Moody’s Investors Service has placed on review for downgrade the Aa3 long-term issuer rating of RBC Dexia. The rating action follows the ratings agency’s decision on Wednesday last week to place RBC’s (rated Aa1, on review for downgrade; Prime-1; B/Aa3 on review for downgrade) standalone rating on review for downgrade. The review will consider both parental support and standalone credit fundamentals, said Moody’s.
RBC was placed on review for downgrade among other banks and securities firms with global capital markets operations. Moody’s said the rating actions on banks with global capital market operations reflected, to differing degrees, the combined pressures stemming from more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions.
During the review, Moody’s will focus on to what extent RBC Dexia’s issuer rating, and in particular its current parental support assumptions, might be affected by a weakening of RBC’s standalone credit profile.
The review will also consider RBC Dexia’s standalone creditworthiness in the context of the potential impact of the delayed sale process – or more generally the operating environment – on the issuer’s fundamentals. Dexia is undergoing a government-sponsored restructuring plan that would see it shed its strongest assets, including its Turkish unit Denizbank and its share in RBC Dexia, after the Belgian institution was left with a significant funding shortfall in the wake of the European sovereign debt crisis and tensions in the interbank market. Moody’s said the disposal of Dexia’s 50% stake in RBC Dexia is taking more time than initially expected. During the review, the ratings agency will assess whether this delayed sale process has affected the joint-venture standalone creditworthiness, particularly its franchise value and risk positioning.
During the review, Moody’s will consider a potential downgrade of the Aa3 issuer rating of up to two notches, i.e. to A2. The ratings agency said RBC Dexia’s long-term issuer rating would likely be downgraded in the event of a deterioration of the standalone rating of RBC, which is currently under review for downgrade, an evidence of a significant deterioration of the joint-venture’s standalone creditworthiness, and/or a change in Moody’s assessment of the probability of parental support.
In January, Dexia CEO Pierre Mariani said he expected an agreement to sell its 50% stake in the RBC Dexia joint venture to be reached in the coming weeks. His comments follow those of RBC CEO Gordon Nixon, who told Canada Business Network in November last year that it is examining what its options are with regard to Dexias likely selloff of its half of joint venture RBC Dexia. A month before that Luxembourg Finance Minister Luc Frieden, presumably speaking with direct knowledge of the matter, said RBC intended to use its right of first option to buy out Dexias 50% share in RBC Dexia.
RBC Dexia has routinely said it is business as usual amidst Dexiasand greater Europeseconomic situation. Speaking to Global Custodian today, a spokesperson reaffirmed the custodian’s position, and added: “It is important to note their (Moody’s) action does not reflect negative change in our financial condition.”
RBC Dexia is rated AA- by Standard & Poor’s.
(JDC)