MOODY'S CONFIRMS Aa3/B RATINGS OF BNP AND UPGRADES TO A1 FROM A2 THE LONG-TERM RATINGS OF PARIBAS; CONFIRMS PARIBAS'S FINANCIAL STRENGTH RATING AT C
Moody's Investors Service confirmed Banque Nationale de Paris's (BNP) long-term ratings (senior debt and deposits at Aa3), its B bank financial strength rating, and its "a2" rating for the preferred shares issued by BNP Funding L.L.C.. This concludes a review for possible downgrade initiated last August after the announcement that BNP had gained a controlling majority in Paribas following its three-party merger attempt (partially unsuccessful as Soci‚t‚ G‚n‚rale remained an independent company).
Moody's also raised to A1 from A2 the senior long-term debt and deposit ratings of Paribas and confirmed Paribas's financial strength rating at C, concluding a review for possible upgrade initiated last February, after the announcement of its proposed merger with Soci‚t‚ G‚n‚rale (eventually unsuccessful). The Prime-1 rating of BNP and Paribas were not under review and were confirmed. Moody's also said that the rating outlook for both BNP and Paribas is now stable.
These rating actions reflect the likely strategic and financial benefits for BNP of the acquisition of Paribas - a transaction that is being implemented on friendly terms. The acquisition occurred against the backdrop of (a) steadily improving fundamentals for BNP after its privatization in 1993, and (b) the lower business and balance-sheet profile of Paribas after its restructuring in recent years. Moody's noted the good pro-forma risk and financial profile of the new group.
As another important element supporting the rating actions on BNP and Paribas, Moody's noted the post-merger group's more conservative approach to risk taking and risk management. Both BNP and Paribas remain committed to investment banking and financial markets activities on a large scale - an ongoing source of potential risks - but they also intend to shift more of Paribas's business focus and capital resources toward lower-risk, more recurrent activities such as retail financial services. According to the rating agency, another example of reduced tolerance for risk is the two banks' conservative management of their emerging-market exposures after last year's financial crisis.
The acquisition should give Paribas access to BNP's retail-funding base, as well as higher critical mass in several business lines. Moody's added that Paribas's business profile and credit fundamentals could be affected by the group's ultimate legal and operating reorganization, with probable positive ramifications of a BNP-Paribas legal merger.
The new BNP Paribas group should benefit from increased earnings power and diversity underpinned by leading positions in several key businesses, and from enhanced franchise strength in wholesale banking, specialized financial services, asset management, and private banking. As an example, the new group has a leading position in online financial services, which will gain in importance in France as elsewhere in Europe. The BNP-Paribas combination also affords opportunities for some cost synergies, especially in the international network and in the technology infrastructure, although material benefits should be felt only gradually.
Regarding Paribas, Moody's noted the positive effects of the business restructuring that occurred in prior years. At that time, the integration of the lower-risk activities of the former Compagnie Bancaire - especially consumer finance, in which its subsidiary Cetelem is a market leader in France - led to a healthier risk profile for the group.
Against these positive elements, Moody's cautioned that successfully integrating and managing a large and complex banking group like the new BNP Paribas will remain a significant challenge for some time. This is amplified by the intense banking competition in France and by the system's inherent modest profitability. However, the new BNP-Paribas group appears well positioned among other French banks to become a meaningful player in the increasingly dynamic European financial-services sector.
The following ratings were upgraded:
Paribas - senior long-term debt and deposits at A1 from A2, subordinated long-term debt at A2 from A3;
Compagnie Bancaire USA Funding Corp. - senior long-term debt guaranteed by Paribas at A1 from A2.
The following ratings were confirmed:
Banque Nationale de Paris - senior long-term debt and deposits at Aa3, subordinated debt at A1, junior subordinated debt at A1, issuer rating at Aa3, short-term deposits at Prime-1, and bank financial strength at B;
BNP New York branch - subordinated debt at A1;
BNP Pacific (Australia) Ltd - senior long-term debt guaranteed by BNP at Aa3, short-term obligations guaranteed by BNP at Prime-1;
BNP US Finance Corp. - commercial paper guaranteed by BNP at Prime-1;
Banque Nationale de Paris (Canada) - commercial paper guaranteed by BNP at Prime-1;
Paribas - short-term deposits at Prime-1 and financial strength at C;
Paribas Finance Inc. - commercial paper programme guaranteed by Paribas at Prime-1;
Compagnie Bancaire USA Funding Corp. - commercial paper programme guaranteed by Paribas at Prime-1.
BNP, headquartered in Paris, had consolidated assets of Euro352 billion (FF2.3 trillion or approximately US$370 billion) at June 30, 1999. Paribas, also headquartered in Paris, had consolidated assets of Euro288 billion (FF1.9 trillion or approximately US$303 billion) at June 30, 1999.
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