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Moody's downgrades Caja Laboral to Ba1.

Summary: Action follows merger with Ipar Kutxa and recent performance data

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



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



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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