Paris, February 02, 2009 -- Moody's Investors Service today affirmed the Aa3 long-term
bank deposit rating of Crédit Foncier de France (CFF), an
affiliated entity of Groupe Caisse d'Epargne (GCE). At the
same time, Moody's downgraded the bank financial strength
rating (BFSR) of CFF to D+, mapping to a baseline credit assessment
(BCA) of Baa3, from C mapping to a BCA of A3. The outlook
on all of CFF's ratings is stable.
Additionally, Moody's downgraded to A1 from Aa3 the long-term
bank deposit ratings of Locindus and Banque Palatine, two other
affiliated entities of GCE. Locindus's long-term bank
deposit rating has a stable outlook while Banque Palatine's outlook
is developing. Locindus's BFSR was downgraded to D+
(mapping to a BCA of Ba1) from C (mapping to a BCA of A3).
The BFSR of Banque Palatine was affirmed at C- with a stable outlook,
but it now maps to a BCA of Baa2 rather than a BCA of Baa1 previously.
The rating actions on Locindus and Banque Palatine conclude Moody's
review for possible downgrade initiated on 18 July 2008. The short-term
deposit ratings of CFF, Locindus and Banque Palatine have been affirmed
The revised ratings on CFF and Locindus (the major shareholder of which
is CFF) reflect Moody's concerns about the risks stemming from CFF's
commercial real estate exposure and securities portfolio in a deteriorating
market environment, balanced by the continuous integration and strategic
role of CFF within GCE.
The rating action on Banque Palatine incorporates Moody's expectations
of a more challenging environment in the SME market and the recent announcement
by GCE of its planned disposal of this affiliated entity.
CRÉDIT FONCIER DE FRANCE
Moody's downgrade of CFF's BFSR reflects, among other
things, the bank's sizeable exposure to structured finance
asset classes in held-to-maturity portfolios and to commercial
real estate in relation to its currently limited capacity to absorb a
likely deterioration in the housing market and higher credit losses.
CFF's D+ BFSR is underpinned by the absence of significant
balance-sheet mismatches given that its long-term assets
are almost entirely long-term wholesale funded, primarily
via covered bonds. Moody's believes that CFF has the ability
to cope with liquidity pressure in the short-term thanks to,
among other things, a reserve of pledgeable securities with the
central bank, which exceeded EUR20 billion after haircuts at the
end of September 2008.
Moody's notes that CFF's market share in the French residential
market increased in 2008, although new domestic production volumes
declined. However, the potential scarcity of long-term
wholesale funding such as covered bonds could force a further decline
in loan production, which, along with higher funding costs
and an expected deterioration in the French housing market, is likely
to reduce the bank's earnings generation capacity over time.
Moody's acknowledges the low risk profile of residential mortgages,
particularly government-regulated, as well as public loans,
which represent the largest part of CFF's lending. This is,
however, mitigated by the deterioration in lending standards for
mortgages recently originated by CFF, such as a significant increase
in high loan-to-value mortgages, and by CFF's
high borrower and sector concentration. Moody's notes in
particular that the bank has a significant EUR6.2 billion exposure
to real estate professionals along with a EUR1.2 billion exposure
to property developers. CFF also has a EUR23 billion structured
finance portfolio, of which EUR15.3 billion of residential
mortgage-backed securities (RMBS), comprising mainly senior
tranches of European RMBS, to be held to maturity.
Moody's views these exposures as large in absolute terms and also
compared with CFF's currently thin capital buffers -- the bank's
Tier I ratio stood at 7.7% as of end-September 2008,
in line with its targeted ratio. These factors remain a matter
of concern motivating today's rating action.
A very high probability of parental support continues to underpin CFF's
Aa3 long-term deposit ratings, resulting in a six-notch
uplift from its BCA of Baa3. Indeed, Moody's believes
that CFF's important role within GCE has been further reinforced
in the past few months by its increased operating integration within the
group as well as by the planned full acquisition of CFF by Caisse Nationale
des Caisses d'Epargne (CNCE), GCE's central body.
In addition to this, as a subsidiary of GCE, CFF benefits
from the solidarity mechanisms of the group, with CNCE responsible
for ensuring CFF's liquidity and solvency. The stable outlook
on CFF's Aa3 long-term deposit rating reflects Moody's
understanding that the current very high probability of parental support
(and CFF's strategic importance to GCE) has been confirmed by GCE.
Moody's will reassess the strategic importance of CFF in the light
of the planned GCE-Groupe Banque Populaire merger.
The downgrade of Locindus's BFSR to D+, which translates
to a BCA of Ba1, from C reflects the entity's mono-line
activity as a commercial real estate financial services provider with
high credit risk concentrations in real estate financial leases and loans.
Also, Moody's views Locindus's business as highly sensitive
to property market downturns and likely to suffer going forward in an
environment of increasing funding costs and vacancy rates.
The downgrade of Locindus's long-term bank deposit ratings
results from the rating action taken on its BFSR. However,
Locindus's full integration within its major shareholder,
CFF, and Moody's assessment of a high probability of support
from CFF, and ultimately from GCE's solidarity mechanism,
is reflected in a six-notch uplift for Locindus's long-term
deposit rating of A1 from its BCA of Ba1. The stable outlook on
Locindus's ratings mirrors Moody's expectation of its continuing
integration into CFF and high parental support from CFF and its ultimate
Moody's affirmation of Banque Palatine's BFSR at C-
and revised mapping to a BCA of Baa2 (from Baa1 previously), takes
into account the bank's expertise in the SME segment and sound solvency
position along with its high credit risk concentration and vulnerability
to deterioration in the SME sector.
Moody's downgrade of Banque Palatine's long-term bank
deposit rating to A1 from Aa3 reflects the decline in the bank's
strategic importance and role within GCE, as shown by CNCE's
announcement on 29 December 2008 of its intention to sell Banque Palatine.
The developing outlook will be resolved once the future owner, and
potential support provider of Banque Palatine is known, which is
expected by the end of Q2 2009.
PREVIOUS RATING ACTIONS
The last rating action on CFF, Locindus and Banque Palatine was
implemented on 18 July 2008, when Moody's downgraded CFF's
deposit and senior unsecured debt ratings to Aa3 with stable outlooks,
from Aa2 (its P-1 short-term rating and C BFSR were unchanged),
and placed Locindus's and Banque Palatine's Aa3 deposit ratings on review
for possible downgrade. Locindus's P-1 short-term
ratings and C BFSR and Banque Palatine's P-1 short-term
ratings and C- BFSR were affirmed with stable outlooks.
The principal methodologies used in rating the issuers affected by this
press release are "Bank Financial Strength Ratings: Global
Methodology" and "Incorporation of Joint-Default Analysis
into Moody's Bank Ratings: A Refined Methodology",
which can be found at www.moodys.com in the Credit Policy
& Methodologies directory, in the Ratings Methodologies sub-directory.
Other methodologies and factors that may have been considered in the process
of rating these issuers can also be found in the Credit Policy & Methodologies
Headquartered in Paris, CFF had total assets of EUR123.6
billion at end-June 2008. For H1 2008, the group reported
net profit, group share, of EUR140 million, up from
net income of EUR124 million during the same period in 2007.
Headquartered in Paris, Locindus had total assets of EUR909 million
at end-June 2008. For H1 2008, the group reported
net income of EUR5 million, down from net income of EUR33.9
million during the same period in 2007.
Headquartered in Paris, Banque Palatine had total assets of EUR7.6
billion at end-2007. In 2007, the group reported net
profit, group share, of EUR74 million, up from net profit
of EUR50 million in 2006.
Vice President - Senior Analyst
Financial Institutions Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
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Moody's affirms CFF's ratings at Aa3, downgrades BFSR to D+
Senior Vice President
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454