NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed RBS Securities Inc.'s (RBSSI)'A-' Long-term Issuer Default Rating (IDR) and 'F1' Short-term IDR. RBSSI is a wholly owned indirect subsidiary of The Royal Bank of Scotland Group plc (RBS Group) which is rated by Fitch at 'A/F1' and was also affirmed today. The Rating Outlook is Stable. Today's rating action on RBSSI was taken in conjunction with Fitch's review of the RBS Group. A full list of ratings follows at the end of this release.
RBSSI's ratings have been affirmed in conjunction with Fitch's UK Bank peer review and the affirmation of RBS Group's ratings (please see 'Fitch Affirms Royal Bank of Scotland, Lloyds Banking Group & Santander; Downgrades Nationwide', dated Sept 19, 2013 for additional details).
KEY RATING DRIVERS
RBSSI is considered by Fitch to be a strategically important business within The Royal Bank of Scotland plc's (RBS) Markets and International Banking (M&IB) segment and remains a significant earnings contributor to the overall group. As such, Fitch continues to view the ratings as being closely linked. RBSSI also relies on the parent for contingent funding, capital and liquidity needs and without such support, the rating would be materially lower on a stand-alone basis, though the agency recognizes that it is operated as an integral part of RBS's M&IB segment.
RBSSI relies heavily on wholesale, short-term secured financing, which Fitch views as a credit negative. However, the firm has continued to extend maturities across its repo book and reduced counterparty concentrations. Balance sheet inventory is largely comprised of high quality, liquid securities, primarily U.S. government and Agency securities. Contingency funding plans and liquidity stress tests have also been improved over the past several years.
The firm's revenues are heavily concentrated in trading one asset class, which also places further pressure on the firm's credit profile. As a result, Fitch believes RBSSI's franchise is more limited than many of its diversified broker dealer peers in the United States.
The current ratings incorporate RBS's continuing demonstrated support in the form of capital infusions and credit lines. In addition, the ratings of RBSSI rely on some level of UK government support because the ultimate parent's viability ratings are lower than the current long- and short-term IDRs. The 'F1' short-term IDR reflects Fitch's view that any support if needed would be forthcoming in the short term.
RBSSI has made improvements to its balance sheet leverage and risk management infrastructure over the past several years. Fitch-adjusted leverage stood at 8.1 as of June 30, 2013, compared to 10.2 at YE12 and 28.9x at YE10. The current level is generally consistent with the Fitch-rated broker-dealer peer group and is expected to remain fairly consistent going forward.
RATING DRIVERS AND SENSITIVITIES - IDRs
RBSSI's Long-term IDR is notched down from RBS's IDR because the entity is a foreign subsidiary and support may diminish over time. Fitch believes that the UK government will continue to allow support of RBSSI, but that bank subsidiaries may have priority in support in an extreme stress scenario. Furthermore, over time, the UK government may push to separate investment banking from core banking activities, which may reduce support over time and cause Fitch to revisit the ratings.
Changes to RBSSI's ratings would move in tandem with RBS's Long- and Short-term IDRs because RBSSI's ratings are driven by that of its parent RBS. If RBSSI were no longer deemed to be strategically important to RBS, RBSSI's ratings would be downgraded, potentially by multiple notches.
RBSSI is one of two principal operating companies for M&IB in North America. Its primary business lines include mortgage and ABS Sales and Trading, Flow Credit Sales and Trading, Treasury Markets, Prime Brokerage and Rates Sales and Trading. In addition to being an SEC registered broker dealer, it is also a CFTC designated Futures Commission Merchant (FCM). It is also an agent for the Federal Reserve Term Asset-Backed Securities Loan Facility (TALF). The firm had $114 billion in total assets as of June 30, 2013.
Fitch has affirmed the following ratings of RBS Securities Inc.:
--Long-term IDR at 'A-'; Outlook Stable
--Short-term IDR at 'F1'.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'Securities Firms Criteria' (Aug. 15, 2012);
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);
--'Fitch Affirms Royal Bank of Scotland, Lloyds Banking Group & Santander; Downgrades Nationwide' (Sept. 19, 2013).
Applicable Criteria and Related Research:
Securities Firms Criteria
Rating FI Subsidiaries and Holding Companies
Global Financial Institutions Rating Criteria