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Rating Action:

Moody's affirms CNCE and BFBP's senior debt at Aa3, downgrades CNCE's BFSR

06 Mar 2009

Negative outlook on CNCE, BFBP and Natixis' BFSRs

Paris, March 06, 2009 -- Moody's Investors Service today downgraded the bank financial strength rating (BFSR) of Caisse Nationale des Caisses d'Epargne (CNCE) from C+ to C with a negative outlook. The BFSR of Banque Fédérale des Banques Populaires (BFBP) was affirmed at C+, but its outlook was changed to negative. Natixis' BFSR of D+ was also affirmed and its outlook changed to negative. The long-term debt and deposit ratings and short-term ratings of CNCE, BFBP and Natixis were affirmed at Aa3 with a stable outlook. All short-term ratings were affirmed at Prime-1.

CNCE and BFBP are, respectively, the current central entities of the Groupe Caisse d'Epargne (GCE) and Groupe Banque Populaire (GBP) and are the parent companies of Natixis, which is the groups' wholesale and financial services arm.

Today's rating actions reflect Moody's expectation that the commercial banking and real estate activities of GCE and GBP may face increasing pressure in a deteriorating economic environment. The affirmation of the Aa3 senior debt and deposit ratings on the other hand also incorporate i) Moody's continued expectation of high intra-group solidarity, ii) the long-term credit profile of these entities beyond the current government support-phase as well as iii) the very high probability of on-going support from the Aaa-rated French government. The rating actions also take into account the groups' ongoing exposure to Natixis, which is likely to continue to weigh on both groups' profitability and which is reflected in the weaker positioning of Natixis in the D+ BFSR range now mapping to a Baseline Credit Assessment (BCA) of Ba1 from Baa3 previously.

Additionally, Moody's placed the A3 ratings of all hybrid instruments of Natixis on review for possible downgrade, reflecting the substantially weakened outlook for the bank's profitability. The rating review will assess each instrument on a case-by-case basis.

Moody's noted the approval of merger principles between GBP and GCE's central entities announced on 26 February 2009. The rating agency confirmed that it expects to assess the combined strength of the new central body upon completion of the merger. Key considerations in Moody's assessment will include the amount, characteristics and allocation within the group of the forthcoming state capital injection, the expected synergies from the combined entities as well as details on the governance and strategic priorities of the enlarged group.

BFSR ACTIONS REFLECT DETERIORATING ECONOMIC ENVIRONMENT AND CONTINUED PRESSURE ON NATIXIS

Moody's downgrade of CNCE's BFSR to C, which translates into a BCA of A2, follows the announcement of GCE's full-year results. The rating action incorporates Moody's concerns about the risks stemming from GCE's real estate exposure in a deteriorating housing market environment and from some of the subsidiaries operations. The group's results last week were in particular weighed down by losses at its wholesale and financial services subsidiary Natixis, in addition to higher funding and restructuring costs as well as goodwill impairments from its participation in Natixis and some real estate subsidiaries. Moody's anticipates that the ongoing de-risking of Natixis will take time to restore the bank's underlying profitability and is likely to continue to burden its parent's profitability.

The pressure on CNCE's financial strength is, however, mitigated by the broad-based retail franchise and low-risk profile of its affiliated shareholders' savings banks, as well as by the planned sale of non-core activities to free up capital and the elimination of the CIFG risk via a commutation agreement completed in January 2009. CNCE's BFSR of C also factors in the forthcoming additional capital injection from the French government, which is expected to strengthen the group's Tier 1 capital ratio, which stood at 8.1% under Basel II (with a 90% transitional floor and under Basel II standard approach) at year-end 2008, although the details of this capital injection -- the characteristics of the capital instruments and their allocation within the group -- have yet to be finalised.

The negative outlook on BFBP's BFSR of C+ incorporates Moody's expectation that, despite GBP's large retail base, which has been further enlarged by the integration of regional banks acquired from HSBC France in 2008, the group's results are likely to remain significantly exposed to Natixis' performance. The current macroeconomic slowdown and more challenging environment for commercial banking activities in France and the SME market in particular could add potential stress on the group's financial fundamentals. However, Moody's expects that the resilience of regional banks' activities and their recurring underlying profitability will provide a sufficient buffer to absorb the higher cost of risk and mitigate the negative pressure in the event that the performance of Natixis continues to burden GBP.

The negative outlook on Natixis' D+ BFSR and the lowering of its BCA to Ba1 from Baa3 were triggered by substantial losses reported last week for the full-year 2008, including write-downs on structured finance and monoline exposures as well as a EUR0.8 billion trading loss on complex derivatives. Moody's believes that the comprehensive transformation of Natixis' Corporate and Investment Banking unit (CIB) will take time to result in a less volatile business model over the medium term. The change in BCA to Ba1 also incorporates Natixis' continuous high dependence on parental support and central banks to meet its funding needs.

COMBINED STRENGTH OF THE NEW CENTRAL BODY TO BE ASSESSED UPON MERGER COMPLETION

Moody's views positively the objective of creating France's second-largest banking group (after Crédit Agricole) via the merger of GBP and GCE's central entities. It expects that the merged central body will enhance the enlarged group's refinancing prospects as well as Natixis' governance by simplifying its ownership structure. However, Moody's notes that -- according to the approval of merger principles between GBP and GCE's central entities announced on 26 February 2009 -- both retail networks should continue to operate separately under their own brands. The new central body will be owned equally by the Caisse d'Epargne and Banques Populaires' regional banks. It will own Natixis (72%, the rest being free-floated) as well as the main retail banking subsidiaries in France and internationally. The real estate subsidiaries of the two groups, including Crédit Foncier de France, Nexity and Foncia, will be held separately by two holding companies owned directly by the regional banks (one holding for each network).

Moody's commented that its opinion of the combined strength of the new central body and new group is yet to be formalised, as key elements such as the amount of the capital injection to be received from the French government, the synergies and cost savings to be expected, as well as the governance, strategic priorities and changes, if any, in the solidarity and intra-group support mechanisms have yet to be detailed. Moody's will also assess the higher cohesion and integration within the enlarged group expected to result from the merger, before concluding on the combined strength of the new central body. The completion of the merger between GBP and GCE's respective central bodies is planned by the third quarter of 2009 and still subject to regulatory approval.

SENIOR DEBT RATINGS BENEFIT FROM INTRA-GROUP SOLIDARITY SCHEMES AND SYSTEMIC SUPPORT

Natixis, CNCE and BFBP's long-term debt and deposit ratings are affirmed at Aa3 with a stable outlook, reflecting the full support expected from the solidarity mechanisms and cross-guarantees prevailing within the two mutualist groups' respective domestic retail networks, and both including Natixis, as affiliated subsidiary. The combined strong parental support received by Natixis from its parent companies was notably evidenced by a EUR3.7 billion capital increase in September 2008, EUR2.5 billion of which was subscribed by Natixis' parents. Parental support was further confirmed in December 2008 after the issuance of subordinated notes by BFBP and CNCE subscribed by the French government through Société de Prises de Participations de l'Etat -- SPPE, and mostly channelled to Natixis via a EUR1.9 billion hybrid capital joint contribution.

Moody's assessment of a very high probability of systemic support for both GCE and GBP has been reinforced by the recent announcement of the French government's intention to subscribe in preference shares and deeply subordinated debt to be issued by the new central body of the group resulting from the merger of GCE and GBP. This capital injection, of up to EUR5 billion, could enable the State to take a stake of up to 20% in the new central body.

These strong elements of support result in a seven-notch uplift for Natixis' global local currency (GLC) and foreign currency (FC) deposit ratings of Aa3/Prime-1, from its BCA of Ba1. For CNCE and BFBP, these high support assumptions translate, respectively, into a three-notch uplift from a BCA of A3, and into a two-notch uplift from a BCA of A2. The stable outlook on the Aa3 long-term debt and deposit ratings of Natixis, CNCE and BFBP reflects, inter alia, the stability of expected support.

HYBRID INSTRUMENTS OF NATIXIS ON REVIEW FOR POSSIBLE DOWNGRADE

The A3 long-term ratings of all the preferred stocks hybrid instruments of Natixis are placed on review for possible downgrade. Moody's believes that the substantially weakened profitability outlook for Natixis is also exerting further downward pressure on these ratings. The review will assess each instrument on a case-by-case basis. The A3 preferred stock ratings of the following Natixis vehicles are also on review for possible downgrade:

- NBP Capital Trust I

- NBP Preferred Capital I, LLC

- NBP Preferred Capital III, LLC

- NBP Capital Trust III

LAST RATING ACTIONS AND MOODY'S METHODOLOGIES

The last rating action on Natixis was on 22 December 2008, when Moody's downgraded the bank's BFSR to D+ from C. Moody's also affirmed the Aa3 long-term deposit and senior unsecured debt ratings and the bank's short-term Prime-1 deposit rating, in line with the deposit and senior unsecured debt ratings of Natixis' two parent companies: CNCE and BFBP. The bank's preferred stocks and junior subordinated debts were downgraded by one notch to A3 from A2 with a stable outlook.

The last rating action on CNCE was on 20 October 2008, when Moody's changed the outlook on its C+ BFSR to negative from stable. The long-term debt and deposit ratings were affirmed at Aa3, with a stable outlook, and the short-term rating was affirmed at Prime-1.

The last rating action on BFBP was on 18 July 2008, when Moody's downgraded its deposit and senior unsecured debt ratings to Aa3 with a stable outlook, from Aa2. BFBP's BFSR was downgraded to C+ with a stable outlook, from B-. Its Prime-1 ratings were unchanged.

The principal methodologies used in rating the issuers covered 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 directory.

Based in Paris, Groupe Caisse d'Epargne posted audited, consolidated assets of EUR611.5 billion and a net profit, group share, of EUR21 million at end-June 2008. Its Tier 1 capital ratio was at 8.3% (Basel II) at end-June 2008.

Based in Paris, Groupe Banque Populaire posted audited, consolidated assets of EUR360.4 billion and a net profit, group share, of EUR94 million. Its Tier 1 capital ratio was at 9.6% (under Basel II standard approach with transitional floor) at end-June 2008.

Based in Paris, Natixis reported audited, consolidated assets of EUR528 billion and a negative net income, group share, of EUR-948 million at end-June 2008. The bank disclosed a Tier 1 ratio (under Basel II ) of 9.3% at end-June 2008.

Paris
Helene Sere
Vice President - Senior Analyst
Banking EMEA
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt
Carola Schuler
Senior Vice President
Banking EMEA
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms CNCE and BFBP's senior debt at Aa3, downgrades CNCE's BFSR
No Related Data.
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