based on the relatively stronger profile of its sister
insurance operations. The disposal of some insurance assets--if
material--would lead us to stop factoring any uplift related to these
activities in the ratings on the bank and the group. Nevertheless, we consider
that the bank has "moderate" systemic importance in The Netherlands, a country
that we consider to be "supportive" of its banking system, as our criteria
define these terms. As a result, the rating on the bank--if we were to exclude
any group support--could still benefit from a one-notch uplift above its SACP
under our government support approach.
We rate SNS REAAL one notch below the operating entities, in line with our
criteria for rating nonoperating holding companies.
CreditWatch
We expect to resolve the CreditWatch placements on SNS REAAL and SNS Bank in
the next few weeks, possibly by around mid-February, when the group is due to
announce its 2012 results. We believe the group is aiming to announce the
outcome of the strategic review by that date.
To resolve the CreditWatch on the long-term ratings, we will consider:
· To what extent the solution will insulate the property-related risks from
the bank;
· The strength of the group and the bank's capitalization, after any
possible capital enhancement measures and property finance-related
haircuts; and
· The scope of any imposed remedies, including possible asset disposals.
Resolution of the CreditWatch on the non-deferrable and junior subordinated
debt ratings will depend on whether we believe that additional support from
the authorities to the group or the bank will be required, as we believe that
this could lead to some form of burden sharing being imposed on these
instruments. It will also depend on whether the group will initiate liability
management exercises on these instruments, which we could consider as
distressed exchange offers under our criteria.
Related Criteria And Research
"SNS REAAL N.V. And Core Subs Downgraded On Economic, Strategic Risks; Outlook
Negative; Subordinated Debt on Watch Neg", Nov. 16, 2012
Standard & Poor's JANUARY 29, 2013 4
1068689 | 300021798
Research Update: SNS REAAL And SNS Bank Ratings Placed On Watch Neg Pending Announcement;
Subordinated Debt Lowered
Ratings List
CreditWatch/Outlook Action
To From
SNS REAAL N.V.
Counterparty Credit Rating BBB-/Watch Neg/A-3 BBB-/Negative/A-3
SNS Bank N.V.
Counterparty Credit Rating BBB/Watch Neg/A-3 BBB/Negative/A-3
Certificate Of Deposit BBB/Watch Neg/A-3 BBB/A-3
SNS REAAL N.V.
Senior Unsecured BBB-/Watch Neg BBBSNS
Bank N.V.
Senior Unsecured BBB/Watch Neg BBB
Commercial Paper A-3/Watch Neg A-3
Downgraded
To From
SNS REAAL N.V.
Subordinated B-/Watch Neg BB/Watch Neg
Junior Subordinated CCC/Watch Neg BB-/Watch Neg
SNS Bank N.V.
Subordinated B/Watch Neg BB+/Watch Neg
Junior Subordinated CCC/Watch Neg BB/Watch Neg
Additional Contacts:
Financial Institutions Ratings Europe;
[email protected]
Insurance Ratings Europe;
[email protected]
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at
www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column. Alternatively, call one of the following Standard & Poor's numbers:
Client Support Europe (44) 20-7176-7176; London Press Office (44)
20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm
(46) 8-440-5914; or Moscow 7 (495) 783-4009.
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