Scope Ratings today upgrades by one notch the ratings of senior unsecured debt not designated for TLAC and/or MREL of two large Spanish banks, Santander and BBVA.

The rating actions follow the passage in June 2017 of Decree Law 11/2017, which introduces the possibility for Spanish banks to issue a new class of non-preferred senior unsecured debt that is eligible for TLAC and/or MREL.

In liquidation or resolution, the new securities would rank below the banks’ preferred senior unsecured liabilities – but above subordinated debt and capital securities.

Scope is rating this new class of debt securities issued by Spanish banks. The expected ratings would be one notch below the ratings of both the respective banks and the senior unsecured liabilities not intended for TLAC/MREL.

Scope highlights that the rating actions are in line with its most recent bank rating methodology (May 2017), which takes into account, in a forward-looking perspective, evolving regulatory and legal developments across Europe. According to the methodology, when there is sufficient clarity – as is the case with the new Spanish law – Scope will notch down the ratings of senior unsecured debt eligible for TLAC/MREL. This occurs via a one-off uplift by one notch of the respective banks’ Issuer rating and the ratings of senior unsecured liabilities not eligible for TLAC/MREL. The methodology notes that this approach “reflects Scope’s opinion that, while the credit fundamentals of the group did not change, going forward the Issuer Rating and senior unsecured liabilities not eligible for TLAC/MREL should benefit from the protection of a materially more ample capital structure in a default-like situation”.

The following ratings have been upgraded by one notch:

• Banco Santander SA: non-TLAC/MREL senior unsecured debt from A+ to AA-
• BBVA SA: non-TLAC/MREL senior unsecured debt from A to A+

The following new ratings have been introduced:

• Banco Santander SA: TLAC/MREL senior unsecured debt at A+
• BBVA SA: TLAC/MREL senior unsecured debt at A

Editor’s note: The above section was corrected on 25 July 2017. The original wording was “BBVA SA: non-TLAC/MREL senior unsecured debt at A”. 

The new ratings will apply to both existing and forthcoming senior non-preferred unsecured debt of the two banks.

All ratings carry a Stable Outlook and all other ratings of the banks remain unchanged.

Legal and regulatory disclosures

Important information
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
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 rating analyses for Banco Santander SA and BBVA SA were prepared by Marco Troiano, Executive Director. Responsible for approving rating actions: Sam Theodore, Managing Director.

Rating history
SUD issued by Banco Bilbao Vizcaya Argentaria SA were first rated on 2 April 2014 and last updated on 20 February 2015.
SUD issued by Banco Santander were first rated on 2 April 2014 last updated on 8 June 2017.
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) but where prepared with the participation of the issuers.

Key sources of information for the rating
Key sources: Prospectus; website of the rated entity/issuer; annual reports/semi-annual reports of the rated entity/issuer; current performance record; annual financial statements; data provided by external data providers; press reports / other public information.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, and Scope internal sources.
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.

Methodology
The methodology applicable for these rating actions “Bank Rating Methodology” (May 2017) is 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