(Source: Info-Prod Research (Middle East))Moody's Investors Service downgraded the long-term deposit and debt ratings of BMW Bank of North America (BMW Bank) to A2 from A1, but affirmed its C bank financial strength rating (BFSR) and P-1 short-term deposit and debt ratings. The outlook on the bank's deposit and debt ratings remains negative, while that on the BFSR is stable. Moody's said that the downgrade of BMW Bank's long-term deposit and debt ratings was prompted by the recent downgrade of the long-term senior unsecured rating of the ultimate parent company, BMW AG, to A2 from A1, with continuation of a negative outlook on the ratings. Moody's said that prior to the downgrade of the parent company's ratings, the long-term debt and deposit ratings of BMW Bank incorporated a two-notch lift over what they would be on a stand-alone basis. Similarly, the short-term deposit and debt ratings incorporated a one-notch lift. The lift is based on the explicit and implicit support BMW AG provides to BMW Bank, Moody's added. The downgrade of the parent company's ratings has the effect of reducing the lift applied to the bank's long-term deposit and debt ratings to one notch, but has no effect on the lift to the bank's short-term deposit and debt ratings. In view of the continued incorporation of lift in the bank's deposit and debt ratings, the negative outlook on the parent company's ratings carries through to those of the bank, Moody's explained. Moody's said that the C BFSR is the rating agency's assessment of BMW Bank's financial strength on a standalone basis, and is an indication of the likelihood of its needing external support. In maintaining the stable outlook on the assigned BFSR, Moody's noted that BMW Bank's asset quality indicators have experienced deterioration through September 2008, and expects them to show further deterioration in the remaining months of 2008 and into 2009. However, Moody's also expects the bank's earnings and capital ratios to be sufficiently strong to absorb such losses. The rating agency added that BMW Bank's financial metrics remain broadly in line with C rating peers. Moody's said that deterioration in asset quality beyond its expectations or sustained weakening in profitability and capital adequacy in relation to peers could result in negative rating pressure on BMW Bank's BFSR. A further downgrade of the parent company's ratings could also create downward pressure on the long- term deposit and debt ratings, Any weakening in support from the parent, as evidenced for example by non-renewal of the auto finance receivables put agreement or line of credit, would create negative rating pressure. Conversely, positive rating pressure on BMW Bank's BFSR could arise from a strengthened liquidity profile, all the while maintaining good core profitability and asset quality in relation to peers. Upward pressure on the bank's long-term deposit and debt ratings could also arise if the parent company's ratings were upgraded. BMW Bank of North America is an industrial bank headquartered in Salt Lake City, Utah and a wholly owned indirect subsidiary of BMW AG. The bank reported assets of $3.1 billion at the end of September 2008.

Originally published by Info-Prod Strategic Business Information.

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