London, 01 July 2014 -- Moody's Investors Service has today affirmed BNP Paribas' A1 supported
long-term debt and deposit ratings and C- bank financial
strength rating (equivalent to a baseline credit assessment of baa1) and
changed the outlook on its bank financial strength rating to negative
from stable.
The rating action follows the bank's comprehensive settlement relating
to US dollar transactions involving parties subject to US sanctions,
including agreement with the US Department of Justice and other US regulators.
The settlement includes a guilty plea entered into by BNP Paribas SA in
relation to violations of certain US laws and regulations regarding economic
sanctions and related reporting in place against certain countries.
As a part of the settlement, BNP Paribas also agreed to pay $8.97
billion (EUR 6.6 billion) in fines and penalties to various US
government agencies.
Moody's has also changed to negative the outlook on the bank's and
its subsidiaries' subordinated debt, junior subordinated debt
and capital instruments. The firm's and its subsidiaries'
Prime-1 short-term rating as well as the ratings of the
subsidiaries listed below were affirmed.
RATINGS RATIONALE
The affirmation of the bank's ratings reflects Moody's view
that despite the negative implications of the settlement for BNP Paribas'
credit profile, the bank continues to benefit from (1) a capital
position that even after absorbing the substantial fine and paying a dividend
in line with the previous year will be in line with those of its peers;
(2) a diverse and durable franchise that generates substantial,
stable earnings, which will allow it to rebuild capital; and
(3) a solid and improved liquidity and funding position.
The negative outlook on its C- BFSR reflects Moody's view
on (1) the effectiveness of corporate governance, risk and compliance
controls at BNP Paribas, as highlighted by the activities in the
scope of the investigation and the bank's ability to manage tail
risks inherent in a complex institution; (2) potential franchise
impairment that could result from the financial and reputational effects
of the massive fine and guilty plea; and (3) the immediate negative
impact of the settlement on the bank's capital position.
The findings by the US authorities reveal significant control and governance
failures at BNP Paribas that occurred over a substantial period of time.
This highlights the difficulty of managing a firm that is both large,
geographically diverse and highly complex: particularly given that
the infractions occurred in a relatively basic banking business.
The bank has designed new compliance and control procedures intended to
address these issues. These include the creation of a new US-based
compliance function focused on BNP Paribas' global compliance with
US regulation related to international sanctions and embargoes as well
as an agreement to process and control all group-wide US dollar
flows through its NY branch.
The settlement also includes an agreement by BNP Paribas to plead guilty
in relation to violations of certain US laws and regulations regarding
economic sanctions and related reporting in place against certain countries
The bank will also be suspended for one year, starting 1St January
2015, from US dollar direct clearing focused mainly on Oil &
Gas within the Energy & Commodity Finance business line.
Moody's believes that the direct effect of its inability to settle US
dollar oil and gas transactions for a one-year period will have
only modest negative credit implications for the bank's trade finance
business and for the bank's broader franchise and future earnings.
However, Moody's says the guilty plea and the disclosure of
the US authorities' findings create uncertainty as to indirect effects
that could materialise on the bank's franchise with regards to its
client base. For example, some clients could cease doing
business with the bank, either voluntarily or because of internal
policies or legal prohibitions that prevent them from doing business with
a firm that has pled guilty to a criminal felony. A permanent loss
of a material amount of client business would reduce the bank's profitability
and its ability to generate capital internally. This would weaken
the shock absorbers that are a key pillar of its current rating,
thus posing greater credit risk for the bank's bondholders.
Additionally, the departure of institutional client business could,
over time, limit the bank's access to funding, especially
its short-term wholesale funding. Moody's notes,
however, that in addition to the short-term measures taken
to hold excess US dollar liquidity and to proactively front-load
the fulfilment of its 2014 funding plan, BNP Paribas has built a
strong liquidity position and a sizeable liquidity pool. As a result,
Moody's believes the bank is unlikely to face challenges in meeting its
funding or liquidity needs. Nonetheless, any sustained reduction
in funding flexibility would be credit negative.
The settlement will also require BNP Paribas to take a EUR5.8 billion
after-tax charge during the current quarter. Moody's
believes that on a pro-forma basis this will cause the bank's 30
June 2014 fully applied CRD IV Basel III Common Equity Tier 1 (CET1) ratio
to decline to approximately 10.0%. This represents
a reduction of about 90 bps as a result of the fine net of provisions
already set aside. Moody's expects the bank's Basel III Tier
1 leverage ratio will also decline, to an estimated 3.5%
on a pro forma basis from 3.7%. While these declines
are substantial, BNP Paribas's relatively healthy starting
capital position and earnings generation during the quarter will support
its ability to absorb the penalty, leaving its capital position
adequately placed relative to its peer group of large global investment
banks. Moody's expects BNP Paribas will be placed about the
midpoint of its peers' metrics on both of these capital measures
at the end of Q2.
WHAT COULD MOVE THE RATINGS UP/DOWN
Downward pressure would develop on the ratings if Moody's were to
conclude that BNP Paribas was likely to suffer significant customer defections
as a result of the guilty plea, leading to a loss of revenues or
franchise value, or if the bank were subject to further control
failures or significant fines. Downward pressure would also develop
on the long-term debt and deposit ratings if Moody's were to lower
its assumption regarding the likelihood of support for the bank's senior
creditors from the French government, if support was required to
prevent a default.
Given the negative ratings outlook, there is currently no upward
pressure on the bank's ratings.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global Banks published
in May 2013. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
AFFECTED RATINGS
The ratings of the following entities were affirmed and, where relevant,
assigned a negative outlook. Please refer to www.moodys.com
for a detailed list of affected credit ratings.
- BNP Paribas
- BNP Paribas Canada
- BNP Paribas Finance, Inc.
- BNP Paribas Securities Services
- BNP Paribas US Medium-Term Note Program LLC
- BNP Paribas, Australian Branch
- BNP Paribas, New York Branch
- Banque Paribas
- Compagnie Bancaire
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.
Alessandro Roccati
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Robert Franklyn Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's affirms BNP Paribas' A1 rating; BFSR outlook changed to negative
