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Rating Action:

Moody's affirms BFCM and CIC's deposit and senior unsecured debt ratings of Aa3 with stable outlooks

12 Oct 2021

Baseline Credit Assessments affirmed at a3 for BFCM and baa1 for CIC

Paris, October 12, 2021 -- Moody's Investors Service ("Moody's") today affirmed the Aa3 long-term deposit and senior unsecured debt ratings of Banque Federative du Credit Mutuel (BFCM) and Credit Industriel et Commercial (CIC) with stable outlooks. The Prime-1 short-term deposit and commercial paper programme ratings were also affirmed. In addition, the ratings of the junior senior unsecured debt (also referred to as senior non-preferred debt) and of the subordinated debt of BFCM were also affirmed at A3 and Baa1, respectively.

Concurrently, Moody's affirmed BFCM's Baseline Credit Assessment (BCA) and Adjusted BCA of a3. Moody's also affirmed CIC's BCA of baa1 and Adjusted BCA of a3.

BFCM's BCA reflects Credit Mutuel Alliance Federale's standalone creditworthiness, given BFCM's function as an issuing vehicle and holding company for the operating subsidiaries of the mutualist group. Credit Mutuel Alliance Federale is the largest subgroup within the French mutualist bancassurer Groupe Credit Mutuel (GCM), comprising around 87% of GCM's assets and 14 out of its 18 regional federations.

BFCM and CIC's long-term and short-term Counterparty Risk Assessments (CR Assessments) were affirmed at Aa2(cr) and Prime-1(cr), respectively, while their long-term and short-term Counterparty Risk Ratings (CRR) were affirmed at Aa2 and Prime-1.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

RATING AFFIRMATION REFLECTS THE STRENGTH AND STABILITY OF CREDIT FUNDAMENTALS

Moody's affirmation of BFCM's BCA of a3 reflects Credit Mutuel Alliance Federale's very resilient financial fundamentals and low risk profile, as demonstrated throughout the current sanitary crisis. These characteristics stem from the group's strong retail bancassurance franchise and commercial banking business, predominantly based on a large branch network in France.

Credit Mutuel Alliance Federale derives the bulk of its revenues from retail banking (63% of revenues in the first half of 2021) in France. Housing loans and consumer loans represent respectively 50% and 10% of the total loan portfolio. In addition, revenues stemming from foreign activities represented 22% of revenues in the first half of 2021, including Germany (11%) and Spain (5%). The group exhibited resilient asset quality through the current crisis and its cost of risk was the lowest amongst all large French banking groups in H1 2021, as loan-loss charges represented only 9 bps of gross loans, down from 48 bps in H1 2020. In addition, problem loans, which declined to 2.7% of gross loans at end-June 2021 (2.9% at year-end 2020), benefit from loan-loss reserves representing 79% of their gross value under Moody's calculation.

The a3 BCA also reflects Credit Mutuel Alliance Federale's strong solvency as evidenced by its Common Equity Tier 1 (CET1) ratio of 18.3% and its Tangible Common Equity leverage ratio of 5.1% at end-June 2021, well above the minimum requirements. The group's ability to retain the vast majority (historically well above 90%) of its earnings offers strong loss-absorption capacity. Given its capacity to generate capital in excess of the needs generated by its organic growth, Credit Mutuel Alliance Federale is used to contemplating acquisitions aimed at strengthening its franchise. Credit Mutuel Alliance Federale is keen on expanding internationally, notably in insurance in Germany, where the group holds a recognized banking franchise. As a result, the group's CET1 ratio may be impacted by further expansion abroad and potential acquisitions in the next 2-3 years, which may challenge the current public target of 17%-18% CET1 ratio by 2023.

The group's profitability is in line with the European sector average, yet stronger and more stable than for most French peers, as evidenced by a ratio of net income to tangible assets of 0.52% and a cost-to-income ratio of 59.5% in H1 2021. The group's good efficiency comes from effective cost controls and from the bank's ability to sell multiple products and services to its clients, including insurance products, consumer credit and private banking. Despite its diversified franchise, Credit Mutuel Alliance Federale has, similarly to peers, been subject to revenue pressure mainly due to the low interest rate environment. Net interest margins declined to 87 bps in H1 2021 from 94 bps in 2020 and 98 bps in 2019, under Moody's calculations. The group's participation in the European Central Bank's Targeted Longer-Term Refinancing Operation III (TLTRO) for a total amount of €42.2 billion at end-June 2021 provided some relief, yet profitability as measured by return on assets will likely continue to decline.

Moody's affirmation of CIC's BCA of baa1 reflects (1) its solid retail and corporate banking franchise with stable earnings; (2) its adequate solvency, although lower than that of the group; (3) some single-name concentrations inherent to its corporate banking business; and (4) the moderate risks stemming from its role as a hub for the capital market activities of the group, which are of limited scale.

BFCM and CIC's long-term senior unsecured debt and deposit ratings of Aa3 with a stable outlook reflect (1) their BCAs of a3 and baa1, respectively; (2) their Adjusted BCA of a3, reflecting the very high probability of GCM's support; (3) the application of Moody's Advanced Loss Given Failure (LGF) analysis, resulting in two notches of uplift from the Adjusted BCA for both deposits and senior debt, stemming from GCM's significant volume of senior debt and junior deposits; and (4) a government support uplift of one additional notch, reflecting a moderate probability of government support in view of GCM's systemic importance to the domestic economy.

STABLE OUTLOOK

The outlooks on BFCM and CIC's Aa3 long-term deposit and senior unsecured ratings are stable reflecting Moody's view that the bank will be able to maintain its strong financial and performance metrics close to current levels over a 12-18-month horizon. The stable outlook also assumes that the liability structure and probability of government support will remain broadly unchanged for GCM.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

BFCM and CIC's deposit and senior unsecured ratings could be upgraded if GCM's liability structure resulted in lower loss-given-failure for these liabilities thanks to higher subordination.

BFCM's BCA and CIC's Adjusted BCA could be downgraded in the case of (1) a material weakening in GCM's underlying profitability, chiefly as a result of asset-quality deterioration or a deterioration in its net interest margin above expectations; (2) significant deterioration in the group's capitalisation, for example following major acquisitions; (3) weakened liquidity or funding profile; or (4) a material weakening in the operating environment in France.

BFCM and CIC's deposit and senior unsecured ratings could be downgraded as a result of (1) a deterioration in the standalone financial strength of GCM, resulting in lower Adjusted BCAs; or (2) a change in GCM's liability structure, resulting in higher loss-given-failure. This could occur if the group were to exhibit rapid growth in assets that would not be matched by appropriate increase in debt issuance.

LIST OF AFFECTED RATINGS

Issuer: Banque Federative du Credit Mutuel

..Affirmations:

....Long-term Counterparty Risk Ratings, affirmed Aa2

....Short-term Counterparty Risk Ratings, affirmed P-1

....Long-term Bank Deposits, affirmed Aa3, outlook remains Stable

....Short-term Bank Deposits, affirmed P-1

....Short-term Deposit Note/CD Program, affirmed P-1

....Long-term Counterparty Risk Assessment, affirmed Aa2(cr)

....Short-term Counterparty Risk Assessment, affirmed P-1(cr)

....Baseline Credit Assessment, affirmed a3

....Adjusted Baseline Credit Assessment, affirmed a3

....Senior Unsecured Regular Bond/Debenture, affirmed Aa3, outlook remains Stable

....Senior Unsecured Regular Bond/Debenture, affirmed (P)Aa3

....Senior Unsecured Shelf, affirmed (P)Aa3

....Senior Unsecured Medium-Term Note Program, affirmed (P)Aa3

....Junior Senior Unsecured Regular Bond/Debenture, affirmed A3

....Junior Senior Unsecured Medium-Term Note Program, affirmed (P)A3

....Subordinate Regular Bond/Debenture, affirmed Baa1

....Subordinate Medium-Term Note Program, affirmed (P)Baa1

....Preferred Stock Non-cumulative, affirmed Baa3(hyb)

....Commercial Paper, affirmed P-1

....Other Short Term, affirmed (P)P-1

..Outlook Actions:

....Outlook remains Stable

Issuer: Credit Industriel et Commercial

..Affirmations:

....Long-term Counterparty Risk Ratings, affirmed Aa2

....Short-term Counterparty Risk Ratings, affirmed P-1

....Long-term Bank Deposits, affirmed Aa3, outlook remains Stable

....Short-term Bank Deposits, affirmed P-1

.... Short-term Deposit Note/CD Program, affirmed P-1

....Long-term Counterparty Risk Assessment, affirmed Aa2(cr)

....Short-term Counterparty Risk Assessment, affirmed P-1(cr)

....Baseline Credit Assessment, affirmed baa1

....Adjusted Baseline Credit Assessment, affirmed a3

....Senior Unsecured Regular Bond/Debenture, affirmed Aa3, outlook remains Stable

....Senior Unsecured Medium-Term Note Program, affirmed (P)Aa3

....Subordinate Medium-Term Note Program, affirmed (P)Baa1

....Commercial Paper, affirmed P-1

....Other Short Term, affirmed (P)P-1

..Outlook Actions:

....Outlook remains Stable

Issuer: Credit Industriel et Commercial, New York Br

..Affirmation:

....Commercial Paper, affirmed P-1

..No Outlook assigned

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Guillaume Lucien-Baugas
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

Alain Laurin
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2023 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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