Santander UK Group Holdings PLC

The stable outlook reflects our view that the bank will maintain robust credit quality that will support earnings. It also reflects our expectation that it will maintain a good position in U.K. retail banking and a conservative risk profile. We assume Banco Santander will continue to provide ongoing group support, despite our view of uncertain extraordinary group support in a severe stress scenario given its multiple-point-of-entry approach to resolution. This means that we believe the U.K. subgroup is more likely to support itself through the bail-in of its subordinated debt instruments for loss absorption and recapitalization than by relying on group support. The stable outlook on the main operating subsidiary reflects our view of the group stand-alone credit profile (SACP).

...Our rating on Santander UK (SanUK) balances its deep but relatively narrow U.K. banking franchise, against its solid capital base and well diversified funding and liquidity profile. Although it has developed a deep U.K. prime mortgage business, SanUK's overall scope remains narrower than U.K.-focused peers Lloyds and NatWest, both of which run materially larger commercial lending franchises, or Barclays, which has built an internationally diversified investment banking and credit card franchise. At the same time, SanUK's narrower scope, well managed balance sheet (in which corporate exposures have been steadily reduced), and focus on operating efficiency have enabled it to record resilient risk-adjusted earnings over the past 24 months. Furthermore, the combination of these factors has bolstered our view of its capitalization, with our risk-adjusted capital (RAC) ratio moving above 10%. SanUK's financial performance has improved materially. The bank has narrowed the scope of business significantly...

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