Fitch Ratings Inc. is no longer providing credit ratings for Santander Holdings USA Inc. and Santander Bank N.A., though it’s unclear which entity ended the business relationship.
Fitch, an internationally recognized statistical rating organization, announced on Dec. 3 its plans to withdraw its ratings of the two Santander entities. Daniel Whalen, a Fitch senior director, said the reason to withdraw was “purely business.” The company’s last rating was June 5, according to its press release, and services were scheduled to end on – or about – Jan. 5.
The day after Fitch’s press release, Santander Holdings and Santander Bank, both subsidiaries of Spain-based Banco Santander S.A., put out their own press release saying they hadn’t solicited credit ratings from Fitch since 2009, and that “they do not anticipate soliciting credit ratings from Fitch in the future.”
A Santander spokeswoman who declined to be named said the Banco Santander subsidiaries dropped Fitch’s services.
Santander on its corporate website last month listed three Fitch ratings from February 2012 and June 2012, and November 2013. But when asked whether Fitch was providing unsolicited ratings, the companies gave conflicting answers.
“There is a difference of opinion on that,” said Whalen. “I think the two press releases speak for themselves.”
Fitch Ratings specializes in credit ratings and research and is jointly owned by the Paris-based holding company Filmalac and New York-based mass media conglomerate the Hearst Corporation.
Bingxuan Lin, a finance professor at the University of Rhode Island, says it’s possible Fitch continued to provide unsolicited ratings with the hope of receiving some future business down the road, but that it’s likely less complicated.
“A more common reason for foreign firms is lack of information. As a matter of fact, Fitch [withdrew] ratings for a couple of foreign companies this year due to a lack of information,” Lin said in an email.
In most cases, ratings companies are paid by the banks themselves, but it’s also possible to be paid by investors, so if an investor had lost interest they could have dropped the coverage, according to Lin.
Santander Bank, formerly Sovereign Bank N.A., was acquired in portions by its parent company Banco Santander from 2006 to 2009, which is when Santander claims to have ended its solicitation of ratings. Sovereign rebranded as Santander in 2011.
Santander in November entered into a settlement with Providence. The city sued the bank in May alleging financial institution discrimination against the city’s minority communities by refusing to make prime mortgage available in accordance with the Fair Housing Act.
In December, Santander set a lending goal of at least $24 million in home mortgage loans over the next three years.
Lin says the ending of Fitch Ratings shouldn’t affect the bank locally.
Whalen wouldn’t elaborate on the “business reasons,” cited in Fitch’s press release as cause for withdrawing its ratings but said there are a number of reasons why Fitch might withdraw ratings of an entity, including – at times – when a company ceases payments, goes out of business, or is acquired by another entity.
Lin says the Banco Santander subsidiaries shouldn’t be too concerned about the withdrawn ratings, as the company will continue to receive ratings from two other rating giants: Moody’s and Standard & Poor’s.
Fitch reserves the right to withdraw ratings at any time “for any reason it deems sufficient,” according to its press release, and it made the announcement in the beginning of December as a courtesy to investors because “Fitch believes that investors benefit from increased rating coverage by Fitch and is providing approximately 30 days’ notice to the market on the withdrawal.”
Whalen says credit-rating withdrawals happen from time to time, but didn’t know exactly how often.
Lin doesn’t believe the end of the business relationship – between Fitch and Santander – will have any lasting residual effect in the market, but believes it is something for investors to keep an eye on.
“If, however, all three rating agencies decide to withdraw coverage, it might be an issue,” Lin wrote in an email. •
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