Scope Ratings has placed on review for possible upgrade the Issuer Credit-Strength Ratings (ICSRs) and the senior unsecured debt ratings of seven European banking groups with a holding company structure. A likely outcome of the review will be a one-notch upgrade of the banking groups’ ICSRs and also of the ratings of their senior unsecured debt which will not be allocated to, or eligible for TLAC and/or MREL. Scope has added that it plans to conclude the review in a few weeks’ time.

These rating actions follow yesterday’s release of Scope’s updated bank rating methodology, which includes adjustments addressing the forthcoming ranking of senior unsecured debt eligible for, or allocated to TLAC and/or MREL, as opposed to the ranking of the respective banking groups’ senior unsecured liabilities which will not be eligible for TLAC and/or MREL. In this respect, Scope has pointed out in its updated methodology that “as a general rule, all senior unsecured debt which may be specifically allocated or eligible for MREL and/or TLAC would be rated at least one notch below the ICSR – whether they are issued by a top holding company or an operating bank of the group”. This represents an adjustment to our approach for rating bank senior unsecured debt in countries with resolution regimes and is a forward-looking reflection of the evolving legal and regulatory changes. It is meant to offer investors increased clarity and transparency in assessing bank credit risk at a time when the complexity of the new regulatory rules presents a material challenge for various market participants and often for the banks themselves.

In its methodology update, Scope added that “with respect to adjustments to existing bank ratings related to the new TLAC/MREL rules, these would be done via a one-off uplift of one notch of the ICSR and rated senior unsecured liabilities which are not eligible for MREL/TLAC.” This approach reflects Scope’s opinion that, while the credit fundamentals of the group did not change, going forward the ICSR and the above-mentioned senior liabilities should benefit from the protection of a materially more ample capital structure in a default-like scenario.

Scope said that it has identified four scenarios related to European banks’ MREL/TLAC-eligible senior unsecured debt: one for groups with a holding company structure with MREL/TLAC-eligible senior debt being issued via holding company (as opposed to operating bank); two for groups without a holding company structure with legal subordination of all or selective senior unsecured debt in the event of liquidation (and by extension bail-in in resolution); and the last one for banking groups where at this time there is no specific eligibility of senior debt for MREL/TLAC.

Regarding the four scenarios above, Scope pointed out that it considers the status of groups where TLAC/MREL-eligible senior debt is issued via a holding company as the clearest for the seniority ranking assessment. Consequently, it has initiated the present rating actions for the rated groups with a holding company structure.

In a Q&A report to be published later today and titled “Ranking of MREL/TLAC senior unsecured debt: roadmap of Scope’s bank rating adjustments”, Scope clarifies the contents and timing of current and future rating actions related to the methodology adjustment.

The following ratings are placed on review for possible upgrade:

United Kingdom:
Barclays Bank plc: A; ICSR and senior unsecured debt
HSBC Holdings plc: AA-; ICSR
HSBC Bank plc: AA-; senior unsecured debt*
Lloyds Bank plc: A; ICSR and senior unsecured debt
The Royal Bank of Scotland plc: BBB+; ICSR and senior unsecured debt

*Press release was amended on 06.09.2016 to clarify that only senior unsecured debt issued by HSBC Bank plc which is not MREL/TLAC eligible was placed on review for possible upgrade.

Belgium:
KBC Group NV: A; ICSR
KBC IFIMA: A; Senior unsecured debt

Switzerland:
Credit Suisse AG: A; ICSR and senior unsecured debt
UBS AG: A; IBSR and senior unsecured debt

In line with the methodology adjustments, the ICSRs of Credit Suisse Group AG and UBS Group AG are also being withdrawn. The ratings on securities issued by Credit Suisse Group AG and UBS Group AG are not affected and remain unchanged.

All other ratings of these seven banking groups are not placed on review and are unchanged.

Analyst contacts
Pauline Lambert: p.lambert@scoperatings.com
Marco Troiano: m.troiano@scoperatings.com

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

Responsibility
The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs (CEO), Dr. Stefan Bund and Dr. Sven Janssen.
The rating analysis for Barclays Bank plc, HSBC Holdings plc, KBC Group NV, Credit Suisse AG and UBS AG has been prepared by Pauline Lambert, Executive Director
The rating analysis for Lloyds Bank plc and The Royal Bank of Scotland plc has been prepared by Marco Troiano, Director
Responsible for approving the ratings: Sam Theodore, Managing Director.
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.

Rating history
The full rating history can be accessed via the individual rating cards on www.scoperatings.com

Information on interests and conflicts of interest
The rating was prepared independently by Scope Ratings without a mandate (unsolicited rating) but with participation of the issuer.

As at the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG or any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of information for the rating
Website of the rated entity/issuer, Annual reports/quarterly reports of the rated entity/issuer, Current performance record, Detailed information provided on request, Data provided by external data providers, Interview with the rated entity, External market reports, Press reports / other public information,
Scope Ratings considers the quality of the available information on the evaluated company to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entity was 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 rating was not modified.

Methodology
The methodologies applicable for this rating “Bank Rating Methodology” (May 2016) & “Bank Capital Instruments Rating Methodology” (May 2016) 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 credit rating, definitions of rating symbols and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

Conditions of use / exclusion of liability
© 2016 Scope Corporation AG 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.

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