MOODY'S REVIEWS FOR POSSIBLE DOWNGRADE THE Aa3/B LONG TERM AND FINANCIAL STRENGTH RATINGS OF SOCIETE GENERALE; REVIEWS FOR POSSIBLE UPGRADE THE A2/C LONG TERM AND FINANCIAL STRENGTH RATINGS OF PARIBAS
Moody's Investors Service placed under review for possible downgrade Soci‚t‚ G‚n‚rale's long-term ratings (senior debt and deposits at Aa3), its B bank financial strength rating, and the "a2" rating for the preferred shares issued by SocGen Real Estate L.L.C. Moody's also put under review for possible upgrade Paribas's long-term ratings (senior debt and deposits at A2), and its C bank financial strength rating. The Prime-1 ratings for both banks were confirmed. This rating actions follow today's announcement that Soci‚t‚ G‚n‚rale will make a friendly tender offer on Paribas, with a view to acquire at least 51% of its capital. Subject to the completion of the offer, the two banks intend to complete a full operational merger of their businesses, although Soci‚t‚ G‚n‚rale and Paribas will remain separate legal entities. The executive committee of new group, renamed SG Paribas, will include representatives from both entities.
Moody's said that the ratings review will focus on benefits related to the increased diversity of earnings for the combined organization and the extent to which this combination enhances the potential for expansion at both the retail and wholesale level, both domestically and abroad.
Moody's noted that the combined group will achieve enhanced competitive positions in each of its major business segments, notably in retail financial services and corporate banking. The group should also benefit from its diversified distribution and origination capacities, both retail and wholesale, allowing for cross selling opportunities and also higher cost efficiencies. Finally, SG Paribas should also benefit from an enhanced capital base, allowing to participate more actively in the increasingly dynamic European banking industry.
Against these potential strengths, Moody's pointed to the earnings volatility and the leverage of their investment banking operations, to the large credit exposure to emerging markets - albeit mitigated by relatively high level of provisions and protections - and also to the high earnings reliance on capital gains and private equity. These elements of risk are reflected by the existing ratings on Paribas and by the negative outlook on Societe Generale's long-term and financial strength ratings. Moody's also noted that the combined firm will face material integration issues, given the sheer size and complexity of the main business lines, and also unavoidable challenges related to the two groups' somewhat different banking culture.
The following ratings of Soci‚t‚ G‚n‚rale were put under review for possible downgrade:
Soci‚t‚ G‚n‚rale - senior debt at Aa3, subordinated debt at A1, junior subordinated debt at A1, long-term bank deposits at Aa3 and bank financial strength rating at B;
Soci‚t‚ G‚n‚rale Australia Limited - senior debt guaranteed by Soci‚t‚ G‚n‚rale at Aa3, subordinated debt guaranteed by Soci‚t‚ G‚n‚rale at A1;
SGA Soci‚t‚ G‚n‚rale Acceptance N.V. - senior debt guaranteed by Soci‚t‚ G‚n‚rale at Aa3, subordinated debt guaranteed by Soci‚t‚ G‚n‚rale at A1;
Soci‚t‚ G‚n‚rale New York branch - subordinated debt guaranteed by Soci‚t‚ G‚n‚rale at A1;
SocGen Real Estate L.L.C. - the rating for preferred shares at "a2".
The following ratings of Paribas were put under review for possible upgrade:
Paribas - senior long-term debt and deposits at A2, subordinated long-term debt at A3, financial strength rating at C;
The following ratings of Soci‚t‚ G‚n‚rale and of Paribas were confirmed:
Soci‚t‚ G‚n‚rale - short-term bank deposits at Prime-1;
Banque de R‚escompte et de Placement (BAREP) - senior debt and deposits at A2, issuer rating at A2, 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 North America Inc. - commercial paper guaranteed by Soci‚t‚ G‚n‚rale at Prime-1;
SGA 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+.
Paribas - short-term deposits at Prime-1;
Paribas Finance Inc. -US commercial paper programme guaranteed by Paribas at Prime-1;
Compagnie Bancaire USA Funding Corp. - US commercial paper programme guaranteed by Paribas at Prime-1 and MTN programme guaranteed by Paribas at A2.
Paribas, headquartered in Paris, had consolidated assets of over EUR 210 bn (approximately FF1,379 bn or US$230 bn) at December 31,1997. Soci‚t‚ G‚n‚rale, headquartered in Paris, had consolidated assets of EUR 359 bn (approximately FF 2.5 trillion or US$ 410 bn) at December 31, 1997.
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