MOODY'S UPGRADES FINANCIAL STRENGTH RATING OF CREDIT LYONNAIS TO D+ FROM D AND COMMENTS ON FACTORS UNDERPINNING THE BANK'S A3/P-2 DEPOSIT AND DEBT RATINGS; GUARANTEED PREFERENCE SHARES ALSO UPGRADED TO "baa2" FROM "baa3"
Moody's Investors Service upgraded the financial strength rating of Cr‚dit Lyonnais to D+ from D, and the rating for its guaranteed preference shares to "baa2" from "baa3". The bank's A3/Prime-2 debt and deposit ratings were confirmed. According to Moody's, the upgrades reflect further progress in the recovery of the bank's operating profitability - a gradual trend since 1994. Cr‚dit Lyonnais's earnings power, however, remains more modest when compared to most of its peers' in developed markets, and further material improvements are less likely in the highly competitive French banking market.
Commenting on Cr‚dit Lyonnais's existing A3/Prime-2 deposit and senior debt ratings, Moody's said that they are now underpinned by the bank's intrinsic fundamentals to a far greater degree than in the recent past - when they were largely based on expected support from the French state. The lesser importance of expected institutional support in the analytical mix behind Cr‚dit Lyonnais's debt ratings is also reflected in the upgrade of the bank's guaranteed preference share rating.
Indeed, the rating agency noted the ongoing importance of Cr‚dit Lyonnais for the French economy - both as a major financial institution and as a large employer - adding that implicit systemic support inherently remains an element partially underpinning the bank's debt and deposit ratings, as is also the case with other banking institutions in France.
Several structural challenges are likely to affect Cr‚dit Lyonnais's performance in the forthcoming period: (1) raising the domestic earnings power, (2) further developing fee and commission revenues from wholesale banking and asset management, (3) containing the volatility of revenues from markets-related and international activities and (4) controlling and containing costs.
As regards asset quality, Moody's said that the bank's improved credit practices have led to a structural enhancement in domestic asset quality. Cr‚dit Lyonnais has been rapidly decreasing its large exposures to distressed emerging markets, the burden of which should no longer weigh on profitability. Capitalization remains more modest, but continues to improve.
The following ratings were upgraded:
ú Cr‚dit Lyonnais S.A. - the bank financial strength rating to D+ from D;
ú Cr‚dit Lyonnais Capital S.C.A. - the rating of its non-cumulative preference shares (guaranteed by Cr‚dit Lyonnais S.A.) to "baa2" from "baa3".
The following ratings were confirmed:
ú Cr‚dit Lyonnais S.A. and its New York branch - the long-term deposit rating at A3, the short-term deposit rating at Prime-2, the senior debt rating at A3, the subordinated debt rating at Baa1, the junior subordinated debt rating at Baa2;
ú Cr‚dit Lyonnais S.A., Hong Kong branch - the senior debt rating at A3;
ú Cr‚dit Lyonnais Canada - the senior subordinated debt rating at Baa1 and the commercial paper rating at Prime-2 (both guaranteed by Cr‚dit Lyonnais S.A.);
ú Cr‚dit Lyonnais North America, Inc. - the commercial paper rating at Prime-2 (guaranteed by Cr‚dit Lyonnais S.A.).
Cr‚dit Lyonnais has its headquarters in Paris, France. At end-1998, it had consolidated assets of ¬209 billion (approximately US$244 billion).
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