Research Update:

States of Jersey Assigned 'AA+/A-1+' Ratings; Outlook Stable; 128th Rated Sovereign
Primary Credit Analyst: Kyran A Curry, London (44) 020-7176-7845; kyran.curry@standardandpoors.com Secondary Contact: Benjamin J Young, London (44) 20-7176-3574; benjamin.young@standardandpoors.com Analytical Group Contact: SovereignEurope; SovereignEurope@standardandpoors.com

Table Of Contents
Overview Rating Action Rationale Outlook Key Statistics Related Criteria And Research Ratings List

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Research Update:

States of Jersey Assigned 'AA+/A-1+' Ratings; Outlook Stable; 128th Rated Sovereign
Overview
The States of Jersey has mature political and institutional settings, transparent economic decision-making, and high fiscal flexibility--the latter underpinned by no direct public debt and strong fiscal discipline. It also has a wealthy, market-oriented, and open economy. We are assigning our 'AA+/A-1+' long- and short-term sovereign credit ratings to Jersey. The outlook is stable, reflecting our view of Jersey's high wealth, as well as its strong public policy settings and government finances.

Rating Action
On Nov. 22, 2013, Standard & Poor's Ratings Services assigned its 'AA+/A-1+' long- and short-term foreign and local currency sovereign credit ratings to the States of Jersey. The outlook is stable. Jersey is the 128th sovereign rated by Standard & Poor's.

Rationale
The ratings on Jersey reflect our view of its high wealth, strong fiscal flexibility, and public-policy stability. These strengths are moderated by Jersey's dependence on its financial services sector, its lack of monetary policy flexibility, and data deficiencies on the external side that hamper our full assessment of external risks. Jersey is one of three British Crown Dependencies (the others are Guernsey and the Isle of Man). It has an open and wealthy economy; we estimate 2013 real per capita GDP at nearly US$60,000. Following six years of economic contraction, we expect Jersey to return to modest real per capita growth of 0.1% in 2014 and to average a similar level over 2013-2015 (1% growth in real GDP terms). Growth will depend on Jersey's financial services sector (banking, trusts, funds management, and legal, accountancy and investment advisory services) recovering in line with global financial and economic trends. That said, recovery is likely to be uneven and comparatively shallow given the sector's high contribution to GDP (more than 40% in 2012) and the uncertain growth prospects of key European trading partners. The other main external risk to Jersey's growth prospects is the potential tightening of international financial sector and taxation agreements, which would affect off-shore

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Research Update: States of Jersey Assigned 'AA+/A-1+' Ratings; Outlook Stable; 128th Rated Sovereign

financial hubs globally. Offsetting these risks are the Jersey government's strong fiscal position and mature institutional arrangements, which are conducive to swift policy responses if required. Broad community and political support for prudent fiscal policies have resulted in balanced budgets on average over the past 10 years. The government has also accumulated financial assets that can be drawn-down to support growth during more difficult economic times, such as the past five years. While we expect the government will continue to stabilize its fiscal position over the next three years, we project that lower taxation revenues stemming from financial system weakness (the sector generates 75% of corporate tax revenues) and higher capital expenditure will delay a return to surpluses until 2015. The government has no direct debt. Its balance sheet is also not materially at risk from contingent liabilities pertaining to its related entities (mostly housing authorities, utilities, and pension funds), whose debt we estimate to be about 6% of GDP. Incomplete data constrains our assessment of Jersey's private-sector balance sheets, but they do not appear to be under pressure. While the financial services sector poses risks, these are partly mitigated by Jersey's high per capita income; strong system liquidity and capital; the same lending and underwriting standards as the (mostly U.K.-based) parent banks; a funded banking sector depositors' compensation scheme (of up to 50,000 paid to depositors, with a total scheme cost capped at 100 million or about 2.7% of GDP); and the sector's role in providing offshore banking services to clients of U.K. banks. We do not see immediate risks to the sector nor do we believe that Jersey's government would likely be called upon to support an ailing institution, if required. Jersey's monetary policy flexibility is limited by its currency board arrangement with the British pound sterling. The Jersey pound is not accepted internationally. We find that this long-standing arrangement is credible in light of the island's fiscal assets (over 100% of GDP) and its economic links with the U.K. Like other British Crown Dependencies, Jersey does not collect external data and its economic data is limited in coverage and is published with lags, which complicates our analysis.

Outlook
The stable outlook reflects our view of Jersey's high wealth and its strong public policy settings and government finances. We could raise the ratings if more-complete data were available to assess Jersey's balance of payments and external risks, and if we saw an increase in economic diversification. We could lower the ratings if we saw that Jersey's strong position as a

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Research Update: States of Jersey Assigned 'AA+/A-1+' Ratings; Outlook Stable; 128th Rated Sovereign

financial center was declining or if the island's very strong fiscal position were to weaken.

Key Statistics
Table 1

States of Jersey - Selected Indicators

2005 Nominal GDP (US$ bil) GDP per capita (US$) Real GDP growth (%) Real GDP per capita growth (%) Change in general government debt/GDP (%) General government balance/GDP (%) General government debt/GDP (%) Net general government debt/GDP (%) General government interest expenditure/revenues (%) Oth dc claims on resident non-govt. sector/GDP (%) CPI growth (%) 5.8 63,674 1.0 0.0 0.0 (0.5) 0.0 (69.2) 0.0 2006 6.3 68,475 4.9 3.4 0.0 0.6 0.0 (72.6) 0.0 2007 7.4 78,960 5.3 3.4 0.0 1.0 0.0 (71.4) 0.0 2008 6.9 72,362 (3.2) (4.6) 0.0 1.6 0.0 (70.3) 0.0 2009 5.7 59,018 (5.5) (6.3) 0.0 2.0 0.0 (76.3) 0.0 2010 5.5 56,606 (4.5) (5.4) 0.0 (2.4) 0.0 (100.9) 0.0 2011 5.9 59,665 (0.7) (1.7) 0.0 (0.7) 0.0 (110.2) 0.0 2012 5.7 57,993 (3.7) (4.6) 0.0 0.9 0.0 (111.4) 0.0 2013e 6.0 59,942 0.5 (0.4) 0.0 0.0 0.0 (107.6) 0.0 2014f 6.2 61,341 1.0 0.1 6.4 (6.4) 6.4 (96.9) 0.4 2015f 6.5 63,332 1.5 0.5 0.0 0.0 6.1 (92.2) 2.0

N.A 2.2

N.A 3.7

N.A 4.5

7,928.8 3.3

6,002.3 1.7

5,472.5 2.3

5,179.7 5.0

4,977.7 2.1

4,856.8 3.0

4,734.1 3.1

4,574.0 3.5

Other depository corporations (dc) are financial corporations (other than the central bank) whose liabilities are included in the national definition of broad money. Gross external financing needs are defined as current account payments plus short-term external debt at the end of the prior year plus nonresident deposits at the end of the prior year plus long-term external debt maturing within the year. Narrow net external debt is defined as the stock of foreign and local currency public- and private- sector borrowings from nonresidents minus official reserves minus public-sector liquid assets held by nonresidents minus financial sector loans to, deposits with, or investments in nonresident entities. A negative number indicates net external lending. N.A.--Not available. CARs--Current account receipts. The data and ratios above result from S&Ps own calculations, drawing on national as well as international sources, reflecting S&Ps independent view on the timeliness, coverage, accuracy, credibility, and usability of available information.

Related Criteria And Research

Sovereign Government Rating Methodology And Assumptions, June 24, 2013 Methodology For Linking Short-Term And Long-Term Ratings For Corporate, Insurance, And Sovereign Issuers, May 7, 2013 Sovereign Defaults And Rating Transition Data, 2012 Update, March 29, 2013 Sovereign Ratings And Country T&C Assessments, Nov. 15, 2013 Banking Industry Country Risk Assessment Update, Nov. 7, 2013 The Eurozone Crisis Isn't Over Yet, Nov. 7, 2013 Sovereign Risk Indicators, July 1, 2013 United Kingdom, April 9, 2013 Criteria For Determining Transfer And Convertibility Assessments, May 18,

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Research Update: States of Jersey Assigned 'AA+/A-1+' Ratings; Outlook Stable; 128th Rated Sovereign

2009

In accordance with our relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable (see 'Related Criteria And Research'). At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision. After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook.

Ratings List
New Rating; CreditWatch/Outlook Action Jersey (States of) Sovereign Credit Rating Transfer & Convertibility Assessment

AA+/Stable/A-1+ AAA

Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.

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