MOODY'S DOWNGRADES THE LONG TERM RATINGS OF SOCIETE GENERALE AND OF ITS SUBSIDIARIES (SENIOR AT Aa3 FROM Aa2)
Paris, 04-04-97 -- Moody's Investors Service has today downgraded the senior long term debt rating of Soci‚t‚ G‚n‚rale and its guaranteed subsidiaries from Aa2 to Aa3 and the bank's financial strength rating from B+ to B but confirmed the Prime-1 rating for short-term deposits and commercial paper. The ratings for the senior obligations of Banque de R‚escompte et de Placement (BAREP) were also downgraded from A1 to A2. The rating outlook is stable.
This action follows Soci‚t‚ G‚n‚rale being placed on review for possible downgrade on January 10, 1997 following the announcement that it had agreed to buy Cr‚dit du Nord, the retail banking subsidiary of the Paribas Group.
Moody's said the downgrade reflected the fact that core profitability achieved by Soci‚t‚ G‚n‚rale in its main business segments continues to lag its European peers. Despite regular financial performance improvements, as evidenced by its recently announced 1996 results, prospects to significantly improve its earnings in the medium term appear to be moderate. Similarly, although Soci‚t‚ G‚n‚rale has steadily increased its capital base since privatization, levels remains weaker that many of its international competitors.
Part of the earnings improvements that the bank anticipates in the next few years will come from its international and investment banking operations. While the bank's position internationally and in the capital markets are sound and should sustain its conservative growth plans, Moody's expects Soci‚t‚ G‚n‚rale to face intensified competition in these markets, as it competes against other major European and international banks. International expansion may also increase the risk profile of the bank.
In addition, the earnings upside potential of its domestic banking operations will be constrained by the market and operating environment expected to persist in France in the medium term.
Moreover, the bank's strategy to grow its retail market share through acquisitions of retail banks, for example by buying Cr‚dit du Nord, may slow the process of improving its earning profile and capitalization. Given the social constraints currently prevailing in France, Soci‚t‚ G‚n‚rale will not benefit in the short term from the synergies and cost reductions usually associated with mergers in the same sector. This strategy should also present Soci‚t‚ G‚n‚rale with the challenge of integrating and reorganizing its acquisitions to meet its own in-house standards. In that context, such acquisitions have negative rating implications.
Finally, although risk coverage now appears adequate, Soci‚t‚ G‚n‚rale continues to have substantial commercial real estate exposure (albeit less than some of its domestic competitors), and this will continue to burden the financial performance of the bank.
Overall, however, Moody's recognises Soci‚t‚ G‚n‚rale's strong assets, its successful efforts to improve its financial strength, and the low volatility of its profits. In corporate banking, the bank continues to hold a dominant franchise in France and has strong positions internationally. In retail banking, its franchise, strengthened by the acquisition of Cr‚dit du Nord, appears well placed to face the changes that will affect the industry in the years ahead. Finally, the bank's strong culture of risk monitoring should help it alleviate the risks involved in its growth strategy.
As a result, Moody's still views Soci‚t‚ G‚n‚rale as one of France's strongest and most diversified financial institutions, and expects that it will emerge ahead of its domestic competitors and play a leading role in the consolidation of the French banking industry.
The following ratings were downgraded :
Soci‚t‚ G‚n‚rale -- senior debt at Aa3 from Aa2, subordinated debt at A1 from Aa3, long-term bank deposits at Aa3 from Aa2 and bank financial strength rating at B from B+;
Banque de R‚escompte et de Placement (BAREP) -- senior debt at A2 from A1, and counterparty at A2 from A1;
Soci‚t‚ G‚n‚rale Australia Limited -- senior debt guaranteed by Soci‚t‚ G‚n‚rale at Aa3 from Aa2, subordinated debt guaranteed by Soci‚t‚ G‚n‚rale at A1 from Aa3;
Soci‚t‚ G‚n‚rale Acceptance N.V. -- senior debt guaranteed by Soci‚t‚ G‚n‚rale at Aa3 from Aa2, subordinated debt guaranteed by Soci‚t‚ G‚n‚rale at A1 from Aa3;
Soci‚t‚ G‚n‚rale New York branch -- subordinated debt at A1 from Aa3.
The following ratings were not under review and are confirmed:
Soci‚t‚ G‚n‚rale -- short-term bank deposits at Prime-1;
Banque de R‚escompte et de Placement (BAREP) -- short-term bank deposits at Prime-1 and the bank financial strength rating at D+;
Soci‚t‚ G‚n‚rale Australia Limited -- commercial paper and other short-term bank deposits guaranteed by Soci‚t‚ G‚n‚rale at Prime-1;
Soci‚t‚ G‚n‚rale No America Inc -- commercial paper guaranteed by Soci‚t‚ G‚n‚rale at Prime-1;
Soci‚t‚ G‚n‚raleA Soci‚t‚ G‚n‚rale Acceptance N.V. -- commercial paper and other short-term bank deposits guaranteed by Soci‚t‚ G‚n‚rale at Prime-1;
Soci‚t‚ Alsacienne de Banque (Sog‚nal) -- short-term bank deposits at Prime-1 and bank financial strength rating at C+.
Soci‚t‚ G‚n‚rale, headquartered in Paris, had consolidated assets of FF 1,781 billion (approximately US$ 318 billion) at December 31, 1996.
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