Fitch Rates ABN AMRO Bank's Additional Tier 1 Capital Instruments 'BB+(EXP)'
The final rating is contingent upon final documents conforming to the information already received.
KEY RATING DRIVERS
The notes will be CRD IV-compliant perpetual non-cumulative additional Tier 1 instruments. The notes are subject to automatic write-down if ABN AMRO Group's consolidated common equity Tier 1 (CET1) ratio falls below 7% or ABN AMRO Bank's standalone CET1 falls below 5.125%, and any coupon payments may be cancelled at the discretion of the bank.
The expected rating is five notches below ABN AMRO Bank's Viability Rating (VR). This reflects (i) two notches for loss severity in light of notes' deep subordination; and (ii) three notches for additional non-performance risk relative to the VR given high write-down trigger and fully discretionary coupons. ABN AMRO Group's consolidated phased-in CET1 ratio (where the 7% trigger applies) was 14.2% (fully-loaded CET1 ratio of 14.0%) at end-June 2015.
Fitch expects the Dutch regulator to impose restrictions on interest payments on the notes should ABN AMRO capital approach the estimated Pillar 1 limit of 10% CET1 phased in by 2019 (4.5% minimum CET1 plus 2.5% capital conservation buffer plus 3% systemic risk buffer). Given ABN AMRO's solid capital position, the current level of distributable items and Fitch's expectations for their evolution, we have limited the notching for non-performance to three notches.
Given the securities are perpetual, their deep subordination, coupon flexibility and going concern mandatory write down of the instruments, Fitch has assigned 100% equity credit.
RATING SENSITIVITIES
The notes' rating will likely move in tandem with ABN AMRO Bank's VR. The latter is sensitive to a weakening of the bank's earning generation or asset quality affecting its capital or access to/cost of wholesale funding. The notes' rating is also sensitive to changes in Fitch's assessment of their non-performance risk relative to that captured in the bank's VR.
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