08. Jun 2017 Rating news  – Cross-sector

Scope affirms AA- Issuer Rating of Santander following announced acquisition of Popular

The acquisition of the troubled Spanish bank should not change Santander’s group risk profile; Scope highlights the importance of the announced rights issue to neutralise capital impacts.

Scope Ratings has today affirmed the AA- Issuer Rating of Santander, with Stable Outlook. The rating action follows yesterday’s announcement by Santander of the acquisition of Banco Popular, as well as the intention to raise equity to finance a material increase in provisions on Popular’s non-performing assets.

Santander announced on June 7 that they were taking over Popular, for a nominal price of EUR 1, from the Resolution Authority (RA). Popular had been previously deemed “failing or likely to fail” by the ECB and placed in resolution by the Single Resolution Board (SRB). The resolution actions included the writedown of equity and capital securities (AT1 and Tier 2) as well as the sale of business to Santander.

According to Scope, the acquisition should not materially alter the risk profile of Santander, which remains grounded in retail and commercial banking in Spain and worldwide, with a high degree of diversification. According to Scope, Popular will account for c.10% of group assets post-merger, and as much as almost one-third of Spanish assets.

Commenting on the strategic rationale of the transaction, Scope noted that it materially increases Santander’s market share in Spain, and particularly in the SME segment, where Popular’s franchise is stronger. With a 20% market share in loans, Santander will rank as the first banking group in Spain.

According to the rating agency, a downside risk to the transaction stems from the large portfolio of NPAs which came with Popular. However, Santander concomitantly announced a EUR 7bn capital increase, to be used, together with the converted capital instruments, for raising coverage of Popular’s real estate non-performing loans and assets to 75% and 65%, respectively. Such levels are in Scope’s view reassuringly higher than at other Spanish banks.

As another risk, Scope cited the uncertainty related to any possible future claim by Popular’s shareholders and investors in its capital instruments.

Affirmed with Stable Outlook were Santander’s Issuer Rating (AA-), senior long-term debt ratings (A+), Tier 2 ratings (A-) and AT1 ratings (BBB-). The short-term rating was also affirmed at S-1 with Stable Outlook.

Legal and regulatory disclosures

Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

This report is issued by Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr Stefan Bund.
The Lead Analyst is Marco Troiano, Executive Director.
Responsible for approving all rating actions: Sam Theodore, Managing Director.

Rating history
Long-Term Issuer Rating for Banco Santander SA was first assigned 2 April 2014 and last updated on 2 February 2017.
Senior Unsecured Debt Ratings for Banco Santander SA were first assigned 2 April 2014 and last updated on 24 February 2015.
Short-Term Debt Ratings were first assigned 22 May 2014 and last updated on 24 February 2015.
Additional Tier 1 Ratings were first assigned 9 October 2014 and last updated on 24 February 2015.
Tier 2 Ratings were first assigned and last updated on 19 December 2016.

The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months. A rating change is, however, not automatically ensured.
The ratings were not requested by the issuers (unsolicited rating) and were prepared with the participation of the issuers.

Key sources of information for the rating
Key sources: Prospectus; website of the rated entity/issuer; valuation reports, other opinions; annual reports/semi-annual reports of the rated entity/issuer; current performance record; detailed information provided on request; annual financial statements; data provided by external data providers; interview with the rated entity; external market reports; interview with the issuer; press reports / other public information.
Scope Ratings considers the quality of the available information on the evaluated company to be satisfactory. Scope uses information and data that it considers to be accurate and reliable. Scope cannot, however, independently verify the reliability and accuracy of such information and data.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entities were given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that examination, the ratings were not modified.

The methodologies applicable for this rating actions “Bank Rating Methodology” (May 2017) and “Capital Instrument methodology (May 2017)” are available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found on www.scoperatings.com.

Conditions of use / exclusion of liability
© 2017 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings AG, Scope Analysis, Scope Investor Services GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope cannot, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided “as is” without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or otherwise damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party, as opinions on relative credit risk and not as a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings AG at Lennéstraße 5 D-10785 Berlin.

Rating issued by
Scope Ratings AG, Lennéstrasse 5, 10785 Berlin



Scope Ratings AG    Phone: +49 30 27891-0
Marco Troiano    m.troiano@scoperatings.com
Samuel Theodore    s.theodore@scoperatings.com
Oliver Müller    press@scopegroup.com