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FINANCIAL INSTITUTIONS
CREDIT OPINION2 August 2018
Update
RATINGS
TSB Banking Group plcDomicile United Kingdom
Long Term Issuer Rating Baa3
Type LT Issuer Rating Domcurr
Outlook Negative
Please see the ratings section at the end of this reportfor more information. The ratings and outlook shownreflect information as of the publication date.
Contacts
AleksanderHenskjold
+44.20.7772.1954
Ambra Cortesi +44.20.7772.5692Associate [email protected]
Laurie Mayers +44.20.7772.5582Associate Managing [email protected]
Nick Hill [email protected]
TSB Banking Group plcUpdate following recent change of outlook to negative
Summary Rating RationaleOn 1 August 2018, we affirmed all ratings of TSB Bank plc (TSB) and TSB Banking Groupplc (TSB Group). The outlook on TSB's Baa2 long-term deposit and issuer ratings and TSBGroup’s Baa3 long-term issuer rating was changed to negative from stable. We also affirmedTSB's baseline credit assessment (BCA) and adjusted BCA at baa2, as well as its CounterpartyRisk Assessment (CR Assessment) at A3(cr)/Prime-2(cr).
TSB's baa2 BCA reflect its: (i) high quality loan portfolio; (ii) strong capital and leveragemetrics; (iii) expected low levels of profitability given high cost base and unexpectedcustomer redress and IT remediation costs stemming from problems incurred during itsmigration to the parent’s IT platform; (iv) low reliance on wholesale funding; (v) adequateliquidity buffers; and (vi) downside risks related to potential long-term effects of the failed ITmigration.
The affirmation of the Baa2 long-term bank deposit and issuer ratings of TSB, as well as theBaa3 issuer rating and subordinated debt rating of TSB Group are underpinned by (i) TSB'sbaa2 BCA; (ii) the results of Moody’s Advanced Loss Given Failure (LGF) analysis, leading tono uplift for TSB’s ratings and a negative one-notch difference from the BCA for TSB Group’sratings; and (iii) a low probability of government support.
The negative outlooks reflect the downside risk to TSB’s franchise as a consequence of thebank’s prolonged IT issues following its April 2018 IT migration to the same system as that ofits parent, Banco Sabadell S.A. (Sabadell, Baa2/Baa3 Positive, ba2).
Exhibit 1
Rating Scorecard - Key Financial Ratios
0.5% 20.7% 0.3% 20.7% 24.3%0%
5%
10%
15%
20%
25%
30%
35%
0%
5%
10%
15%
20%
25%
Asset Risk:Problem Loans/
Gross Loans
Capital:Tangible Common
Equity/Risk-WeightedAssets
Profitability:Net Income/
Tangible Assets
Funding Structure:Market Funds/Tangible
Banking Assets
Liquid Resources:Liquid BankingAssets/TangibleBanking Assets
Solvency Factors (LHS) Liquidity Factors (RHS)
TSB (BCA: baa2) Median baa2-rated banks
The chart displays TSB's scorecard ratios (historic ratios).Source: Moody's Investors Service
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
Credit Strengths
» Good quality franchise loan portfolio, but acquired loan portfolio from NRAM Limited (backed senior unsecured rating A2 Stable)somewhat increases its risk profile
» Very strong capital and leverage metrics
» Low reliance on wholesale funding given TSB's stable retail deposit base
Credit Challenges
» High operational and reputational risk following negative customer backlash and unexpected remediation costs after IT migrationdifficulties
» Expected low levels of profitability given the large cost base it has inherited
» The acquisition of a loan portfolio underwritten under different risk parameters
Rating OutlookThe negative outlooks reflect the downside risk to TSB’s franchise as a consequence of the bank’s prolonged IT issues following itsIT migration. In April 2018, TSB migrated its IT system to that of its parent, Sabadell, and has since recognised £176 million in post-migration costs related to customer compensation, additional resources, and foregone income because of waived overdraft fees andinterest charges. The result has been a £107 million loss during the first half of the year, reducing the Common Equity Tier 1 (CET1) ratioto 19.2% at the end of June 2018 from 20.0% at the end of 2017.
While we recognise that the majority of the post-migration costs are temporary in nature, the negative outlook reflects medium-term risks to the franchise and the possibility of a related regulatory penalty. The IT migration issues has compelled TSB to focuson remediation instead of growth, potentially resulting in a drop in market share, as well as likely reduction in revenues, as netinterest margins in the mortgage market continue to fall. Furthermore, the negative outlooks also reflect our view that additional ITremediation related costs and tail-risk stemming from potential regulatory action could affect profits in a future period.
Factors that Could Lead to an UpgradeTSB's BCA could be upgraded following improvements in the bank's asset risk, capital levels, and/or profitability, combined with anupgrade of the BCA of its parent, Sabadell. A positive change in TSB's BCA would likely lead to an upgrade of all ratings. TSB's depositand issuer ratings could also be upgraded if the bank were to issue significant amounts of long-term debt, including structurallysubordinated debt issued through its holding company.
Factors that Could Lead to a DowngradeTSB's BCA could be downgraded (i) if further negative financial and reputational impacts following the IT migration materially affectsits franchise positioning and profitability beyond our current expectations; (ii) if there were to be a material deterioration in solvencyor liquidity metrics; (iii) or following a downgrade in Sabadell's BCA. A downward movement in TSB's BCA would likely result indowngrades to all ratings. TSB's deposit and issuer ratings could also be downgraded in response to a reduction in the volume ofdeposits or debt that could be bailed in, which would increase loss-given-failure for depositors.
Any increase in the linkages between TSB and its parent, in the absence of an upgrade of Sabadell's BCA, could result in negative ratingpressure for TSB's ratings.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.
2 2 August 2018 TSB Banking Group plc: Update following recent change of outlook to negative
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
Key indicators
Exhibit 2
TSB Banking Group plc (Consolidated Financials) [1]12-172 12-162 12-152 12-142 12-132 CAGR/Avg.3
Total Assets (GBP billion) 43 37 32 27 25 14.34
Total Assets (EUR billion) 48 44 43 35 30 12.44
Total Assets (USD billion) 58 46 47 42 41 8.64
Tangible Common Equity (GBP billion) 2.0 1.9 1.7 1.6 1.3 10.94
Tangible Common Equity (EUR billion) 2.2 2.2 2.3 2.1 1.6 9.24
Tangible Common Equity (USD billion) 2.7 2.3 2.6 2.5 2.2 5.54
Problem Loans / Gross Loans (%) 0.5 0.5 0.6 0.9 1.2 0.75
Tangible Common Equity / Risk Weighted Assets (%) 20.7 19.2 18.5 23.6 20.9 20.66
Problem Loans / (Tangible Common Equity + Loan Loss Reserve) (%) 7.6 7.3 8.8 11.9 17.3 10.65
Net Interest Margin (%) 2.3 2.5 2.7 2.9 1.9 2.55
PPI / Average RWA (%) 2.5 2.5 2.1 3.3 2.7 2.66
Net Income / Tangible Assets (%) 0.3 0.3 0.3 0.3 0.7 0.45
Cost / Income Ratio (%) 78.1 75.5 80.5 77.3 68.7 76.05
Market Funds / Tangible Banking Assets (%) 20.7 13.6 10.7 1.2 1.5 9.55
Liquid Banking Assets / Tangible Banking Assets (%) 24.3 17.7 14.3 18.4 17.8 18.55
Gross Loans / Due to Customers (%) 101.3 100.4 102.3 88.2 87.4 95.95
[1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel III - fully-loaded or transitional phase-in; IFRS [3] May include rounding differences due to scaleof reported amounts [4] Compound Annual Growth Rate (%) based on time period presented for the latest accounting regime [5] Simple average of periods presented for the latestaccounting regime. [6] Simple average of Basel III periods presentedSource: Moody's Financial Metrics
ProfileTSB is a retail bank operating in the UK and headquartered in Edinburgh, Scotland.
TSB was initially operating under the name of TSB Group plc, which was listed on the London Stock Exchange. In 1995 the Groupmerged with Lloyds Bank and was renamed Lloyds TSB; however it was later divested from Lloyds following a European Commissionruling. The new bank, named TSB Bank, began operating in 2013 with a strong presence in Scotland and the remainder of Lloyds TSBwas renamed Lloyds Bank. On 30 June 2015, TSB Banking Group was purchased by the Spanish banking group Sabadell.
Detailed Rating ConsiderationsThe financial data in the following sections are sourced from TSB Banking Group's financial statements unless otherwise stated.
Strong asset quality offset by IT migration issues and rapid expansion plansTSB has a relatively low risk loan portfolio, but is exposed to operational risk stemming from the prolonged IT migration issues. Ourbaa2 asset risk score also incorporates risks related to historical and expected rapid expansion plans.
According to our calculations, TSB's problem loan ratio as of December 2017 was 0.5% (unchanged with respect to December 2016).TSB does not include a portion of over 90 days past due loans as impaired, the addition of these loans would increase the problem loanratio as of end-2017 to 0.7% (end-2016: 0.8%).
In December 2015, TSB acquired £3 billion of loans originated by Northern Rock from Cerberus Capital Management group (Cerberus);the reported balance has since decreased to £2.1 billion at the end of 2017 (exhibit 3), corresponding to 6.8% of reported loans (downfrom 11.4% at the end of 2015). These loans were part of the £13 billion Granite portfolio of residential mortgages sold to Cerberus byUK Asset Resolution Limited (UKAR, unrated). Although these loans generated pre-2007 are well seasoned, they were underwrittenunder a different risk appetite framework. As a result, they increased the risk profile of TSB's loan portfolio because they could be morevulnerable to an increase in unemployment following weaker than expected economic growth in the UK.
3 2 August 2018 TSB Banking Group plc: Update following recent change of outlook to negative
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
Exhibit 3
TSB lending portfolio breakdown
0
5
10
15
20
25
30
35
2014 2015 2016 2017
£21.6 bn £26.4 bn £29.4 bn £30.9 bn
Whistletree Loans Mortgage Enhancement Franchise (secured) Franchise (unsecured)
Source: Company's financials
The acquired book helps to improve TSB's profitability and added 34,000 more customers to TSB's already very granular lendingportfolio. Despite the acquired loan book, we believe that TSB's mortgage portfolio is relatively low risk (exhibit 4).
Exhibit 4
TSB Benefits from a good quality loan portfolio
0
10
20
30
40
50
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
2013 2014 2015 2016 2017
Impaired Loans/Gross Loans, % (LHS) Cost of risk, bps (RHS)
Source: Moody's Banking Financial Metrics
The problems related to the April 2018 IT migration to Sabadell's banking platform have in our view increased TSB's operationalrisk and execution risk at the bank, as well as diverting management attention from day-to-day business matters. The bank has alsoseen higher fraud activity targeting its customers after the IT migration. TSB made a £115.8 million provision for customer redress,associated remediation resource costs, and fraud costs during the first half of 2018.
We expect the pace of TSB's lending growth to slow during 2018 as a result of its focus on pre- and post-migration franchise andIT issues. However we expect that the bank will continue a rapid expansion of its loan portfolio from 2019 in order to close the gapbetween the scale of its infrastructure (it is the UK's seventh largest bank in terms of branches) and the size of its balance sheet (it isthe tenth largest rated UK bank by total assets - it was the twelfth when we assigned the ratings for the first time in 2015). AlthoughTSB's loan book grew quickly during 2015 and 2016 (reaching respectively 21.8% and 11.4% y-o-y growth rates), TSB slowed its growthto 4.9% in 2017, as it prepared for the IT migration, initially scheduled for November 2017. During the first half of 2018, TSB's totallending grew 0.5% and reached £31.0 billion at the end of June 2018.
Solid capital and leverage metrics protect TSB against downside riskOn both a current and forward looking basis, we view capital as one of TSB's main credit strengths and this results in a score of a1.This score incorporates TSB's presently strong capital metrics, but also our expectation that capital and leverage ratios will decreasesomewhat as TSB absorbs one-off costs related to the IT migration and grows its loan book over time.
4 2 August 2018 TSB Banking Group plc: Update following recent change of outlook to negative
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TSB's tangible common equity (TCE) to risk-weighted assets (RWAs) ratio stood at 20.9% as of December 2017, an increase comparedto 19.2% one year before. This reflects the £119 million profit for the year, whilst RWA decreased by 2%. We expect that capitalisationwill remain at a strong level and continue to provide TSB with sufficient capital to absorb unexpected losses. TSB's fully-loaded leverageratio declined by 30 basis points to 4.5% at end-2017 from 4.8% at end-2016, largely in line with peers.
TSB reported a CET1 ratio of 19.2% at end-June 2018, down from 20.0% at end-December 2017. The decrease was driven by post-migration costs, resulting in a £107.4 million loss before tax during the first half of 2018.
Expected low levels of profitability given high cost baseDespite a strong net interest margin (NIM) at 2.82% at June 2018 (3.02% at end-2017) well above the average for rated UK mortgagefocused lenders, and low cost of risk (25 basis points in 2017), TSB's profitability is subdued.
The bank reported a loss before tax of £107.4 million during the first half of 2018, down from a £108.3 million profit during the firsthalf of 2017. The 1H 2017 result were affected by a £61.7 million early return of the Mortgage Enhancement portfolio to Lloyds BankingGroup, while the 1H 2018 results were impacted by £176.4 million of post-migration costs. These costs consist of (i) £115.8 millionprovision for customer redress, associated remediation resource costs and fraud costs; (ii) £30.7 million of additional resource andadvisory costs to support the remediaton of systems and operating defects; and (iii) £29.9 million of foregone income related towaived fees and charges as a result of its service disruption.
We expect that the majority of the post-migration costs are temporary in nature; however, some costs, such as those related to hiringover 1,800 new staff and advisory costs, may take some time to phase out and we expect that the second half of 2018 will also seelower profit generation relative to 2017, partly also reflecting slower loan growth. Furthermore, while not directly incorporated into ourforecasts, tail-risk stemming from potential regulatory action related to the IT migration issues could affect profits in a future period.
TSB has a very high cost base due to a large branch network relative to its asset base. According to our calculations, TSB's cost-to-income ratio was 78.1% in 2017, an increase from 75.5% of 2016, although partially driven by increased cost stemming from the ITmigration delay.
The net income over tangible assets ratio of 0.28% in the same period (unchanged compared to 2016) is below the level of TSB's peers.Profitability will likely remain under pressure until TSB is able to increase its size or reduce the cost base. We see TSB's profitability asa relative weakness and do not expect it to be remediated over the next 12-18 months, partially because the focus of the bank willremain on remediation actions following the IT migration instead of growth. We assign a ba3 score to profitability, one notch belowthe macro-adjusted score to reflect our expectation that slower loan growth in 2017 and 2018 will negatively impact revenue growth,while a small proportion of the post-migration costs will also impact 2019 results.
Exhibit 5
High cost base impedes TSB's profitability
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
0.9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2013 2014 2015 2016 2017
Cost/Income Ratio, % (LHS) Net Income/Tangible Assets, % (RHS)
Source: Moody's Financial Metrics
5 2 August 2018 TSB Banking Group plc: Update following recent change of outlook to negative
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Low reliance on wholesale funding and granular deposit baseIn addition to capital, we consider TSB's funding profile as a strength. TSB is predominantly deposit funded, but has increased itswholesale funding by issuing its second RMBS in May 2016. Furthermore, TSB successfully completed its first covered bonds issuancein December 2017 (Aaa), with £500 million issued through their Mortgage Covered Bond Programme, strengthening their fundingdiversification.
According to our calculations, TSB's market funds as a proportion of tangible banking assets increased to 20.7% at end-2017 from13.6% at end-2016 because of increased use of Bank of England's Term Funding Scheme (TFS). The bank's loan-to-deposit ratio wentup to 101.3% from 100.4% in the same period. We assign a baa1 Funding Structure score to TSB, in line with the macro-adjusted score.
Adequate liquidity buffersTSB has adequate liquidity buffers. According to our calculations, TSB's liquid assets as a proportion of its tangible banking assets, stoodat 24.3% as of December 2017, a sharp increase with respect to the previous year, mainly due to the increase of central bank balancesas a result of the TFS borrowing. We expect this ratio to decline somewhat as TSB tries to expand its loan portfolio and to reflect the£944 million decline in deposits during the first half, corresponding to 3.1% of deposits at end-December 2017. The decline in depositswas driven by TSB offering lower rates on its ISA deposits. Despite the decline, we expect that TSB's liquidity ratio will remain strong. Asa result, we assign a baa1 Liquid Resources score to reflect these factors.
Qualitative adjustment and relationship with Banco SabadellIn aggregate, we assign a Financial Profile of baa1 to TSB. Given that TSB's business activity will be initially limited to retail bankingoperations, this relatively narrow focus results in a one-notch negative qualitative adjustment in respect of business diversificationresulting in a BCA of baa2.
At the moment TSB's BCA at baa2 exceeds the standalone rating of its parent Banco Sabadell by three notches. This differential reflectsthe very limited connections between the two institutions, plans to retain the TSB brand name and expectations that the UK PrudentialRegulation Authority will continue to ensure that TSB maintains adequate solvency and liquidity positions before any dividends areallowed to be paid. We expect that over time increasing operational linkages are likely to develop between the two institutions, whichcould affect the notching differential between TSB and Sabadell.
Notching ConsiderationsLoss given failure and additional notchingTSB is domiciled in the UK, a jurisdiction which is subject to the EU Bank Recovery and Resolution Directive (BRRD), which we considerto be an Operational Resolution Regime. We assume residual TCE of 3% and losses post-failure of 8% of tangible banking assets, a25% run-off in "junior" wholesale deposits, a 5% run-off in preferred deposits, and assign a 25% probability to deposits being preferredto senior unsecured debt. These are in line with our standard assumptions. Particular to TSB and most savings banks and buildingsocieties in the UK, we assume the proportion of deposits considered junior at 10%, relative to the standard assumption of 26%, due totheir largely retail-oriented deposit base.
Our Advanced LGF analysis indicates that TSB's deposits and senior unsecured debt are likely to face moderate loss-given-failure, dueto the volume of deposits and limited loss-absorption provided by a relatively small amount of dated subordinated debt issued by theholding company, TSB Group. This results in a preliminary rating assessment (PRA) for TSB's deposits and for any senior unsecured debtat the same level as the bank BCA at baa2.
TSB Banking Group's senior unsecured and subordinated instruments are likely to face a high loss-given-failure according to ourAdvanced LGF analysis given the relatively small volume of existing debt and very limited protection from more subordinatedinstruments and residual equity. This results in a baa3 PRA for TSB Group's existing Tier 2 dated subordinated bonds and potentially forsenior unsecured debt, one notch below that of TSB's BCA.
Counterparty Risk RatingMoody’s Counterparty Risk Ratings (CRRs) are opinions on the ability of entities to honour the uncollateralised portion of non-debtcounterparty financial liabilities (CRR liabilities) and also reflect the expected financial losses in the event that such liabilities are nothonoured. CRR liabilities typically relate to transactions with unrelated parties. Examples of CRR liabilities include the uncollateralised
6 2 August 2018 TSB Banking Group plc: Update following recent change of outlook to negative
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
portion of payables arising from derivative transactions and the uncollateralised portion of liabilities under sale and repurchaseagreements. CRRs are not applicable to funding commitments or other obligations associated with covered bonds, letters of credit,guarantees, servicer and trustee obligations, and other similar obligations that arise from a bank performing its essential operatingfunctions
TSB's CRR is positioned at Baa1/P-2.The CRR is one notch above the bank's adjusted BCA of baa2. The uplift derives from the buffer against default provided to theoperating obligations by bail-in-able debt and deposits.
Counterparty Risk AssessmentThe Counterparty Risk (CR) Assessment is an opinion of how counterparty obligations are likely to be treated if a bank fails and isdistinct from debt and deposit ratings in that it (1) considers only the risk of default rather than both the likelihood of default andthe expected financial loss suffered in the event of default, and (2) applies to counterparty obligations and contractual commitmentsrather 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.
TSB' CR Assessment is positioned at A3(cr)/P-2(cr).The CR Assessment is positioned two notches above the Adjusted BCA of baa2, based on the cushion against default provided to thesenior obligations represented by the CR Assessment by more subordinated instruments.
Government SupportOwing to the limited interconnection with other financial institutions and the relatively small size of its operations, we assume a lowprobability of government support for TSB's deposits and its potential senior unsecured debt, resulting in no uplift to the PRA. Thesame assumption applies to the future bondholders of TSB Group since holding company creditors would be expected to bear losses ifnecessary.
As a result, we assign issuer and deposit ratings of Baa2 to TSB, in line with the PRA. We also assign a Baa3 issuer rating to TSB Groupand a Baa3 rating to its existing Tier 2 dated subordinated bonds.
In line with our support assumptions on deposits and senior unsecured debt ratings, the CR Assessment does also not benefit of anygovernment support.
7 2 August 2018 TSB Banking Group plc: Update following recent change of outlook to negative
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About Moody's Bank ScorecardOur Scorecard is designed to capture, express and explain in summary form our Rating Committee's judgment. When read inconjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our Scorecardmay materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strongdivergence). The Scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down toreflect conditions specific to each rated entity.
Rating methodology and scorecard factors
Exhibit 6
TSB Banking Group plcMacro FactorsWeighted Macro Profile Strong + 100%
Factor HistoricRatio
MacroAdjusted
Score
CreditTrend
Assigned Score Key driver #1 Key driver #2
SolvencyAsset RiskProblem Loans / Gross Loans 0.5% aa2 ↓ ↓ baa2 Operational risk Loan growth
CapitalTCE / RWA 20.7% aa1 ↓ a1 Expected trend Capital retention
ProfitabilityNet Income / Tangible Assets 0.3% ba2 ↓ ba3 Expected trend
Combined Solvency Score a1 baa1LiquidityFunding StructureMarket Funds / Tangible Banking Assets 20.7% baa1 ← → baa1 Expected trend
Liquid ResourcesLiquid Banking Assets / Tangible Banking Assets 24.3% baa1 ← → baa1 Expected trend
Combined Liquidity Score baa1 baa1Financial Profile baa1
Business Diversification -1Opacity and Complexity 0Corporate Behavior 0
Total Qualitative Adjustments -1Sovereign or Affiliate constraint: Aa2Scorecard Calculated BCA range baa1-baa3Assigned BCA baa2Affiliate Support notching 0Adjusted BCA baa2
Balance Sheet in-scope(GBP million)
% in-scope at-failure(GBP million)
% at-failure
Other liabilities 10,314 24.3% 12,450 29.3%Deposits 30,521 71.8% 28,385 66.8%
Preferred deposits 27,469 64.6% 26,096 61.4%Junior Deposits 3,052 7.2% 2,289 5.4%
Dated subordinated holding company debt 405 1.0% 405 1.0%Equity 1,276 3.0% 1,276 3.0%Total Tangible Banking Assets 42,515 100% 42,515 100%
8 2 August 2018 TSB Banking Group plc: Update following recent change of outlook to negative
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
De Jure waterfall De Facto waterfall NotchingDebt classInstrumentvolume +
subordination
Sub-ordination
Instrumentvolume +
subordination
Sub-ordination
De Jure De FactoLGF
NotchingGuidance
vs.Adjusted
BCA
AssignedLGF
notching
Additionalnotching
PreliminaryRating
Assessment
Counterparty Risk Rating 9.3% 9.3% 9.3% 9.3% 1 1 1 1 0 baa1Counterparty Risk Assessment 9.3% 9.3% 9.3% 9.3% 2 2 2 2 0 a3 (cr)Deposits 9.3% 4.0% 9.3% 4.0% 0 0 0 0 0 baa2Senior unsecured bank debt 9.3% 4.0% 4.0% 4.0% 0 -1 0 0 0 baa2Dated subordinated holding companydebt
4.0% 3.0% 4.0% 3.0% -1 -1 -1 -1 0 baa3
Instrument class Loss GivenFailure notching
AdditionalNotching
Preliminary RatingAssessment
GovernmentSupport notching
Local CurrencyRating
ForeignCurrency
RatingCounterparty Risk Rating 1 0 baa1 0 Baa1 Baa1Counterparty Risk Assessment 2 0 a3 (cr) 0 A3 (cr) --Deposits 0 0 baa2 0 Baa2 --Senior unsecured bank debt 0 0 baa2 0 Baa2 --Dated subordinated holding companydebt
-1 0 baa3 0 Baa3 --
[1] Where dashes are shown for a particular factor (or sub-factor), the score is based on non-public information.Source: Moody's Financial Metrics
Ratings
Exhibit 7Category Moody's RatingTSB BANKING GROUP PLC
Outlook NegativeIssuer Rating -Dom Curr Baa3Subordinate -Dom Curr Baa3
PARENT: BANCO SABADELL, S.A.
Outlook PositiveCounterparty Risk Rating Baa1/P-2Bank Deposits Baa2/P-2Baseline Credit Assessment ba2Adjusted Baseline Credit Assessment ba2Counterparty Risk Assessment Baa1(cr)/P-2(cr)Senior Unsecured -Dom Curr Baa3Senior Subordinate -Dom Curr (P)Ba3Pref. Stock Non-cumulative -Dom Curr B2 (hyb)
TSB BANK PLC
Outlook NegativeCounterparty Risk Rating Baa1/P-2Bank Deposits -Dom Curr Baa2/P-2Baseline Credit Assessment baa2Adjusted Baseline Credit Assessment baa2Counterparty Risk Assessment A3(cr)/P-2(cr)Issuer Rating -Dom Curr Baa2
Source: Moody's Investors Service
9 2 August 2018 TSB Banking Group plc: Update following recent change of outlook to negative
MOODY'S INVESTORS SERVICE FINANCIAL INSTITUTIONS
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REPORT NUMBER 1131412
10 2 August 2018 TSB Banking Group plc: Update following recent change of outlook to negative
