DBRS places Rabobank’s AAA LT rating Under Review with Negative Implications

DBRS Ratings Limited (DBRS) has today placed the AAA Long-Term Deposits & Senior Debt ratings of Rabobank Nederland (Rabobank or the Group) Under Review with Negative Implications. The R-1 (high) Short-Term Debt rating has been confirmed. As part of the review process, the Intrinsic Assessment (IA) of AA (high) will also be re-evaluated.

The rating action follows the October 29th announcements that Rabobank has agreed to pay settlement amounts totaling approximately EUR 774 million in relation to Libor and Euribor submission processes. The review of the ratings has been triggered by DBRS’ concern that the material shortcomings revealed in the Group’s control and compliance frameworks through these investigations may not be compatible with the current rating level, which is at the very top end of DBRS’ global rating universe.

The Group has entered into agreements with De Nederlandsche Bank (DNB), the Dutch Public Prosecutor (DPP), the UK Financial Conduct Authority (FCA), the US Commodity Futures Trading Commission (CFTC), the US Department of Justice (DOJ) and the Japanese Financial Services Agency (JFSA). As a result Rabobank has agreed to pay settlement amounts to the DPP, FCA, CFTC and DOJ totalling approximately EUR 774 million. The agreement also includes a deferred prosecution agreement (DPA) with the DOJ. Although the financial penalty imposed on the Group was in excess of DBRS’s expectation it will not have a material impact on the Group’s financial fundamentals, as a result of the Group’s strong financial position and a large provision taken in the first half of 2013 that covers a majority of the settlement. Additionally the Chairman of the Executive Board has resigned as a result of the findings of the investigations, however DBRS notes that no members of the Executive Board were aware of, or involved in, the inappropriate conduct.

The review of the AAA ratings and the re-evaluation of the AA (high) IA will focus on two main areas. The first is the Group’s ongoing review of the business activities of the Global Financial Markets division, the strategic fit of this division within the Group, and the likely risk profile of the division going forward. The second area of focus will be the remedial measures being taken by the bank including the roll-out of a conduct and culture programme at Rabobank Nederland and the ongoing enhancements and expansion of the compliance, audit, and risk functions.

Notes:
All figures are in Euros (EUR) unless otherwise noted.

The principal methodology applicable is: the Global Methodology for Rating Banks and Banking Organizations. Other methodologies used include the DBRS Criteria – Intrinsic and Support Assessments. The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company documents, SNL Financial, De Nederlandsche Bank (DNB), the Dutch Public Prosecutor (DPP), the UK Financial Conduct Authority (FCA), the US Commodity Futures Trading Commission (CFTC), the US Department of Justice (DOJ) and the Japanese Financial Services Agency (JFSA). DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance.

This rating is under review. Generally, the conditions that lead to the assignment of reviews are resolved within a 90 day period. DBRS reviews and ratings are under regular surveillance.

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Ross Abercromby
Rating Committee Chair: Alan G. Reid
Initial Rating Date: 16 May 2001
Most Recent Rating Update: 18 October 2013

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For additional information on this rating, please refer to the linking document located at: http://www.dbrs.com/research/236983/banks-and-banking-organisations-linking-document.pdf