ING Groep NV (INGA) and KBC Groep NV were among banks in Belgium and the Netherlands cut by Moody’s Investors Service on concern that the recession, regional debt crisis and dependence on wholesale funds makes them vulnerable.
Long-term debt ratings at ING, Rabobank Nederland, ABN AMRO Bank NV and LeasePlan Corporation NV were lowered by two grades, and SNS Bank NV received a one-level cut, Moody’s said in a statement today. KBC, Belgium’s biggest bank and insurer, was also lowered two grades, the ratings company said.
European policy makers are struggling to contain financial turmoil that forced the Spanish government to seek a 100 billion euro ($126 billion) bailout for its banks on June 9. Mounting concern about Spain’s public finances and Greece’s June 17 elections, which may determine its exit from the euro, are intensifying the crisis, now in its third year.
“Dutch banks will face difficult operating conditions throughout 2012 and possibly beyond,” Moody’s said in the statement. The Netherlands “is affected by the ongoing euro area debt crisis and regional economic weakness,” it said.
ING, the biggest Dutch financial services company, is now rated A3, while its ING Bank unit was downgraded two levels to A2. Rabobank Nederland was lowered to Aa2, the third-highest investment grade, ABN Amro to A2, and LeasePlan to Baa2. SNS Bank is now Baa2. ING’s ratings have a negative outlook and those of the other lenders are stable, Moody’s said.
ING shares gained 5.6 percent to 4.96 euros by the close of trading in Amsterdam today, while SNS Reaal soared 10 percent, the most in two years, to 1.05 euros. KBC (KBC) advanced 3.4 percent to 15.70 euros in Brussels, the highest closing price in two months. ABN Amro and Rabobank are not traded.
“This is in line with what Moody’s signaled and had been priced in by investors,” said Walter Leering, a fixed-income analyst at Theodoor Gilissen Bankiers NV in Amsterdam. “The one-step cut for SNS is a positive. Moody’s had indicated it might be downgraded by as many as three notches and that would have reduced it to junk status.”
Moody’s cut Brussels-based KBC two levels to Baa1, and its KBC Bank unit to A3, according to a separate statement that cited the lender’s “exposures to markets experiencing material stress, notably Ireland and Hungary.” Market and economic conditions may also constrain KBC’s ability to repay government funds by the end of 2013, Moody’s said.
Today decision “comes as no surprise as Moody’s has been taking rating actions on a large number of European banks,” said Raymond Vermeulen, a spokesman for ING. Arien Bikker, a spokesman for ABN Amro said the rating action was “in line with the indication given in February.”
Spokesmen for Rabobank and SNS, both based in the Dutch city of Utrecht, declined to comment.
“This expected downgrade is in line with the overall tendency so far among the financial institutions under review,” KBC said in an e-mailed statement. “Important to note is that we have stable, aligned and consistent rating assessments with all three rating agencies.”
KBC’s Irish banking unit was cut to junk for the first time by Moody’s, which reduced the long-term bank deposit and debt ratings for KBC Bank Ireland Plc by one step to Ba1. The short- term bank deposit rating was cut to Not-Prime.
KBC’s Irish unit, which received an additional 75 million euros of capital from KBC in the first quarter, has taken 3.6 billion euros of three-year loans from the European Central Bank since December to replace loans from its parent.
It would have taken more three-year ECB loans in March if it had more eligible collateral available at the time, KBC Chief Executive Officer Johan Thijs told analysts and investors on a May 10 conference call.
Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy, with Greece’s election in two days looming as the next flashpoint for investors. Monetary policy makers from the U.K. to Japan and Canada sounded the alert about potential fallout from the single currency bloc’s troubles.
Rabobank Chairman Piet Moerland yesterday said a Greek exit from the euro should be prevented at all costs and Europe’s rescue fund should be at least tripled to 1.5 trillion euros to restore calm in financial markets permanently.
Speculation that central banks may step up measures to boost economies led European stocks higher today, with the Stoxx Europe 600 Index (SXXP) adding 1 percent.
The Dutch economy, the fifth largest in the euro area, has contracted for three straight quarters amid budget cuts that have damped consumer demand. Retail sales fell the most in at least 11 years in April, government figures showed yesterday.
Still, the domestic environment for Dutch banks has weakened less than in other parts of the euro region, given the country’s Aaa debt rating, Moody’s said.
The rating company recognized that Dutch banks have “so far retained good access to market funding and asset quality has remained solid to date,” said Hans Pluijgers, an Amsterdam- based analyst at Credit Agricole Cheuvreux SA. “With the exception of the real estate loan book of SNS Reaal we agree with this argument.” Loan losses on Dutch mortgages will probably remain manageable, Pluijgers said in a note to investors.
ING’s loans in Spain are “sizable, but manageable,” the Amsterdam-based bank said yesterday. It had 18.4 billion euros in bank lending in Spain in the first quarter, the firm said.
Spain’s request for a bailout of its banks made it the fourth and largest euro-area economy to seek aid. The yield on the country’s benchmark 10-year bond closed at a euro-era record of 6.92 percent yesterday after Moody’s cut the sovereign rating three levels to Baa3, one step above junk.
The rating company last month downgraded 16 banks in Spain, including Banco Santander SA (SAN), as well as 26 Italian banks, such as UniCredit SpA and Intesa Sanpaolo SpA. Moody’s put 114 European banks and an additional eight non-European firms with large capital-markets businesses under review in February to assess the impact of Europe’s tumult.
It today also downgraded UniCredit’s leasing unit, UniCredit Leasing SpA, by two levels to Baa2 from A3.
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