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
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rating assigned, and in relation to a definitive rating that may
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For any affected securities or rated entities receiving direct credit
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and whose ratings may change as a result of this credit rating action,
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The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
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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
