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Announcement:

Correction to Text, September 21, 2011 Release: Moody's: BGL BNP Paribas' A1 long-term ratings placed on review for upgrade

Global Credit Research - 07 Oct 2011

BFSR upgraded to C, equivalent to A3 on the long-term scale

Paris, October 07, 2011 -- This press release corrects and replaces the press release issued on 21 September 2011. Rating actions for subordinated debt and junior subordinated debt ratings have been added in the first paragraph. The section entitled "SUBORDINATED OBLIGATIONS" has been retitled as "SUBORDINATED OBLIGATIONS AND HYBRID SECURITIES".

The first sentence of this section is substituted with the following sentence: "The ratings of A2, on review for possible upgrade, for dated subordinated obligations are notched from the bank's fully supported long-term GLC deposit ratings." This new first sentence adds the A2, on review for possible upgrade, rating level of the ratings for dated subordination obligations. Two paragraphs regarding the rating of the undated junior subordinated MTN programme have also been added in this section.

The rest of the press release remains unchanged. The revised press release follows below.

Moody's Investors Service has today upgraded BGL BNP Paribas' (BGL) BFSR to C from C-, now mapping to A3 on the long-term scale from Baa2 previously. The A1 long-term debt and deposit ratings and the A2 subordinated debt ratings have been placed on review for possible upgrade. The rating on the junior subordinated MTN programme has been upgraded to (P)A3 from (P)Baa2 and has been placed under review for possible further upgrade. The Prime-1 short-term rating has been affirmed. The outlook on the BFSR has been revised to stable from negative.

The conclusion of the review for upgrade of the long-term debt and deposit ratings will depend on the outcome of the current review on parent BNP Paribas (Aa2 on review for downgrade, B-/A1 on review for downgrade, P-1). Any upgrade would be limited to one notch.

RATINGS RATIONALE

The upgrade of the BFSR reflects the good financial fundamentals of the bank, notably its strong capital adequacy, its liquidity which is helped by a natural surplus of customer deposits over loans and its healthy profitability. The BFSR of C also reflects BGL's leading franchise in Luxembourg which, after a period of turmoil following Fortis Bank's difficulties, stabilized after the bank's acquisition by BNP Paribas. After its merger with BNP Paribas Luxembourg in 2010 and very significant reorganisation, BGL has reinforced its position as one of the three main banking players in Luxembourg, offering a wide array of traditional banking activities for individuals and SMEs, corporate and investment banking activities to regional clients, and private banking in Luxembourg.

We note that the bank has significantly de-risked its balance sheet and operations in recent years, in particular with the sale of the most-troubled structured credit assets to Royal Park Investment SPV, the reduction of its investment portfolio risk-wise (exposures to peripheral European sovereigns are fairly limited), the transfer of some of its corporate lending book to BNP Paribas, and a focus on client-driven activities in its CIB division. The progressive integration with BNP Paribas' centralised systems for risk management, liquidity management and trading are also viewed as positive steps towards improving the bank's risk profile.

The BFSR is still moderately constrained by a variety of factors among which are BGL's sizeable proportion of more volatile earnings from merchant banking activities, the edge towards SME lending which is traditionally viewed by Moody's as riskier than loans to individuals, the transfer to BNP Paribas of its leasing and asset management activities, the expectation of further integration costs going forward and the natural lack of geographical diversification.

The stable outlook on the upgraded BFSR has been revised to stable from negative in reflection of the visible stabilisation of BGL's franchise since its acquisition by BNP Paribas.

LONG-TERM RATINGS ON REVIEW FOR UPGRADE

The review for upgrade of the A1 long-term debt and deposit ratings reflects a number of factors, namely i) the higher A3 standalone credit profile, and ii) Moody's parental support assumptions for BGL from BNP Paribas which have been revised to "very high" from "moderate", reflecting the successful integration with the parent, although still in progress, and strategic relevance of BGL for BNP Paribas, taking the adjusted baseline credit assessment (BCA) to A2 and iii) unchanged assumptions of very high systemic support by Luxembourg (Aaa stable).

The outcome of the review of the long-term ratings of BGL depends on the outcome of the ongoing rating review of BNP Paribas. In case the parent's BFSR and LT ratings are confirmed, BGL's long-term debt and deposit ratings will be upgraded by one notch to Aa3. However, if BNP Paribas's BFSR and LT ratings are downgraded by one notch, BGL's long-term debt and deposit ratings will be confirmed at A1.

KEY RATING SENSITIVITIES

We do not currently expect to see any upward pressure on the BFSR, given the recent upgrade. However, a growing proportion of strong and stable retail banking earnings would be positive for the ratings, as well as continued progress on integration with BNP Paribas's standards and centralised risk management systems which could lead us to progressively align our Risk Positioning scores with those of its parent.

The BFSR could be downgraded if the bank: (i) suffers significant asset quality deterioration; (ii) fails to stabilise its franchise (e.g. if its market share declines); (iii) fails to sustain a satisfactory level of underlying profitability; or (iv) enters into riskier activities too aggressively.

BGL's LT ratings are currently on review for upgrade with possible rating outcomes described above.

SUBORDINATED OBLIGATIONS AND HYBRID SECURITIES

The ratings of A2, on review for possible upgrade, for dated subordinated obligations are notched from the bank's fully supported long-term GLC deposit ratings.

The starting point in Moody's approach to rating hybrid securities is the Adjusted Baseline Credit Assessment (Adjusted BCA), which reflects the bank's stand-alone credit strength, including parental and/or cooperative support, if applicable. The Adjusted BCA excludes systemic and regional support. The Adjusted BCA is A2 for BGL and includes some uplift for parental support from BNP Paribas.

The Upper Tier 2 junior subordinated MTN rating has been upgraded to (P)A3 from (P)Baa2 and placed on review for possible upgrade. The upgrade follows the revision of the Adjusted BCA to A2 from Baa1, reflecting Moody's parental support assumptions for BGL from BNP Paribas which have been changed to "very high" from "moderate". The provisional rating is positioned one notch below the Adjusted BCA due to the debt holders' junior subordinated claim in liquidation.

PRINCIPAL METHODOLOGIES

The methodologies used in these ratings were Bank Financial Strength Ratings: Global Methodology, published in February 2007, Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology, published in March 2007 and Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt, published in November 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

BGL reported net income of EUR 277 million in 2010, including the contribution of BNP Paribas Luxembourg since 25 February 2010, while revenues stood at EUR 798 million. BGL had total assets amounting to EUR 38.5 billion at year-end 2010. In the first half of 2011, BGL reported a net income group share of EUR 208 million while its solvency ratio ended at 27.1% (23.1% at year-end 2010).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Guillaume Lucien-Baugas
Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Correction to Text, September 21, 2011 Release: Moody's: BGL BNP Paribas' A1 long-term ratings placed on review for upgrade
No Related Data.

 

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