Schwyzer Kantonalbank Outlook Revised To Negative After Similar Action On Canton Of #AA+/A-1+# Ratings Affirmed

Stocks and Financial Services Press Releases Wednesday February 25, 2015 17:23
FRANKFURT--25 Feb--Standard & Poor's

FRANKFURT (Standard & Poor's) Feb. 25, 2015--Standard & Poor's RatingsServices today revised its outlook on Switzerland-based Schwyzer Kantonalbank(SZKB) to negative from stable. The 'AA+' long-term and 'A-1+' short-termcounterparty credit ratings were affirmed.

The outlook revision follows a similar action on the Canton of Schwyz (see "Swiss Canton of Schwyz Outlook Revised To Negative On Lower Budgetary Buffers;Ratings Affirmed At 'AAA/A-1+'," published Feb. 20, 2015, on RatingsDirect).The canton fully owns the bank and guarantees its liabilities.

We consider SZKB to be a government-related entity (GRE) with an "extremelyhigh" likelihood of receiving timely and sufficient extraordinary governmentsupport in times of stress. We base this opinion on SZKB's "very important"role for, and "integral" link with, its home canton, Schwyz. This provides a

three-notch uplift from the 'a+' stand-alone credit profile (SACP), resultingin the 'AA+' issuer credit rating on SZKB. In line with our GRE methodology,if we lowered the long-term rating on Schwyz by one notch to 'AA+' we wouldsubsequently remove one of the three notches of uplift from the issuer creditrating on SZKB.

Our ratings on SZKB also reflect the 'a-' anchor for Swiss banks, its"adequate" business position, "very strong" capital and earnings, "adequate"risk position, "average" funding, and "strong" liquidity, as our criteriadefine these terms. The SACP is 'a+'.

The negative outlook on SZKB reflects that on the Canton of Schwyz. Adowngrade of Schwyz would trigger a negative rating action on SZKB. Under ourGRE criteria, with all other factors remaining unchanged, a one-notchdowngrade of the canton would result in the removal of one of the three

notches of uplift currently factored into the long-term rating on SZKB. In ourview, there is a one-in-three chance that the canton's financial managementmight not succeed in reversing its deteriorating budgetary trend andcontaining its debt position at a level commensurate with the 'AAA' rating onthe canton.

A change in SZKB's role for or link with the canton, or changes in thestatutory guarantee, could also lead us to reassess the bank's status as aGRE. However, we currently consider this scenario to be unlikely and wouldexpect SZKB's existing obligations to be grandfathered.

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