MOODY'S UPGRADES PARIBAS' FINANCIAL STRENGTH RATING TO C FROM D+ FOLLOWING COMPLETION OF THE LEGAL RESTRUCTURING OF PARIBAS GROUP; THE BANK'S DEPOSIT RATINGS CONFIRMED AT A2/P-1
London, 07-10-98 -- Moody's Investors Service today raised Paribas's financial strength rating to C from D+. In related actions, Moody's upgraded Compagnie FinanciŠre de Paribas's debt rating to A2 from A3, and withdrew the A2/P-1/C+ ratings of Compagnie Bancaire. These rating actions conclude a review process initiated by Moody's in November 1997, following the announcement of a major corporate reorganization of the Paribas group. This reorganization was completed May 1998 through the merger of Compagnie Bancaire and Compagnie FinanciŠre de Paribas with Banque Paribas, with the resulting entity being renamed Paribas.
Commenting on Paribas's financial strength rating upgrade to C, Moody's said that it factored in the benefits arising from the restructuring undergone by the Paribas group during the last 18 months, primarily the merger of Banque Paribas with Compagnie FinanciŠre and with Compagnie Bancaire. In the process, Paribas (i) sold its retail banking operations (principally Cr‚dit du Nord and Paribas Belgium), a segment where the group believed to hold a more marginal position, and (ii) took full control of its insurance and specialized financial services subsidiaries (Cardif, Cetelem, UFB Locabail and Compagnie Bancaire) by completing public offerings and eliminating minority interests.
Moody's said that the restructuring should help reduce Paribas's revenue volatility and should improve both recurring earning power and risk profile. The operation should also have positive implications for Paribas' overall financial flexibility, as the merger of the three entities will allow a better allocation of the group's capital to various business segments. The group's earnings and risk profile and its business mix should benefit significantly from the integration of the profitable retail financial services of Compagnie Bancaire -- especially Cetelem, the largest consumer lender in France.
In this context, Moody's said that it views the stability of Cetelem's revenue stream as a clearly positive offset to Paribas's more volatile and uncertain earnings from trading and investment banking. Paribas's earning base continues to rely, albeit more partially than before the reorganization, on trading revenues (including proprietary trading) and on capital gains from selling parts of the investment portfolio of Paribas Affaires Industrielles.
In a broader context, Moody's, commenting on the intensely competitive environment in Europe for investment banking, noted that Paribas -- which ambitions to become a major European investment bank -- is likely to face uphill challenges in building and maintaining a meaningful position in a post-EMU market in which "home country advantages" will become less relevant. More specifically, the rating agency concluded that the extent to which the bank's significant expenditures in strengthening its investment banking business will be followed by meaningful revenue growth will be an important element for Paribas's credit outlook.
Compagnie Bancaire's A2/P-1/C+ long- and short-term deposit and financial strength ratings were withdrawn reflecting its absorption by Paribas. The rating of Compagnie Bancaire's bond issues, which, as a result of the merger, have become obligations of Paribas, was lowered to A2 in January 1998.
Conversely, the bond issue of Compagnie FinanciŠre de Paribas has now become a liability of Paribas and was therefore upgraded to A2 from A3.
The following ratings were upgraded:
Paribas (formerly Banque Paribas) – the financial strength rating of the bank to C from D+;
Compagnie FinanciŠre de Paribas – senior long-term debt to A2 from A3.
The following ratings were withdrawn:
Compagnie Bancaire – senior long-term deposits at A2, short-term deposits and other senior obligations at Prime-1 and financial strength at C+.
The following ratings were confirmed:
Paribas (formerly Banque Paribas) – senior long-term debt and deposits at A2, subordinated long-term debt at A3 and short-term deposits and other senior obligations at Prime-1;
Paribas Finance Inc. – the rating of the US commercial paper programme guaranteed by Paribas at Prime-1;
Compagnie Bancaire USA Funding Corp. – the rating of the US commercial paper programme guaranteed by Paribas at Prime-1 and the long-term rating of the MTN programme guaranteed by Paribas at A2.
Banque Paribas, now renamed Paribas, headquartered in Paris, had consolidated assets of over FF 1,117 billion (approximately US$186 billion) at December 31,1997. Compagnie Bancaire, also headquartered in Paris, had consolidated assets of over FF317 billion (approximately US$53 billion) at December 31,1997. The consolidated Paribas Group had over FF1,379 billion (approximately US$230 billion ) in assets at December 31,1997.
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