Reuters: Market News: TEXT-S&P: Ratings on Sumitomo Trust & Banking affirmed At 'A+/A-1'

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TEXT-S&P: Ratings on Sumitomo Trust & Banking affirmed At 'A+/A-1' Mar 30th 2012, 05:23 Fri Mar 30, 2012 1:23am EDT -- Sumitomo Trust & Banking Co. Ltd. and Chuo Mitsui Trust & Banking Co. Ltd., both of which belong to Sumitomo Mitsui Trust Group, are set to merge along with Chuo Mitsui Asset Trust & Banking Co. Ltd. -- We affirmed the 'A+' long-term and 'A-1' short-term counterparty credit ratings on Sumitomo Trust & Banking. -- The merged entity, which will be named Sumitomo Mitsui Trust Bank Ltd., will succeed our ratings and outlook on Sumitomo Trust & Banking. -- The ratings on Sumitomo Trust & Banking reflect the credit quality of Sumitomo Mitsui Trust Group. -- The outlook on the long-term rating is negative, reflecting our view that the ratings on Sumitomo Trust & Banking would be lowered should the sovereign ratings on Japan be lowered. TOKYO (Standard & Poor's) March 30, 2012--Standard & Poor's Ratings Services said today that it had affirmed its 'A+' long-term and 'A-1' short-term counterparty credit ratings on Sumitomo Trust & Banking Co. Ltd. The ratings reflect the credit quality of Sumitomo Mitsui Trust Group (SMTG) because we consider Sumitomo Trust & Banking a core subsidiary of the group. The outlook on the long-term rating is negative, reflecting our view that we will downgrade Sumitomo Trust & Banking if we lower the sovereign ratings on Japan (AA-/Negative/A-1+). On April 1, 2012, Sumitomo Trust & Banking is set to merge with Chuo Mitsui Trust & Banking Co. Ltd. (A+/Negative/A-1) and Chuo Mitsui Asset Trust & Banking Co. Ltd. (not rated). Both banks operate under the Sumitomo Mitsui Trust group. Following the merger, Sumitomo Trust & Banking will be the surviving company. We have already incorporated the planned merger in our current ratings and outlook on Sumitomo Trust & Banking. The ratings and outlook will be succeeded by the merged entity, which will be named Sumitomo Mitsui Trust Bank Ltd. We intend to withdraw all our ratings on Chuo Mitsui Trust and Banking following the establishment of Sumitomo Mitsui Trust Bank Ltd. on April 1, 2012. Standard & Poor's bases its ratings on Sumitomo Trust & Banking on the bank's "strong" business position, "moderate" capital and earnings, "strong" risk position, "average" funding, "strong" liquidity, and "high" likelihood of government support in times of need. Sumitomo Trust & Banking's stand-alone credit profile (SACP), which excludes the factor of possible extraordinary support, is 'a'. Our bank criteria use the economic risk and industry risk scores of our Banking Industry Country Risk Assessment (BICRA) to determine a bank's anchor SACP, the starting point in assigning an issuer credit rating (ICR). Our anchor SACP for a bank operating only in Japan is 'a-'. In our view, SMTG maintains a "strong" competitive position in the markets in which it operates, which leads us to our "strong" assessment of its business position. It is the largest trust bank group in Japan with JPY66 trillion (as of March 2011) in assets under management. Its revenue is well diversified by business lines including asset management, custody, traditional retail and commercial banking, real estate brokerage, and stock transfer agency service. It has a stable customer base for both retail and corporate banking. Retail deposits are adhesive and insensitive to pricing. Pension customers are stable with long-term relationships with asset managers. SMTG's revenue is stable compared to its international peers backed by fee contributions from businesses such as asset management, real estate brokerage, and stock transfer agency service. The group does not engage in investment banking. SMTG's capital and earnings are "moderate" based on our expectations that the risk-adjusted capital (RAC) ratio will remain in the 5%-6% range over the next two years. Capital quality is low with hybrid securities accounting for more than 30% of the group's total adjusted capital (TAC). Government funds comprise approximately 10% of TAC. However, repayment may take the form of a market offering, which should minimize any negative impact on TAC. The earnings buffer is 30 basis points-40 basis points (bps), which is low in global comparison. The earnings buffer is Standard & Poor's original indicator for an entity's capacity to absorb losses. In comparison with its global peers, we expect SMTG's profitability to remain weak but stable in terms of return on assets. Net interest income and fees and commissions constituted more than 80% of the group's revenues during fiscal 2010 (ended March 2011), and trading revenues only comprised 6%, of which the majority was derived from trading gains on government bonds. Our risk position assessment for SMTG is "strong." Fee-related businesses, such as asset management and real estate business, contribute to more than 40% of the group's revenue. Historical credit losses were lower than the bank's normalized loss calculations. Its gross nonperforming loan (NPL) ratio was 1.3% as of March 2011. The group's credit losses remained low at 12 bps of total loans for fiscal 2010 (ended March 31, 2011). We expect SMTG to remain focused on servicing its core customer base with traditional services (such as asset management, retail and commercial banking, and real estate brokerage), and its asset risk should remain strong, in our view. Regarding its complexity, SMTG is not involved in the investment banking business. SMTG's funding is "average" and its liquidity position is "strong," in our opinion. SMTG's nationwide branch network provides it with a stable base of core deposits that it draws from to meet its funding needs. Its ratio of total loans to customer deposits is 92% (March 2011) by our calculation, which indicates "strong" liquidity. One notch of government support has been factored into our counterparty credit ratings on Sumitomo Trust & Banking, reflecting our expectation that the bank has a "high" likelihood of receiving government support in times of need. We view Sumitomo Trust & Banking as having "high systemic importance" in Japan, which in our view, is a "highly supportive" system. The negative outlook reflects our view that the ratings on Sumitomo Trust & Banking, which incorporate one notch of government support, are likely to be lowered should the sovereign rating on Japan be lowered. The outlook on the sovereign rating on Japan is negative. We do not expect material deterioration in the SACP of Sumitomo Trust & Banking in the medium term. We expect the RAC ratio to remain about 5%-6% and profitability in terms of return on assets to remain rather stable and at a modest level of approximately 0.3%-0.4%. At the same time, we expect Sumitomo Trust & Banking's credit risk profile to remain close to the current level with gross NPL at approximately 1%-2% and credit loss provision to loan at 0.2%-0.3%. The ratings on Sumitomo Trust & Banking could come under pressure if the group's asset quality deteriorates substantially or if its capitalization weakens significantly, which we believe is not a likely scenario. Conversely, we could raise the rating if the bank's capitalization and earnings improve substantially, which we also view as an unlikely scenario in the near future, given that it faces pressure from its equity holdings. Link this Share this Digg this Email Reprints

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