Press Release

DBRS Places 15 European Programmes’ Covered Bonds Under Review with Developing Implications and Maintains the Under Review Status on 5 Programmes

Covered Bonds

May 26, 2015

DBRS Ratings Limited (DBRS) has today placed the covered bonds (CBs) issued under 15 European programmes Under Review with Developing Implications. Another four programmes have been maintained Under Review with Developing Implications and one programme has been maintained Under Review with Negative Implications.

The rating actions reflect, on the one end, the placement Under Review with Negative Implications on 20 May 2015 of the senior debt and deposit ratings of the Reference Entity (RE) and DBRS’s view regarding the financial institutions systemic support and, on the other end, the publication on 22 May 2015 of a Request For Comments for the “Rating European Covered Bonds” methodology that proposes a new analysis for the determination of the Covered Bonds Attachment Point (CBAP) for those REs that are subject to the Bank Recovery and Resolution Directive (BRRD).

The CBAP is one of the building blocks of DBRS’s “Rating European Covered Bonds” methodology and represents the likelihood that the RE will keep meeting timely payments on the CB, before the source of payment switches to the Cover Pool (CP). The CBAP is currently tied to the issuer rating of the RE in Europe. The issuer ratings in Europe are currently the senior unsecured rating of the RE and are at the same level as the RE’s deposit ratings.

The BRRD was enacted on 15 May 2014 and has been effective in European Union countries since January 2015, with the bail-in option to be available from January 2016. To date, Germany, the U.K. and Austria have enacted BRRD into national legislation. Other countries are expected to complete the process within the next few months.

Under the BRRD, the requirement that at least 8% of total liabilities absorb losses before any funding can be provided by resolution funds means that the risk of senior bondholders absorbing losses at the point of failure is, in DBRS’s opinion, greater than before. On the other end, the explicit exclusion of CBs from the bail-in tool under Article 44(2) led DBRS to conclude that there is a higher probability that the CBs will be repaid than the senior unsecured obligations if the RE is put through a resolution under the BRRD and that the CBAP needs to reflect such differentiation.

The placement Under Review with Negative Implications of the senior debt and deposit ratings of 38 banking groups in Europe that benefit from some uplift for systemic support reflects DBRS’s view that recent developments in European regulation and legislation mean that there is less certainty about the likelihood of timely systemic support for these systemically important banks (SIBs). Currently, the final ratings of 41 banks benefit from an uplift of one or more notches above their intrinsic assessment (IA). The banking groups that could see their ratings downgraded include 39 banking groups that currently have one notch of uplift in their senior debt and deposit rating and two banking groups with two notches of uplift.

DBRS expects that the review of the RE ratings will be resolved by September 2015.

If the Request For Comments published on 22 May 2015 were approved in the proposed form, this would have a neutral to positive impact on all the CBs rated by DBRS. This, however, does not take into account the effect of the rating action on the issuer ratings.

As such, CB ratings are placed Under Review with Developing Implications. DBRS will conclude its review on the CB ratings only once the proposed changes to its “Rating European Covered Bonds” methodology are finalised and the review of the issuer ratings is concluded.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable is Rating European Covered Bonds (December 2014), which can be found at http://www.dbrs.com/about/methodologies. Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary at http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/.

DBRS is undertaking a review and will remove the rating from this status as soon as it is appropriate.

The sources of information used for this rating include historical default performance data and cover pool stratification tables provided by the issuers that allowed DBRS to further assess the portfolio.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not rely upon third party due diligence in order to conduct its analysis.

The last rating action on the programmes took place on:
-- Abanca Corporación Bancaria Cédulas Hipotecarias: 17 December 2014
-- Banca Monte dei Paschi di Siena Programme 2: 6 May 2015
-- Banco Bilbao Vizcaya Argentaria (BBVA) Covered Bond Programme: 17 February 2014
-- Banco BPI S.A. Covered Bonds Programme: 1 April 2015
-- Banco Comercial Português Covered Bond Programme: 24 February 2015
-- Banco de Investimento Imobiliário Covered Bond Programme: 19 February 2015
-- Banco Popular Español Cédulas Hipotecarias Covered Bonds: 16 April 2015
-- Banco Pastor Cédulas Hipotecarias: 17 December 2014
-- Banco Popular Portugal S.A. Covered Bond Programme: 30 December 2014
-- Banco Sabadell Cédulas Hipotecarias: 29 April 2015
-- Santander Totta Covered Bond Programme: 4 March 2015
-- Bank of Ireland Mortgage Bank €15,000,000,000 Mortgage Covered Securities Programme: 7 May 2015
-- Bankia Cédulas Hipotecarias Covered Bond Programme: 26 March 2015
-- Montepio Covered Bonds Programme: 13 February 2015
-- Caixa Geral Depósitos Covered Bond Programme: 27 January 2015
-- Caja Rural de Granada Covered Bond Programme: 17 December 2014
-- Cajas Rurales Unidas Cédulas Hipotecarias: 29 January 2015
-- Intesa Sanpaolo Covered Bond Programme Guaranteed by ISP OBG S.r.l.: 17 December 2014
-- Liberbank Cedulas Hipotecarias Covered Bond Programme: 13 March 2015
-- Novo Banco, S.A. Covered Bonds Programme: 17 December 2014

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

For further information on DBRS historic default rates published by the European Securities and Markets Administration 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.

ABANCA CORPORACIÓN BANCARIA CÉDULAS HIPOTECARIAS
Initial Lead Analyst: Covadonga Aybar
Initial Rating Date: 10 December 2014
Initial Rating Committee Chair: Quincy Tang