MOODY'S DOWNGRADES THE LONG-TERM RATING (TO A2 FROM A1) AND CONFIRMS THE PRIME-1 SHORT-TERM RATING OF BANQUE PARIBAS. THE SHORT- TERM RATING OF PARIBAS FINANCE INC. IS LOWERED TO PRIME-2
Paris, 04-12-96 -- Moody's lowered the long-term ratings of Banque Paribas to A2 from A1 and confirmed the short-term ratings of the bank at Prime-1. The bank's financial strength rating was lowered from C+ to D+. The rating outlook remains negative. At the same time, the rating of Paribas Finance Inc., a U.S. funding conduit for commercial paper, guaranteed by Compagnie FinanciŠre de Paribas (CFP), was lowered to Prime-2 from Prime-1. The long- and short-term ratings of Banque Paribas and Paribas Finance Inc. were placed under review on February 2d, 1996.
Moody's said that the downgrade was prompted by continuing concerns about the weak profitability observed in several of Banque Paribas' core businesses. Beyond the adverse developments that have affected the capital markets and asset management activities in 1995, longer -term uncertainties remain on the bank's capacity to generate adequate returns in these business lines. In particular, management efforts to build customer driven activities and to improve profitability in several key products are confronted by intensifying competition in global markets from universal banks and securities firms which is driving down margins. In addition, Banque Paribas has a large and increasing earnings reliance on revenues from proprietary position taking relating to the bank's own balance sheet management. These uncertainties are tempered by valuable franchises in several product lines where Banque Paribas is a major actor. In addition, Moody's noted that management is committed to improve risk controls throughout the bank, with particular emphasis on its capital market operations.
Finally, the bank' s credit worthiness continues to be supported by the capital of its parent Compagnie FinanciŠre de Paribas. In that respect, the bank could benefit from the measures announced by the group to improve its financial flexibility and increase the liquidity of its assets over the medium term. These include a major divestment program of equity participations, the acquisition of majority ownership of Compagnie de Navigation Mixte (CNM), and a more disciplined approach to managing its merchant banking activities.
However, in the short term, the acquisition of CNM will increase leverage at CFP, the guarantor of Paribas Finance Inc.'s commercial paper program. Higher leverage, along with the relative illiquidity of CFP's portfolio of equity investments, were factors in the downgrade of Paribas Finance Inc.'s short term rating. The following ratings were lowered:
Banque Paribas -- the rating of the bank for long-term certificates of deposit to A2 from A1, senior debt to A2 from A1; dated subordinated debt to A3 from A2, the Financial Strength rating to D+ from C+.
Paribas Finance, Inc. -- the rating for the commercial paper to Prime-2 from Prime-1.
The following ratings were confirmed; The Prime-1 rating for short-term certificates of deposit of Banque Paribas, The A3 long-term debt rating of Banque Paribas Hong-Kong Branch. Banque Paribas, headquartered in Paris, had consolidated assets of over FF 995 million (approximately US$ 200 billion) at December 31,1995. The consolidated Paribas Group had over FF 1.3 trillion (approximately US$ 260 billion ) in assets at December 31,1995.
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