Fitch Revises Outlook for Japanese Financial Institutions to Negative
16/06/2016 07:08
(The following statement was released by the rating agency) TOKYO, June 16 (Fitch) Fitch Ratings has today revised the rating Outlooks for Mitsubishi UFJ Financial Group, Inc. (MUFG) and its subsidiaries, Sumitomo Mitsui Financial Group, Inc. (SMFG) and its subsidiaries, Mizuho Financial Group, Inc. (MHFG) and its subsidiaries, The Shizuoka Bank, Ltd. (Shizuoka), Nomura Holdings, Inc. (Nomura) and its subsidiaries and Daiwa Securities Group Inc. (Daiwa) and its subsidiaries to Negative from Stable. The IDRs have been affirmed. All other ratings of the issuers are not immediately affected by our action today. The Outlook revision for the financial institutions' IDRs follows the affirmation of Japan's sovereign rating at 'A' and revision of the Outlook to Negative from Stable on 13 June 2016 (see Fitch Affirms Japan at 'A'; Outlook Revised to Negative /a dated 13 June 2016). A full list of rating actions is at the end of this rating action commentary. KEY RATINGS DRIVERS IDRS The Outlook change for MUFG and its listed subsidiary banks, SMFG and its listed subsidiary banks and Shizuoka (all IDRs at 'A') stems from Fitch's view that these entities' Viability Ratings (VRs) are now effectively constrained by the sovereign rating. Their still high exposure to Japanese government bonds (JGBs), despite reductions in the past few years, makes them unlikely to avoid failure in the event of a sovereign default even though their intrinsic profiles otherwise remain broadly stable. (These entities will be referred to as "VR-driven entities affected by sovereign rating" hereafter.) The Outlooks on MHFG and its listed subsidiary banks, Nomura and its listed subsidiaries and Daiwa and its listed subsidiary have been revised to Negative because their Issuer Default Ratings (IDRs) are driven by Fitch's expectations of support from the Japanese authorities, which is reflected in their Support Ratings (SRs) and Support Rating Floors (SRFs). The negative rating action on the sovereign reflects weakening ability - rather than propensity - of the government to support the financial institutions. (These entities will be referred to as "support-driven entities" hereinafter.) The Outlooks on ACOM Co., Ltd. (ACOM), Sumitomo Mitsui Banking Corporation Europe Limited (SMBCE) and Nomura Financial Products & Services, Inc. (NFPS) have been also revised to Negative because their IDRs are driven by support from their parents, whose Outlooks have been revised to Negative. The Outlooks on Sumitomo Mitsui Trust Bank, Limited (SMTB) and Suruga Bank Ltd. (Suruga) remain at Stable because their IDRs (A-/Stable) are driven by VRs and remain unconstrained by the sovereign rating, therefore their ratings would not be immediately affected by any perceived weakening of the sovereign's ability to support. VIABILITY RATINGS, SUPPORT RATINGS AND SUPPORT RATING FLOORS The key rating drivers for the VRs, SRs and SRFs of the financial institutions have not changed. (See Fitch Upgrades SMFG; Affirms Other Major Japanese Banks /a dated 17 November 2015; Fitch Upgrades Daiwa to 'A-'; Affirms Nomura at 'A-' /a dated 15 September 2015; and Fitch Affirms Japan's Shizuoka Bank at 'A'; Suruga Bank at 'A-' /a dated 16 July 2015) RATING SENSITIVITIES SUPPORT RATINGS AND SUPPORT RATING FLOORS The SR of '1' and SRF of 'A-' for all entities except for Shizuoka (SR '2' and SRF 'BBB-') are sensitive to changes in Japan's sovereign rating, which underline the government's ability to support the financial institutions. The ratings are also sensitive to any changes to Fitch's perception of the sovereign's willingness to support the financial institutions. A downgrade in Japan's sovereign ratings to 'A-' or below would likely lead to a downgrade in the financial institutions' SRs and SRFs. VIABILITY RATINGS The VRs for the VR-driven entities affected by sovereign rating could be downgraded were the sovereign to be downgraded, in light of the ratings' proximity to the Japanese sovereign's IDRs (A/Negative). The banks' VRs are unlikely to be rated above the sovereign rating given their significant sovereign exposure and high dependence/reliance on the domestic economy for their business operation and revenue generation. IDRS A downgrade of the SRs and SRFs of the support-driven entities would lead to a downgrade of their respective IDRs. A downgrade of the VRs of the VR-driven entities affected by sovereign rating would in turn lead to a downgrade of their respective IDRs. For ACOM, SMBCE and NFPS, their ratings will change upon any changes of their parents' ratings. FULL LIST OF RATING ACTIONS Entities under MUFG MUFG: Long-Term Foreign- and Local-Currency IDRs affirmed at 'A'; Outlook revised to Negative from Stable Bank of Tokyo-Mitsubishi UFJ, Ltd.: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A'; Outlook revised to Negative from Stable Mitsubishi UFJ Trust and Banking Corporation: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A'; Outlook revised to Negative from Stable ACOM: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A-'; Outlook revised to Negative from Stable Entities under MHFG MHFG: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A-'; Outlook revised to Negative from Stable Mizuho Bank, Ltd.: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A-'; Outlook revised to Negative from Stable Mizuho Trust & Banking Co., Ltd.: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A-'; Outlook revised to Negative from Stable Entities under SMFG SMFG: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A'; Outlook revised to Negative from Stable Sumitomo Mitsui Banking Corporation: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A'; Outlook revised to Negative from Stable SMBCE: - Long-Term Foreign-Currency IDR affirmed at 'A'; Outlook revised to Negative from Stable Shizuoka: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A'; Outlook revised to Negative from Stable Entities under Nomura Holdings Nomura Holdings, Inc.: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A-'; Outlook revised to Negative from Stable Nomura Securities Co., Ltd.: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A-'; Outlook revised to Negative from Stable NFPS: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A-'; Outlook revised to Negative from Stable Entities under Daiwa Securities Group Daiwa Securities Group Inc.: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A-'; Outlook revised to Negative from Stable Daiwa Securities Co. Ltd.: - Long-Term Foreign- and Local-Currency IDRs affirmed at 'A-'; Outlook revised to Negative from Stable Contact: Primary Analysts Naoki Morimura (MUFG, MHFG, Nomura, ACOM) Director +81 3 3288 2686 Fitch Ratings Japan Limited Kojimachi Crystal City East Wing 3F 4-8 Kojimachi, Chiyoda-ku, Tokyo 102-0083 Kaori Nishizawa (SMFG, Daiwa, Shizuoka) Director +81 3 3288 2783 Secondary Analysts Naoki Morimura (SMFG, Daiwa, Shizuoka) Director +81 3 3288 2686 Kaori Nishizawa (MUFG, MHFG, Nomura, ACOM) Director +81 3 3288 2783 Committee Chairperson Mark Young Managing Director +65 6796 7229 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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