MOODY'S REVIEWS FOR POSSIBLE DOWNGRADE THE Aa3/B RATINGS OF BANQUE NATIONALE DE PARIS; KEEPS THE A2/C RATINGS OF PARIBAS ON REVIEW FOR POSSIBLE UPGRADE; CONFIRMS THE Aa3/B RATINGS OF SOCIETE GENERALE WHILE MAINTAINING A NEGATIVE OUTLOOK
Moody's Investors Service has today placed under review for possible downgrade Banque Nationale de Paris' (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. Its Prime-1 rating is confirmed.
Moody's also maintained under review for possible upgrade Paribas's long-term ratings (senior debt and deposits at A2), and its C bank financial strength rating. Its Prime-1 rating remains unaffected.
In a related action, Moody's confirmed the Aa3/Prime-1 short- and long- term debt and deposit ratings of Soci‚t‚ G‚n‚rale (SG) and its B financial strength rating, while maintaining its negative outlook on SG's long- term ratings. This concludes a review for possible downgrade initiated on February 1, 1999 following the announcement of its proposed merger with Paribas.
These rating actions follow the announcement on August 14, 1999 by France's market regulator of the provisional results of BNP's tender offer for SG and Paribas, under which BNP gains (i) a 65% controlling stake in Paribas, which is expected to lead to a full merger of the two banks, and (ii) 36.8% of SG's capital, or 31.5% of the voting rights, thereby falling short of the 50% majority that it had sought in its tender offer. In the circumstances, the possibility for BNP to keep its minority stake in SG is subject to the approval of the Banking regulators, due early next week. As a result, at this juncture, Moody's said that the completion of BNP's proposal for a merger of the three institutions appears uncertain. However, Moody's added that any decision by the Banking regulators to allow BNP to maintain a minority ownership in SG - which could, longer term, open the way for a combination of the two institutions - would be a significant element that would have to be factored in the review process of BNP's ratings, with potential positive ramifications. The agency said that it would react promptly if further developments could influence its current perspective on this situation.
Moody's said that the review of the ratings of BNP and Paribas will focus on the benefits that might be derived from (i) the increased earnings diversity and franchise strength arising from the combination of their retail and wholesale financial services activities, (ii) the opportunities for further cost efficiencies and greater synergies, and (iii) prospects for business expansion both in France and in Europe.
Moody's noted that, by merging with Paribas, BNP's competitive position will be significantly enhanced in retail financial services, asset management and private banking, as well as in European fixed income.
At the same time, however, the acquisition of Paribas fails to fulfill BNP's strategic objective underpinning its tender offers, of merging SG's retail network with its own. In addition, successfully integrating Paribas should involve difficulties of blending the two banks banking cultures - notably in the aftermath of the planned SG-Paribas merger, and of mastering the sheer size and complexity of the two banks' main business lines. Finally, despite a planned realignment and reduction of their leverage, the addition of some of Paribas's activities will increase BNP's risk profile.
By confirming SG's ratings, Moody's said while the bank remains one of the financially stronger and better-diversified banks in Europe, its aborted merger with Paribas, while de facto eliminating the risk associated with this enterprise, appears as a significant strategic setback, which requires the bank to devise an alternative strategy to evolve against its European peers in the years ahead. In addition, SG's earning power has been hurt by the earnings volatility of its investment banking operations, a relatively high cost-income ratio, and by high credit costs arising from its emerging-market exposures - although the bank's exposure to troubled markets has been rather prudently managed. Moody's also pointed to the bank's high earnings reliance on capital gains. For these reasons, Moody's concluded that it maintains a negative outlook on SG's long-term and financial strength ratings.
The following ratings were put under review for possible downgrade:
Banque Nationale de Paris - senior debt at Aa3, subordinated debt at A1, junior subordinated debt at A1, long-term bank deposits at Aa3, issuer rating at Aa3 and bank financial strength rating at B;
BNP New York branch - subordinated debt at A1;
BNP Pacific (Australia) Ltd - senior debt at Aa3 guaranteed by BNP;
The following ratings were confirmed:
Banque Nationale de Paris - short-term deposits at Prime-1;
BNP Pacific (Australia) Ltd - 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.
Soci‚t‚ G‚n‚rale - senior debt at Aa3, subordinated debt at A1, junior subordinated debt at A1, long-term bank deposits at Aa3, short-term bank deposits at Prime-1 and bank financial strength rating at B;
Soci‚t‚ G‚n‚rale New York branch - subordinated debt guaranteed by Soci‚t‚ G‚n‚rale at A1;
Soci‚t‚ G‚n‚rale North America Inc. - commercial paper guaranteed by Soci‚t‚ G‚n‚rale at Prime-1;
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;commercial paper and other short-term bank deposits guaranteed by Soci‚t‚ G‚n‚rale at Prime-1;
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; commercial paper and other short-term bank deposits guaranteed by Soci‚t‚ G‚n‚rale at Prime-1;
SocGen Real Estate L.L.C. - the rating for preferred shares at "a2".
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‚ Alsacienne de Banque (Sog‚nal) - short-term bank deposits at Prime-1 and bank financial strength rating at C+.
BNP, headquartered in Paris, had consolidated assets of EUR325 bn (FF2.1 trillion or approximately US$380 bn) at December 31,1998. Paribas, headquartered in Paris, had consolidated assets of EUR265 bn (FF1.7 trillion or approximately US$310 bn) at December 31,1998. Soci‚t‚ G‚n‚rale, headquartered in Paris, had consolidated assets of EUR383 bn (FF2.5 trillion or approximately US$448 bn) at December 31, 1998.
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