Moody's takes rating actions on Swiss banks

Moody's Investors Service has concluded its rating reviews on 11 Swiss banks initiated on 17 March 2015 following the publication of Moody's revised bank rating methodology. In addition, the rating agency has also reviewed and affirmed the rating of one bank that was initially not on review.

Moody's has not concluded its reviews on the two large Swiss investment banks - Credit Suisse AG and UBS AG - and expects to conclude the reviews on these and other non-Swiss global investment banks in the first half of 2015.

In light of the revised banking methodology, Moody's rating actions on the 12 Swiss banks affected by this announcement generally reflect the following considerations (1) the 'Very Strong --' Macro Profile of Switzerland (Aaa stable); (2) the Swiss banks' generally sound asset quality and solid capitalisation metrics as well as their balanced, largely deposit-financed funding structures; (3) the protection offered to depositors compared to senior creditors, owing to depositor preference in Switzerland and the substantial volumes of deposit funding, as captured by Moody's Advanced Loss Given Failure (LGF) liability analysis; and (4) the reduced likelihood of government support for most of these institutions.

Moody's affirmed the adjusted BCAs of eight out of the total 12 Swiss banks and upgraded their deposit ratings by an average of 1.5 notches. At the same time, the senior unsecured debt or issuer ratings of these banks as well as holding companies were reduced by 0.6 notches, on average.

Among the rating actions on the Swiss banks that Moody's has taken are the following:

- 10 long-term bank deposit ratings upgraded and two affirmed
- Four short-term bank deposit ratings upgraded and eight affirmed
- Two bank long-term senior unsecured debt or issuer ratings downgraded and two affirmed
- Eight baseline credit assessments (BCAs) affirmed, one lowered and three raised.

In addition, of the 12 banking groups with rated holding company senior unsecured debt and/or issuer ratings, two senior unsecured/issuer ratings were affirmed, and one was downgraded.
Moody's has also assigned Counterparty Risk (CR) assessments to 12 Swiss banks and their branches, in line with its revised bank rating methodology.

Bank-level subordinated debt ratings have either been affirmed or downgraded and most of the holding companies' subordinated debt and hybrid securities ratings were upgraded as part of this rating action. For its own business reasons, Moody's has withdrawn the outlooks for all of the junior instrument ratings for the banking groups covered in this press release. For more information, please refer to "Moody's Investors Service's Policy for Withdrawal of Credit Ratings," available at moodys.com.

Outlooks, which provide an opinion on the likely rating direction over the medium term, are now assigned only to long-term deposit and senior unsecured debt or issuer ratings. Moody's has assigned stable outlooks to the long-term deposit ratings of 10 of the affected banks, a negative outlook to one and a positive outlook to one. Moody's has assigned stable outlooks to the senior unsecured debt or issuer ratings of two of the affected banks and a negative outlook to one.

Please click on http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_181304 for the list of affected credit ratings. This list is an integral part of this press release and identifies each affected issuer.

Please refer to this link for the revised methodology: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_320662.

RATINGS RATIONALE

The revised methodology includes a number of elements that Moody's has developed to help accurately predict bank failures and determine how each creditor class is likely to be treated when a bank fails and enters resolution. These new elements capture insights gained from the crisis and the fundamental shift in the banking industry and its regulation.

(1) SWITZERLAND'S "VERY STRONG -" MACRO PROFILE

Swiss banks benefit from operating in an environment with a very high degree of economic, institutional and government financial strength and very low susceptibility to event risk. The country's relatively high and rising private sector debt is well covered by private sector assets, which dampens the risks from persistent, albeit slowing, property-price inflation. Bank funding conditions benefit from a strong domestic deposit base as well as good access to the liquid covered bond and interbank markets.

(2) SWISS BANKS DISPLAY SOLID FINANCIAL RATIOS, BUT SOME CHALLENGES REMAIN

The considerations that support Swiss banks' BCAs are: (1) the stable operating environment and banks' solid financial base; and (2) substantial loss absorption capacity through earnings and loan-loss reserves. The Swiss banks' solid financial base includes very low problem loan ratios, strong capital adequacy, and limited reliance on wholesale funding, in most cases. Following today's rating actions, the simple average BCA of these 12 banks stands at a3.

The creditworthiness of the Swiss sovereign and the country's solid economic development as well as the country's low unemployment support Moody's view of a continued, stable operating environment for Swiss banks (Moody's forecasts Swiss GDP to grow 0.8% in 2015 and 1.5% in 2016). Sustained property-price inflation and persistently low interest rates are the main fundamental challenges for Swiss banks over the next 12-18 months, whilst Moody's believes that most of the banks should be able to withstand earnings pressures arising from the strong Swiss franc.

(3) PROTECTION OFFERED TO DEPOSITORS COMPARED TO SENIOR AND OTHER CREDITORS, AS CAPTURED BY MOODY'S ADVANCED LGF LIABILITY ANALYSIS

Because of the Swiss operational resolution regime, Moody's applies its Advanced LGF analysis to Swiss banks' liability structures under its new methodology. In most cases, this analysis results in a very low loss-given-failure for Swiss long-term deposits, in light of depositor preference and the substantial volume of deposit funding, as well as some protection offered by the amount of debt subordinated to deposits within banking groups. This has led to deposit rating upgrades for most of the Swiss banks covered in this press release.

In contrast, low volumes of senior debt and limited amounts of securities subordinated to it, reflecting a high expected loss severity in the event of resolution, prompted the downgrade of some banks' senior debt ratings, and/or their issuer ratings.

For more information on Moody's LGF analysis, please see Moody's "How Resolution Frameworks Drive Our Creditor Hierarchies" at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1003760 (in addition to the methodology itself).

(4) REDUCED LIKELIHOOD OF GOVERNMENT SUPPORT

Swiss authorities have implemented a flexible resolution framework that includes provisions for burden-sharing with senior creditors. The evolution of the Swiss bank resolution regime and the accelerating global trend towards the use of burden-sharing tools has led to a diminishing support for senior creditors from the Swiss government in the event of need. As a result, only five Swiss banks' ratings (excluding Credit Suisse AG and UBS AG) continue to benefit from rating uplift resulting from Moody's revised government support assumptions.

BANK SPECIFIC ANALYTIC FACTORS
-- BANQUE CANTONALE VAUDOISE

Moody's upgraded Banque Cantonale Vaudoise's (BCV) long-term deposit ratings to Aa2 from A1, with a stable outlook. At the same time, the rating agency raised BCV's BCA by one notch to a2. The Prime-1 short-term deposit ratings were affirmed. Moody's further assigned an A1 (cr)/Prime-1(cr) Counterparty Risk assessment (CR assessment) to BCV.

The upgrade of BCV's long-term deposit ratings reflects the very low loss-given-failure for the bank's wholesale deposits because of the substantial volume of deposits, leading to a two-notch uplift from its a2 adjusted BCA. This is further supported by one notch of government support uplift factored into the bank's long-term ratings, following Moody's reduction of government support assumptions (previously two notches).

The raising of the bank's BCA by one notch to a2 reflects (1) the bank's relatively low on-balance-sheet risks, despite displaying a high concentration in the Canton of Vaud, including relatively large exposures to the region's real-estate markets; (2) BCV's high-quality capitalisation with a Common Equity Tier 1 (CET1) ratio of 17.1% as of year-end 2014; and (3) its ability to generate sufficient profits in order to cover both expected losses and a relatively high share of unexpected losses, without compromising its franchise stability.

-- BANK JULIUS BAER & CO. LTD. / JULIUS BAER GROUP LTD.

Moody's upgraded Bank Julius Baer & Co. Ltd.'s (BJB) long-term deposit rating to Aa2 from A1. At the same time, the rating agency downgraded the bank's issuer ratings to A2 from A1. The long-term ratings have been assigned a negative outlook. Moody's affirmed the bank's a2 BCA as well as BJB's short-term deposit rating of Prime-1 and assigned a CR assessment of Aa3(cr)/Prime-1(cr) to BJB.

Subsequently, the rating agency downgraded Julius Baer Group Ltd.'s (JBG) issuer rating to A3 from A2, and assigned a negative outlook. JBG's subordinated debt rating has been upgraded to A3 from Baa1, whilst the group's hybrid securities rating has been upgraded to Baa2(hyb) from Baa3(hyb).

The upgrade of BJB's long-term deposit ratings reflects the extremely low loss-given-failure for BJB's wholesale deposits because of the substantial volume of deposits and the amount of debt subordinated to it, leading to a three-notch uplift from its a2 adjusted BCA. For BJB's senior unsecured debt (and thus its issuer rating), the LGF analysis indicates a moderate loss-given-failure, leading to a positioning of the rating in-line with the bank's adjusted BCA. The lower senior debt cushion leading to a high loss-given-failure under Moody's LGF analysis means that JBG's issuer rating has been assigned one notch below BJB's BCA.

Moody's further withdrew one notch of government support uplift previously factored into the bank's long-term ratings, partially offsetting the positive rating impact from Moody's LGF analysis.
The affirmation of BJB's a2 BCA reflects its (1) well-established franchise in global onshore and offshore private banking, which has been enhanced in scale through the acquisition of Merrill Lynch's International Wealth Management (IWM) business outside the United States (Aaa stable); (2) low financial and moderate business risks; and (3) solid financial fundamentals including its earnings generation capacity and capital buffers. The latter could mitigate a meaningful litigation charge resulting from the US-Swiss tax agreement.

The negative outlooks assigned to the bank's and the group's long-term ratings reflect the potential impact that a larger-than-anticipated litigation charge -- one which Moody's has not incorporated in the current standalone BCA -- may have on the bank's capital adequacy metrics and, ultimately, its credit profile.

-- BANQUE PICTET & CIE SA

Moody's upgraded Banque Pictet & Cie SA's (Banque Pictet) long-term deposit ratings to Aa2 from Aa3, with a stable outlook. At the same time, the rating agency affirmed the bank's a2 BCA, its a1 adjusted BCA as well as Banque Pictet's Prime-1 short-term deposit ratings. Moody's further assigned a CR assessment of A1(cr)/Prime-1(cr) to Banque Pictet.

The upgrade of Banque Pictet's long-term deposit ratings reflects the very low loss-given-failure for the bank's wholesale deposits because of the substantial volume of deposits and the amount of debt subordinated to it, leading to a two-notch uplift from its a1 adjusted BCA. This positive rating effect was partially offset by the withdrawal of one notch of government support uplift previously factored into the bank's long-term ratings.

The affirmation of Banque Pictet's a2 BCA is supported by the bank's (1) well-established franchise in wealth management and private banking; (2) low financial risks and moderate business risks; and (3) solid financial fundamentals. Banque Pictet's a1 adjusted BCA reflects the rating agency's assessment of Pictet Group's (unrated) ability and willingness to provide support to Banque Pictet, in case of need, resulting in a one notch uplift from its a2 standalone BCA.

-- BANK VONTOBEL AG / VONTOBEL HOLDING AG

Moody's upgraded Bank Vontobel AG's (Bank Vontobel) long-term deposit ratings to Aa3 from A2, and assigned a stable outlook. The bank's a2 BCA as well as its Prime-1 short-term deposit ratings have been affirmed. Moody's further assigned a CR assessment of A2(cr)/Prime-1(cr) to Bank Vontobel.

In addition, the rating agency affirmed Vontobel Holding AG's (Vontobel or "the group") A3 issuer ratings and assigned a stable outlook.

The upgrade of Bank Vontobel's long-term deposit ratings reflects the very low loss-given-failure for the bank's wholesale deposits because of the substantial volume of deposits and the amount of debt subordinated to it, leading to a two-notch uplift from its a2 adjusted BCA. For Bank Vontobel's senior unsecured debt (and thus the group's issuer rating), Moody's LGF analysis indicates a high loss-given-failure, leading to a positioning of the issuer ratings one notch below the bank's a2 adjusted BCA.

The affirmation of Bank Vontobel's a2 BCA reflects the bank's (1) well-established franchise in Swiss and international off-shore private banking; (2) prominent position in Swiss capital markets, including structured investment products and security custody; (3) moderate business risks; and (4) good financial fundamentals. The rating also reflects a degree of earnings' dependence on capital market developments, as well as typical risks that apply to private banks, such as a high sensitivity to reputational and operational risk.

-- BANQUE SYZ SA / FINANCIÈRE SYZ & CO SA

Moody's upgraded Banque SYZ SA's (Banque SYZ) long and short-term deposit ratings to A2/Prime-1 from Baa2/Prime-2. The long-term ratings carry a stable outlook. At the same time, the rating agency affirmed the bank's baa2 BCA and raised its adjusted BCA by one notch to baa1. Moody's further assigned a Baa1(cr)/Prime-2(cr) CR assessment to Banque SYZ.

Moreover, Moody's affirmed the Baa2 long-term issuer rating of Financiere SYZ & Co. S.A., the parent holding company of Banque SYZ, with a stable outlook.
The upgrade of Banque SYZ's long and short-term deposit ratings to A2 reflects the very low loss-given-failure for Banque SYZ's wholesale deposits because of the substantial volume of deposits, leading to a two-notch uplift from its baa1 adjusted BCA.

The affirmation of Banque SYZ's baa2 BCA reflects the bank's very solid capital adequacy as well as its limited appetite for credit, market or liquidity risks. The BCA also reflects significant key man risk given Eric Syz's 65% ownership (and over 90% of the voting rights) and his key roles in day-to-day decision making, and in determining the group's strategic orientation. The assignment of one notch of affiliate support takes into account the degree of diversification of the parent holding company's earnings from non-related operations conducted outside the bank, which, in Moody's view, constitutes a significant additional source of loss-absorption capacity that is likely to be made available to Banque SYZ in case of need. Furthermore, Moody's assessment considers additional capital available at the holding company that is highly likely to be 'downstreamed' to the bank should the need arise. This reflects the strong financial, operational as well as reputational links of the two franchises as well as strong management incentives to support the private banking operations.

-- BERNER KANTONALBANK AG

Moody's upgraded Berner Kantonalbank AG's (BEKB) long-term deposit rating to Aa1 from A1, with a stable outlook. At the same, the rating agency raised BEKB's BCA by one notch to a1. The Prime-1 short-term deposit ratings were affirmed and Moody's further assigned a Aa3 (cr)/Prime-1(cr) CR assessment to BEKB.

The upgrade of BEKB's long-term deposit reflects the very low loss-given-failure for the bank's wholesale deposits because of the substantial volume of deposits, leading to a two-notch uplift from its a1 adjusted BCA, further suppported by an unchanged one notch of government support.

The raising of the bank's BCA by one notch to a1 reflects (1) BEKB's relatively low-risk profile; (2) the bank's strong relative as well as absolute capitalisation levels, providing a decent cushion against unexpected losses; (3) the bank's high earnings stability and efficiency; and (4) sound liquidity metrics.

-- BSI AG

Moody's upgraded BSI AG's long and short-term deposit ratings to A2/Prime-1 from Baa1/Prime-2, with a stable outlook. At the same time, the rating agency affirmed the bank's baa1 BCA and assigned a Baa1 (cr)/Prime-2(cr) CR assessment to BSI AG.

The upgrade of BSI AG's long and short-term deposit ratings reflects the very low loss-given-failure for the bank's wholesale deposits because of the substantial volume of deposits and the (very limited) amount of debt subordinated to it, leading to a two-notch uplift from its baa1 adjusted BCA.

The affirmation of the bank's baa1 BCA reflects (1) BSI AG's relatively stable franchise development prior to its final sale to Brazilian Banco BTG Pactual (BTG; local-currency deposits Baa3 stable); (2) the relatively low risk profile of its balance sheet; and (3) the bank's solid capital adequacy ratios, which provide significant loss absorption capacity.

Furthermore, the baa1 BCA reflects (1) Moody's assessment of the limited, albeit improving, recurring earnings power of BSI AG despite continued pressures on the bank's revenue base in a difficult operating environment for private bank franchises in Switzerland and globally; (2) elevated uncertainty regarding the effects of the sale of BSI AG to BTG; and (3) typical risks that apply to private banks, such as a high sensitivity to reputational and operational risks.

-- CLIENTIS AG

Moody's upgraded Clientis AG's long and short-term deposit ratings to A2/Prime-1 from A3/Prime-2. The long-term deposit ratings carry stable outlooks. At the same, the rating agency affirmed the bank's baa1 BCA. Moody's further assigned a Baa1(cr)/Prime-2(cr) CR assessment to Clientis.

The upgrade of Clientis' long-term deposit ratings reflects the very low loss-given-failure for the bank's wholesale deposits because of the substantial volume of deposits, leading to a two-notch uplift from its baa1 adjusted BCA. This was partially offset by the withdrawal of one notch of government support uplift previously factored into the bank's long-term ratings.

The affirmation of Clientis' baa1 BCA reflects (1) the bank's dedicated retail focus and medium-sized local banking franchise in Switzerland; (2) its relatively low-risk balance sheet including limited exposures to real-estate 'hot spots' in the regional real-estate markets in Switzerland; and (3) strong capitalisation. However, the BCA remains constrained by Clientis' (1) tighter liquidity metrics and relatively low liquidity buffers compared with those of its closest peers; (2) a relatively narrow franchise and modest profitability by international standards; and (3) Clientis' still comparatively loose and untested long-term sector set-up. The latter remains a credit issue despite previous efforts to strengthen the group's cohesiveness by widening the cross-liability mechanism and ensuring long-term group membership through legally binding membership commitments, up until 2017.

-- RAIFFEISEN SCHWEIZ

Moody's upgraded Raiffeisen Schweiz's (Raiffeisen Schweiz) long-term deposit ratings to Aa2 from Aa3. At the same time, the rating agency downgraded the bank's long-term senior unsecured ratings to A2, from Aa3. The long-term ratings carry a stable outlook. The BCA has been raised to a2 from a3, reflecting the fundamental strength of Raiffeisen Group (unrated) in Raiffeisen Schweiz's standalone BCA as well as the fact that Raiffeisen Group as a cooperative group with a statutory and well developed mutualist support framework is regulated on a consolidated basis. The bank's A3 subordinated debt rating as well as its Baa3(hyb) high-trigger Additional Tier 1 (AT1) securities rating (classified as preferred stock non-cum) have been affirmed. Moody's further assigned an A1(cr)/Prime-1(cr) CR assessment to Raiffeisen Schweiz.

The rating agency bases its LGF analysis on the consolidated group liabilities at failure because of its assumption that resolution would, upon exhaustion of all statutory and joint support, be based on a full resolution of the entire group, including Raiffeisen Schweiz. The upgrade of Raiffeisen Schweiz's long-term deposit ratings therefore reflects the very low loss-given-failure for the group's wholesale deposits because of the substantial volume of deposits, leading to a two-notch uplift from its a2 adjusted BCA, prior to government support uplift.

Conversely, Raiffeisen Schweiz's senior unsecured ratings take into account their high loss-given-failure because of the group's relatively low volume of senior unsecured debt outstanding, leading to a one-notch reduction from the bank's a2 BCA.

In addition, Moody's reduced its government support assumptions for Raiffeisen Schweiz from 'very high' to 'moderate', now resulting in one notch of systemic support uplift (previously two) for the long-term debt and deposit ratings.

Raiffeisen Schweiz's pivotal importance to the group's operations and performance -- as well as the strong strategic and financial cohesion among member banks -- led to Moody's to raise Raiffeisen Schweiz's BCA to a2. Moody's believes that factoring in the strength of the whole Swiss Raiffeisen sector into Raiffeisen Schweiz's BCA better reflects Raiffeisen Schweiz's intrinsic financial strength. Also, regulatory supervision applies to Raiffeisen Group as a whole and on a consolidated level rather than to Raiffeisen Schweiz as the group's central institution.

The a2 BCA is underpinned by (1) the bank's and the group's manageable asset risk and its conservative approach to risk taking; and (2) the group's solid capital buffers and its comfortable funding profile. Moody's underlying fundamental group-level assessment also takes into account pressures from (1) the group's above-average residential mortgage-loan growth over recent years, leading to increased susceptibility to shocks under a scenario of a significant slowdown in the Swiss housing market; and (2) the continued challenging operating environment, characterised by sustained net interest margin compression and low interest rates, which continue to constrain the group's profitability prospects.

-- ST. GALLER KANTONALBANK

Moody's affirmed St. Galler Kantonalbank's (SGKB) Aa1/Prime-1 long and short-term debt and deposit ratings. The long-term ratings carry a stable outlook. At the same time, the rating agency lowered the bank's BCA to a3 from a2, and subsequently downgraded SGKB's subordinated debt rating to Baa1 from A3. Moody's further assigned a Aa1(cr)/Prime-1(cr) CR assessment to SGKB.

The affirmation of the bank's long and short-term ratings reflects the full ownership and statutory guarantee by the Canton of St. Gallen (unrated), as well as the bank's importance in the local economy, which together result in a five-notch uplift to the long-term senior ratings to Aa1 from the bank's a3 BCA.
The lowering by one notch of SGKB's BCA to a3 reflects the bank's (1) somewhat weaker asset quality ratios when compared with similarly rated peers, despite the weakness being partly due to conservative accounting practices; (2) very high concentration in the Canton of St. Gallen, including large exposures to the region's real-estate markets; and (3) partial reliance on wholesale funding to finance parts of its mortgage-lending book. The a3 BCA remains supported the bank's ability to generate sufficient profits to cover both expected losses and a relatively high share of unexpected losses without compromising its franchise stability.

-- VALIANT BANK AG

Moody's upgraded Valiant Bank AG's long-term and short-term deposit ratings to A2/Prime-1 from A3/Prime-2, and assigned a positive outlook to the bank's long-term ratings. At the same, the rating agency affirmed the bank's baa1 baseline credit assessment (BCA) and assigned an A3 (cr)/Prime-2(cr) CR assessment to Valiant.

The upgrade of Valiant's long-term deposit ratings reflects the very low loss-given-failure for the bank's wholesale deposits because of the substantial volume of deposits, leading to a two-notch uplift from its baa1 adjusted BCA. This was partially offset by the withdrawal of one notch of government support uplift previously factored into the bank's long-term ratings.

The affirmation of Valiant's baa1 BCA at the low end of the new scorecard range indicates potential upside during Moody's 12-18 month outlook period and is reflected in the positive outlook on the bank's long-term deposit ratings.

The baa1 BCA takes into account Valiant's persistently low risk profile as well as the amelioration of strategic uncertainty following the Valiant group's reshuffling. However, the BCA also takes into account Valiant's only adequate, albeit strengthened, capitalisation and partial reliance on market funding. In addition, the bank displays a below-average liquidity buffer that may exert pressure on the bank's refinancing profile in an adverse scenario. These factors, together with continued earnings pressure from persistently lower-than-expected interest rates, as well the bank's limited ability to improve operating efficiency in a competitive domestic banking market, constrain Valiant's standalone credit profile at present.

-- ZUERCHER KANTONALBANK

Moody's affirmed Zuercher Kantonalbank's (ZKB) Aaa/Prime-1 long and short-term debt and deposit ratings. The long-term ratings carry a stable outlook. At the same time, the rating agency affirmed ZKB's a2 BCA and assigned a Aaa(cr)/Prime-1(cr) CR assessment to ZKB.

The affirmation of the bank's long-and short-term ratings reflects the full ownership and statutory guarantee by the Canton of Zurich (unrated), as well as the bank's importance in the local economy, which together result in a five-notch uplift to the long-term senior ratings to Aaa from ZKB's a2 BCA.
Moody's has placed ZKB's a2 BCA at the high-end of the new scorecard range, indicating potential downside over the rating agency's 12-18 month outlook horizon.

The identified pressures on the bank's a2 BCA reflect (1) the growth of ZKB's residential mortgage-loan portfolio in the highly dynamic Zurich region over recent years, which, albeit declining, may lead to increased susceptibility to a significant slowdown in the Swiss housing market; (2) the increasingly challenging operating environment, characterised by net interest margin compression and lower-than-anticipated interest rates, which constrain the bank's profitability prospects; and (3) increased execution and franchise risks. These risks are inherent in the bank's private banking business, which is largely subject to changes in the regulatory environment, and are due partly to potential litigation charges in light of the current negotiations with US authorities over tax evasion. In addition, and following its determination as a domestically important financial institution ('local SIFI'), ZKB will have to bolster capital further to continue meeting and exceeding recently increased capital requirements.

RATIONALE FOR COUNTERPARTY RISK (CR) ASSESSMENTS

Moody's has assigned CR assessments to 12 Swiss banks. CR assessments are opinions of how counterparty obligations are likely to be treated if a bank fails, and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than the likelihood of default and the expected financial loss incurred in the event of default and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities.

Moody's CR assessments for banks subject to an operational resolution regime are positioned in-line or one notch above the adjusted BCA. In Switzerland, counterparty obligations rank above senior unsecured debt at the same legal entity, but not above deposits, given the explicit depositor preference in Switzerland.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Upward rating momentum on any of the 12 Swiss banks' ratings could develop principally from (1) a sustainable and significant improvement in the banks' profitability; (2) further improvements in and maintenance of the banks' and the groups' sound asset quality; (3) materially stronger capital positions; and/or (4) a substantial improvement of the banks' liquid resources that significantly exceeds the banks' confidence-sensitive wholesale funding sources.

Downward rating pressure could emerge if (1) asset quality and/or credit underwriting standards deteriorate beyond Moody's current expectations; (2) current revenue and profitability pressures intensify, especially if the low interest-rate environment persists or even worsens; (3) the domestic macroeconomic environment deteriorates such that unemployment rises markedly and the Swiss real-estate market weakens; and/or (4) unexpected litigation charges in connection with typical private banking and wealth-management lawsuits erode the banks' generally sound earnings generation capacity and capitalisation levels.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.