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Rating Action:

Moody's affirms BFCM's and CIC's Aa3 long-term supported ratings; negative outlook

25 Jul 2014

Bank Financial Strength Ratings of BFCM and CIC affirmed with stable outlook

Paris, July 25, 2014 -- Moody's Investors Service has today affirmed the Aa3 long-term supported ratings of Banque Federative du Credit Mutuel (BFCM) and Credit Industriel et Commercial (CIC). Concurrently, Moody's has also affirmed their Bank Financial Strength Ratings (BFSRs) at C-, which is equivalent to a baseline credit assessment (BCA) of baa2. The rating agency has also affirmed the banks' Prime-1 short-term debt and deposit ratings. The rating action reflects Moody's view that the risk and business profiles of BFCM, CIC, and the whole cooperative Credit Mutuel group (unrated) -- from which their long-term ratings are derived -- remain compatible with current rating levels.

In addition, the two institutions' dated subordinated debt ratings have been affirmed at Baa1, while BFCM's non-cumulative preferred stock ratings have been affirmed at Baa3 (hyb). These ratings are derived from the banks' a3 adjusted BCAs, which incorporate Moody's unchanged assessment of the group's ability and willingness to provide support in case of need.

The outlook remains negative on the long-term senior unsecured debt and deposit ratings of BFCM and CIC, while it is stable on their BFSRs, and on the subordinated instruments of BFCM and CIC.

Moody's also withdrew the Aa3 and Prime-1 ratings for Banque Europenne du Credit Mutuel as these ratings are no longer outstanding.

Please click on this link (http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_173353) for the List of Affected Credit Ratings. This list is an integral part of this press release and identifies each affected issuer.

RATINGS RATIONALE

-- UNCHANGED ADJUSTED STANDALONE CREDIT ASSESSMENTS FOR BFCM AND CIC

As common law subsidiaries, BFCM and CIC do not benefit from the cooperative solidarity mechanisms of the Credit Mutuel group, implying that the group's central body (Confederation Nationale du Credit Mutuel) does not assume legal responsibility for the solvency and liquidity of both entities. However, these entities are core to the strategy and operations of the CM11-CIC group, and thus benefit from a very high probability of support from the wider Credit Mutuel group, in Moody's view. This translates into a3 adjusted BCAs for BFCM and CIC.

Moody's decision not to change the a3 adjusted BCAs for BFCM and CIC reflects the combination of (1) an overall improvement in the financial fundamentals of the Credit Mutuel group -- notably solvency, liquidity profile and funding mix; and (2) ongoing weakness in the macroeconomic environment in France, to which the group is mostly exposed, and which raises asset quality risks over the medium term, especially on loans to professionals and small and medium enterprises (SMEs). Despite improvements in funding mix and liquidity profile, the adjusted BCAs remain constrained by the continued exposure to investor sentiment, resulting from the group's reliance on wholesale funding.

-- AFFIRMATION OF BFCM'S STANDALONE CREDIT ASSESSMENT

The affirmation of BFCM's C- BFSR (mapping to a BCA of baa2) reflects its overall satisfactory financial fundamentals as well as the franchise strength of the businesses operated by BFCM's main subsidiaries, which result in stable and predictable earnings. As the main issuing entity of the CM11-CIC group, BFCM consolidates CIC as well as a number of other specialized businesses.

BFCM and CIC are owned by 11 regional federations of the cooperative Credit Mutuel group. These regional federations -- together with BFCM and CIC -- make up the CM11-CIC group, which is the largest sub-group within the wider Credit Mutuel group, with around 80% of its consolidated total assets, loan book and deposits.

BFCM's risk profile is also driven by (1) the CM11-CIC group's decision to delegate its capital markets activities to CIC, and the high exposure to financial institutions and Italy at the level of BFCM and CIC; and (2) the higher risk profile associated with the group's consumer lending activities, which are booked at two of the institution's subsidiaries, Cofidis and Targobank Germany (both unrated). The bank's BFSR is constrained by its reliance on wholesale funding, in line with the rest of the CM11-CIC group, despite significant improvement in the group's funding mix and liquidity profile.

-- AFFIRMATION OF CIC'S STANDALONE CREDIT ASSESSMENT

The affirmation of CIC's C- BFSR (mapping to a BCA of baa2) reflects its strong domestic franchise and brand recognition in the professionals and metropolitan retail segments, as well as its overall solid financial fundamentals. CIC's BFSR also reflects its role as a hub for the financial market activities of the CM11-CIC group, which gives rise to relatively higher earnings volatility and an increased risk profile, on a standalone basis. In common with other entities of the CM11-CIC group, CIC's BFSR is constrained by its reliance on wholesale funding, despite the significant improvement in its funding mix and liquidity profile.

-- AFFIRMATION OF LONG-TERM RATINGS OF BFCM AND CIC

The affirmation of BFCM's and CIC's long-term senior unsecured and deposit ratings at Aa3 follows the affirmation of their BFSRs and reflects Moody's unchanged support assumption. The long-term debt and deposit ratings incorporate (1) two notches of group support, leading to an adjusted BCA of a3; and (2) a further three notches of systemic support, reflecting the high probability of government support for large, systemically important banking groups in France.

The ratings for the subordinated instruments issued by BFCM and CIC and the ratings of non-cumulative preferred stock issued by BFCM were also affirmed at their current levels. These ratings are notched off from the adjusted BCAs of a3, which incorporate the credit strength of the Credit Mutuel group, as reflected in a two-notch uplift from the standalone credit assessments of BFCM and CIC.

-- RATING OUTLOOKS

The outlook is negative on the long-term senior unsecured debt and deposit ratings of BFCM and CIC, reflecting a number of factors, namely (1) the negative outlook on the French government's rating (Aa1 negative) and (2) the recent adoption of the EU's Bank Recovery and Resolution Directive (BRRD), which gives public authorities new tools for dealing with the resolution of credit institutions under stress, and which is negative for senior creditors.

The outlook is stable on the BFSRs of BFCM and CIC, which is consistent with our expectation that their credit profiles will remain resilient over the outlook period. The outlook is stable on BFCM's and CIC's subordinated ratings, in line with the outlook on their BFSRs.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Upgrades of the long-term debt and deposit ratings are unlikely in the short-term, as indicated by the negative outlook. However, some stabilization of the outlook could develop if the Credit Mutuel group as a whole further strengthens its credit profile, which could translate into a higher adjusted BCA for BFCM and CIC.

While the BFSRs of BFCM and CIC carry a stable outlook, the banks' standalone financial strength could be enhanced by a sustained reduction in wholesale funding needs and an improvement in the size and quality of the liquidity buffer, coupled with a reduction in the concentration on large single exposures.

The main factors that would exert pressure on BFCM's and CIC's standalone BFSRs include (1) a material weakening of underlying profitability, chiefly as a result of asset-quality deterioration or a structural increase in the cost of funding beyond our current expectation; (2) a significant deterioration in the performance of their loan portfolio, especially the French housing, professionals or SME segments; (3) a weakening liquidity or funding profile; or (4) a higher risk profile, particularly resulting from larger or more complex capital markets activities or more volatile financial markets at the level of CIC.

Downward pressure could develop on the long-term debt and deposit ratings of BFCM and CIC in the event of a significant deterioration in the credit fundamentals of these institutions in combination with a weakening of the credit standing of the wider Credit Mutuel group. Ratings pressure could also result from a downgrade of the ratings of the Government of France. In addition, a downward revision of Moody's current systemic support assumptions, which may arise in the context of the BRRD, could also have negative implications for the Aa3 long-term ratings.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Banks published in July 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Stephane Herndl
Vice President - Senior Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Moody's affirms BFCM's and CIC's Aa3 long-term supported ratings; negative outlook
No Related Data.
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