Long-term deposit and senior unsecured debt ratings of A2 affirmed
London, 26 July 2017 -- Moody's Investors Service, ("Moody's") affirmed
BPCE's and affiliated subsidiaries' (Natixis, Crédit
Foncier de France and Banque Palatine) long-term senior unsecured
debt and/or deposit ratings of A2 and changed the outlooks on these ratings
to positive, from stable. The rating agency also affirmed
BPCE's and Crédit Foncier de France (CFF)'s standalone
baseline credit assessments (BCA) of ba2 and b1, respectively.
Moody's upgraded Natixis's BCA to ba1, from ba2,
and downgraded Banque Palatine's BCA to ba1, from baa3.
Finally, the agency affirmed all entities' adjusted BCAs of
baa2, as well as their short term ratings and long- and short-term
Counterparty Risk (CR) assessments of Prime-1 and A1(cr)/P-1(cr),
respectively.
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_196618
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_196618
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Principal Methodology
Today's rating action follows the improvement of Groupe BPCE's
asset risk, capitalization and funding profile over the last few
years. The group's cost of risk has decreased to a historically
low level of 22 basis points (bps) of gross loans, in the first
quarter of 2017, thanks to the improving macroeconomic environment
in France, where most of the group's activities take place.
Groupe BPCE increased its total capital ratio to 18.7% of
its risk-weighted assets (RWAs) at the end of Q1-2017,
meeting its 2018 target ahead of schedule. Groupe BPCE's
capitalization benefits from its ability to retain a large share of its
annual profits, as do other French mutualist groups, while
it endeavors to restrict RWA growth. The group's funding
profile has also been strengthened in recent years. Its use of
confidence-sensitive wholesale funding decreased to 39%
of its tangible banking assets in 2016, from 46% in 2014;
it has also lengthened the average maturity of its funding, through
the issuance of long-term covered bonds, and finally it has
diversified its funding sources, expanding its non-European
investor base.
Nevertheless Groupe BPCE's creditworthiness is constrained by its
relatively low, but stable, profitability and weak cost-efficiency.
The group's net interest margin has declined recently as a result
of the low interest rate environment. Meanwhile, all things
being equal, Moody's does not expect the revenues generated
by the more dynamic insurance, asset management and capital market
business lines to be sufficient to offset both the continuous erosion
of net interest income and additional costs generated by the digitalization
and restructuring of the retail franchise. The group will disclose
a new strategic plan in November 2017, which is expected to deliver
a roadmap towards a more cost-efficient business model.
The upgrade in Natixis's BCA primarily reflects its improved standalone
capitalization, which results from the successful implementation
of a new business model focusing on the development of asset management
and retail activities (insurance activities, consumer finance,
payment systems, etc.) which benefit from the distribution
channel of the two networks. While Natixis still aims to develop
its wholesale banking activities (large corporate and asset-based
finance), it strives to restrict RWA growth through the distribution
of new loans to third parties.
Furthermore, Banque Palatine's BCA was downgraded as a result
of its relatively low standalone capitalization given its exposures to
corporates and SMEs, which makes the bank more sensitive to material
one-off losses.
As a French mutualist group, Groupe BPCE is required by law to maintain
an internal solidarity mechanism, which ensures that all affiliated
entities would benefit from capital and liquidity support from other group
members in case of need. The strong support from the group is reflected
in the baa2 adjusted BCA that Moody's assigns to each affiliate.
BPCE's and affiliated entities' long-term deposit and
senior debt ratings also benefit from very low loss-given failure
and a moderate likelihood of government support, which translate
respectively into a two-notch and one-notch uplift from
their adjusted BCA.
WHAT COULD CHANGE THE RATING UP/DOWN
The outlook on BPCE's deposit and senior unsecured debt ratings
is positive, reflecting Moody's expectation that the group's
revised strategy will provide further detail on its plans (i) to achieve
balanced profitability, with increased focus on non-interest
income; (ii) to materially reduce its cost base while maintaining
a low risk profile; and (iii) to further increase capitalization
through a clear common equity Tier 1 (CET 1) target.
The adjusted BCA of Groupe BPCE's affiliated entities could be upgraded
as a result of increased profitability, which amongst other things
could result from a reduction of the bank's cost structure.
A higher CET1 capital would also be beneficial to the group's creditworthiness,
while Moody's expects Groupe BPCE to maintain its current risk profile.
An increase in the adjusted BCA would likely result in an upgrade of all
group ratings. BPCE's deposit and senior unsecured debt ratings
could also be upgraded as a result of a lower than expected loss-given-failure
stemming from the additional issuance of material amounts of junior senior
and/or subordinated debt.
Conversely, the adjusted BCA of Groupe BPCE's affiliated entities
could be downgraded as a result of an unexpected erosion of its profitability
or a sudden increase of asset risk. A decrease in the adjusted
BCA would likely result in a downgrade of all group ratings. BPCE's
deposit and senior unsecured debt ratings could also be downgraded as
a result of a higher than expected loss-given-failure stemming
chiefly from an unexpected decrease of the senior debt outstanding amount.
Each affiliated entity's own ratings could also be downgraded if
the agency were to assume, on a case-by-case basis,
a weaker probability of group support.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_196618
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Releasing Office
• Person Approving the Credit Rating
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Laurent Le Mouel
Vice President - Senior Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
