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TEXT-Fitch Assigns Australia & New Zealand Covered Bonds Outlooks & D-Caps
September 13, 2012 / 2:00 AM / 5 years ago

TEXT-Fitch Assigns Australia & New Zealand Covered Bonds Outlooks & D-Caps

(The following was released by the rating agency)

SYDNEY, September 13 (Fitch) Fitch Ratings has assigned Discontinuity Caps (D-Caps) and Stable Outlooks to the ratings of all Australian and New Zealand covered bonds following the agency's update to its Covered Bonds Rating Criteria. The ratings are as follows:

Australia & New Zealand Banking Group Limited (ANZ): D-Cap: 2 (high), Outlook Stable

Commonwealth Bank of Australia (CBA): D-Cap 2 (high) Outlook Stable

National Australia Bank Limited (NAB): D-Cap 3 (moderate high), Outlook Stable

Suncorp-Metway Limited (SUN): D-Cap 3 (moderate high), Outlook Stable

Westpac Banking Corporation (WBC): D-Cap: 2 (high), Outlook Stable

ANZ National Bank Limited (ANZNBL): D-Cap: 2 (high), Outlook Stable

ASB Bank Limited (ASB): D-Cap: 2 (high), Outlook Stable

Bank of New Zealand Limited (BNZ): D-Cap 3 (moderate high), Outlook Stable

Westpac New Zealand Limited WNZL): D-Cap: 2 (high), Outlook Stable

Under Fitch's updated criteria, D-Caps determine the maximum rating notch uplift from the Long-Term Issuer Default Ratings (IDRs) to the covered bond rating on a probability of default (PD) basis. D-Caps reflect Fitch's view of the likelihood of a programme defaulting in the immediate aftermath of an issuer default. For cases apart from a D-Cap of 8 (minimal discontinuity), the D-Cap is based on the highest risk assessment of any one of the following components: asset segregation, liquidity gap and systemic risk, alternative management (systemic and cover pool-specific) and privileged derivatives.

The Outlook Stable on all Australian and New Zealand covered bonds reflects that of their respective sovereign ratings and of their respective issuer's IDR, as well as Fitch's expectation that both the asset performance and over-collateralisation will remain stable.

The liquidity gap and systemic risk component of the D-Caps for Australian and New Zealand covered bond programmes have been assessed in a range from moderate high to high, depending on the characteristics of the programme's liquidity gap protection mechanism, and is at present the driver of the D-Cap for each of the programmes in these countries. The IDRs of Australia ('AAA'/Stable) and New Zealand ('AA'/Stable), together with a Country Ceiling of 'AAA' in each country, do not act as a constraint on the assessment.

Fitch has assessed asset segregation for all Australian and New Zealand covered bond programmes as low risk, because the agency considers it very unlikely that any claims would reduce the cover pool available to investors post issuer default.

The systemic alternative management risk has been assessed as moderate for all Australian and New Zealand covered bond programmes due to the significant roles and functions that would be performed post issuer default by the trustee or that the trustee would contract out to other parties. The contracted trustees are large, experienced providers of trustee services in their respective markets and have established operational practices and procedures that will allow them to perform their roles if required.

The cover pool-specific alternative management risk has been assessed as low for the majority of Australia and New Zealand covered bond programmes and the rest as moderate. All Australian and New Zealand issuers have programmes with residential mortgage cover pools, strong IT systems, either internally or externally developed, providing reliable quality data delivery and all issuers have sound experience with the issuance of covered bonds and RMBS.

Privileged derivatives have been assessed as moderate based on the materiality of the exposure and the provision of these derivatives by internal or intra-group counterparties. The derivatives included within programmes generally include a fixed-floating rate swap on a component of the cover pool, currency swaps, where necessary, and an asset swap.

Australian and New Zealand covered bond programmes' D-Caps and other component risk assessments are as follows:

Australia & New Zealand Banking Group Limited

Long-Term Issuer Default Rating: 'AA-', Outlook Stable

Mortgage covered bond rating: 'AAA', Outlook Stable

D-Cap: 2 (high)

Asset segregation: very low

Liquidity gap and systemic risk: high

Cover pool-specific alternative management: low

Systemic alternative management: moderate

Privileged derivatives: moderate

The driver of the D-Cap is the high risk assessment for liquidity gap and systemic risk. This is principally driven by programme documentation which provides, in certain circumstances, for a six-month period prior to a scheduled covered bond maturity for cover pool asset sales, while Fitch has assessed the time required to sell cover pool assets in Australia as 12 months. The D-Cap of 2, when combined with the institution's IDR and potential recovery uplift, continues to support a 'AAA' rating on the covered bonds.

Commonwealth Bank of Australia

Long-Term Issuer Default Rating: 'AA-', Outlook Stable

Mortgage covered bond rating: 'AAA', Outlook Stable

D-Cap: 2 (high)

Asset segregation: very low

Liquidity gap and systemic risk: high

Cover pool-specific alternative management: low

Systemic alternative management: moderate

Privileged derivatives: moderate

The driver of the D-Cap is the high risk assessment for liquidity gap and systemic risk. This is principally driven by programme documentation which provides, in certain circumstances, for a six-month period prior to a scheduled covered bond maturity for cover pool asset sales, while Fitch has assessed the time required to sell cover pool assets in Australia as 12 months. The D-Cap of 2, when combined with the institution's IDR and potential recovery uplift, continues to support a 'AAA' rating on the covered bonds.

National Australia Bank Limited

Long-Term Issuer Default Rating: 'AA-', Outlook Stable

Mortgage covered bond rating: 'AAA',

Outlook Stable D-Cap: 3 (moderate high)

Asset segregation: very low

Liquidity gap and systemic risk: moderate high

Cover pool-specific alternative management: low

Systemic alternative management: moderate

Privileged derivatives: moderate

The driver of the D-Cap is the moderate high risk assessment for liquidity gap and systemic risk. This is principally driven by programme documentation which provides, in certain circumstances, for a 12-month period prior to a scheduled covered bond maturity for cover pool asset sales, the same as Fitch's assessment of the time required to sell cover pool assets in Australia. The D-Cap of 3, when combined with the institution's IDR and potential recovery uplift, continues to support a 'AAA' rating on the covered bonds.

Suncorp-Metway Limited

Long-Term Issuer Default Rating: 'A+', Outlook Stable

Mortgage covered bond rating: 'AAA', Outlook Stable

D-Cap: 3 (moderate high)

Asset segregation: very low

Liquidity gap and systemic risk: moderate high

Cover pool-specific alternative management: moderate

Systemic alternative management: moderate

Privileged derivatives: moderate

The driver of the D-Cap is the moderate high risk assessment for liquidity gap and systemic risk. This is principally driven by the programme's issuance of soft-bullet covered bonds with a 12-month extension period for the liquidation of the underlying cover pool assets, the same as Fitch's assessment of the time required to sell cover pool assets. The D-Cap of 3, when combined with the institution's IDR and potential recovery uplift, continues to support a 'AAA' rating on the covered bonds.

Westpac Banking Corporation

Long-Term Issuer Default Rating: 'AA-', Outlook Stable

Mortgage covered bond rating: 'AAA', Outlook Stable

D-Cap: 2 (high) Asset segregation: very low

Liquidity gap and systemic risk: high

Cover pool-specific alternative management: low

Systemic alternative management: moderate

Privileged derivatives: moderate

The driver of the D-Cap is the high risk assessment for liquidity gap and systemic risk. This is principally driven by programme documentation which provides, in certain circumstances, for a six-month period prior to a scheduled covered bond maturity for cover pool asset sales, while Fitch has assessed the time required to sell cover pool assets in Australia as 12 months. The D-Cap of 2, when combined with the institution's IDR and potential recovery uplift, continues to support a 'AAA' rating on the covered bonds.

ANZ National Bank Limited

Long-Term Issuer Default Rating: 'AA-',

Outlook Stable Mortgage covered bond rating: 'AAA',

Outlook Stable D-Cap: 2 (high)

Asset segregation: very low

Liquidity gap and systemic risk: high

Cover pool-specific alternative management: moderate

Systemic alternative management: moderate

Privileged derivatives: moderate

The driver of the D-Cap is the high risk assessment for liquidity gap and systemic risk. This is principally driven by programme documentation which provides, in certain circumstances, for a six-month period prior to a scheduled covered bond maturity for cover pool asset sales, while Fitch has assessed the time required to sell cover pool assets in New Zealand as 12 months. The D-Cap of 2, when combined with the institution's IDR and potential recovery uplift, continues to support a 'AAA' rating on the covered bonds.

ASB Bank Limited

Long-Term Issuer Default Rating: 'AA-', Outlook Stable

Mortgage covered bond rating: 'AAA', Outlook Stable

D-Cap: 2 (high)

Asset segregation: very low Liquidity gap and systemic risk: high

Cover pool-specific alternative management: moderate

Systemic alternative management: moderate

Privileged derivatives: moderate

The driver of the D-Cap is the high risk assessment for liquidity gap and systemic risk. This is principally driven by programme documentation which provides, in certain circumstances, for a six-month period prior to a scheduled covered bond maturity for cover pool asset sales, while Fitch has assessed the time required to sell cover pool assets in New Zealand as 12 months. The D-Cap of 2, when combined with the institution's IDR and potential recovery uplift, continues to support a 'AAA' rating on the covered bonds.

Bank of New Zealand Limited

Long-Term Issuer Default Rating: 'AA-', Outlook Stable

Mortgage covered bond rating: 'AAA', Outlook Stable

D-Cap: 3 (moderate high)

Asset segregation: very low

Liquidity gap and systemic risk: moderate high

Cover pool-specific alternative management: low Systemic alternative management: moderate

Privileged derivatives: moderate

The driver of the D-Cap is the moderate high risk assessment for liquidity gap and systemic risk. This is principally driven by programme documentation which provides, in certain circumstances, for a 12-month period prior to a scheduled covered bond maturity for cover pool asset sales, the same as Fitch's assessment of the time required to sell cover pool assets in New Zealand. The D-Cap of 3, when combined with the institution's IDR and potential recovery uplift, continues to support a 'AAA' rating on the covered bonds.

Westpac New Zealand Limited

Long-Term Issuer Default Rating: 'AA-', Outlook Stable

Mortgage covered bond rating: 'AAA', Outlook Stable

D-Cap: 2 (high)

Asset segregation: very low

Liquidity gap and systemic risk: high

Cover pool-specific alternative management: low Systemic alternative management: moderate

Privileged derivatives: moderate

The driver of the D-Cap is the high risk assessment for liquidity gap and systemic risk. This is principally driven by programme documentation which provides, in certain circumstances, for a six-month period prior to a scheduled covered bond maturity for cover pool asset sales, while Fitch has assessed the time required to sell cover pool assets in New Zealand as 12 months. The D-Cap of 2, when combined with the institution's IDR and potential recovery uplift, continues to support a 'AAA' rating on the covered bonds.

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