Moody's downgrades Caja Laboral to Ba1.
Moody's Investors Service has today
downgraded the long and short-term deposit ratings of Caja Laboral
Popular Coop. de Credito to Ba1/NP from Baa3/P-3, prompted by the rating
agency's decision to lower Caja Laboral's standalone credit assessment to
ba1 from baa3, within the D+ standalone bank financial strength rating
The lowering of the standalone credit assessment reflects Moody's view
that further economic stresses will weaken Caja Laboral's risk-absorption
capacity, which, in turn, is affected by (1) a declining internal
capital generation capacity; and (2) the merger with Ipar Kutxa, SCC (not
publicly rated) on 2 November 2012.
This rating action concludes the review for downgrade, which Moody's
initiated on 25 June 2012.
The downgrade by one notch of Caja Laboral's standalone credit assessment
to D+/ba1 from D+/baa3 reflects the increased vulnerability of Caja
Laboral's risk-absorption capacity to scenarios of further economic
--- WEAKENING INTERNAL CAPITAL GENERATION CAPACITY
The first factor impacting Caja Laboral's risk-absorption capacity is its
weakening internal capital generation capacity, due to higher
provisioning needs. Constituted provisions exceeded pre-provision income
in 2011 and in Q32012, causing the bank to report a negative profit
before taxes in both reporting periods. An additional risk factor to the
increasing amount of non-performing loans is the significant amount of
capital losses on Caja Laboral's securities portfolio, which had a
negative impact on the bank's shareholder's equity of EUR147 million, as
of September 2012. The bank targets a reduction of its securities
portfolio in the following months, especially in terms of equity
securities. However, in Moody's view, this divestment strategy is subject
to the inherent volatility of the performance of financial markets, and
underpins the existing pressure on the bank's capacity to absorb further
--- MERGER WITH IPAR KUTXA
The second factor affecting Caja Laboral's risk-absorption capacity is
its merger with Ipar Kutxa. Caja Laboral and Ipar Kutxa display similar
asset-quality ratios, measured through the addition of non-performing
loans and acquired real-estate assets from troubled borrowers; i.e.
non-earning assets. However, Moody's says that Ipar Kutxa appears more
exposed to the commercial real-estate segment (CRE), which makes the
bank, in Moody's view, more vulnerable to scenarios of further economic
deterioration. The difference in risk-absorption capacity between Caja
Laboral and Ipar Kutxa is, however, tempered by the difference in size
between both institutions, with Ipar Kutxa's total assets amounting to
around 20% of those of Caja Laboral.
Notwithstanding the above, Moody's acknowledges that Caja Laboral still
displays a strong risk-absorption capacity relative to the average of
Spanish rated banks, driven by a relatively limited exposure to CRE and
an NPL ratio which, despite recent deterioration, remains significantly
below the system average (6.6% combining the NPL ratios of Caja Laboral
and Ipar Kutxa as of June 2012, compared with 9.7% for the system).
Overall, Moody's believes that, following the merger -- and taking into
account Caja Laboral's current performance and risk-absorption capacity,
the bank's credit profile is more consistent with a standalone credit
assessment of ba1.
The merger of Caja Laboral and Ipar Kutxa was completed on 2 November
2012. The merger was executed through the incorporation of a new credit
cooperative, to which both banks transferred all their assets and
liabilities. However, Moody's notes that the merged institution holds the
same name and fiscal domicile as Caja Laboral, which will exert control
over the governing bodies of the merged bank. In addition, Moody's says
that in respect of other elements that impact the standalone credit
assessment -- i.e., its franchise value, risk management or profitability
and liquidity position -- the merger has only partially affected Caja
Laboral's credit profile.
The downgrade of Caja Laboral's long and short-term deposit ratings to
Ba1/NP was prompted by the lowering of its standalone credit assessment.
Caja Laboral's deposit ratings do not benefit from any systemic support,
given the bank's low domestic market share and systemic importance.
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|Publication:||EMBIN (Emerging Markets Business Information News)|
|Date:||Nov 27, 2012|
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