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Rating Action:

Moody's affirms long-term ratings of Credit Agricole S.A. and CACIB at A2

21 Nov 2014

Positive outlook on subordinated debt instruments indicates potential for further improvement in Groupe Credit Agricole's fundamental creditworthiness

London, 21 November 2014 -- Moody's Investors Service has today affirmed Credit Agricole S.A.'s (CASA) as well as Crédit Agricole Corporate and Investment Bank's (CACIB) long and short-term global local-currency (GLC) debt and deposit ratings of A2/Prime-1, to reflect the current strong intrinsic creditworthiness of Groupe Crédit Agricole (GCA, unrated), the solidarity mechanisms within it and the assumption of a high likelihood of government (systemic) support from France (Aa1 negative), in case of need.

These ratings continue to carry a negative outlook, reflecting Moody's view about heightened risks for senior creditors from the adoption of the Bank Resolution and Recovery Directive (BRRD) in the EU.

Concurrently, Moody's has affirmed the ratings of all subordinated and hybrid debt instruments issued by CASA, and its backed subsidiaries. The outlook on these instruments was changed to positive (from stable), reflecting the rating agency's expectation of a further improvement in GCA's fundamental creditworthiness following a period of recovery and strengthening of the group's financial metrics as well as the progressive reduction of certain asset tail risks.

Lastly, to reflect the improvement in CASA's and CACIB's credit risk profiles -- i.e., strengthened financial fundamentals and lowered tail risk -- Moody's has adjusted upwards the bank financial strength ratings (BFSRs)/BCAs of CASA to D+/ba1 from D/ba2, and of CACIB to D/ba2 from D-/ba3. The outlook on CASA's and CACIB's standalone BFSRs is stable.

Please click the following link to access the full List of Affected Credit Ratings, which is an integral part of this Press Release and identifies each affected issuer: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_177503

RATINGS RATIONALE

--- AFFIRMATION OF LONG-TERM RATINGS OF CASA AND CACIB REFLECTS THE STRENGTHS WITHIN THE GROUP AND POTENTIAL FOR FURTHER IMPROVEMENTS

The affirmed A2 long-term senior debt and deposit ratings of CASA and CACIB are underpinned by (1) the banks' standalone credit strength; (2) the benefits from GCA's fundamental creditworthiness as well as the solidarity mechanisms within the group (resulting in an unchanged adjusted BCA of baa2); and (3) Moody's assumption of a high likelihood of systemic support from France, in case of need.

GCA's creditworthiness exerts upward pressure on CASA's and CACIB's baa2 adjusted BCA; this positive trend is reflected in the assigned positive outlook on the ratings notched off the adjusted BCA, namely the subordinated debt and hybrid instruments. Supporting factors are the group's solvency, its asset quality and earnings generation.

The group's strengthened capitalisation compares favourably to that of its peers: the reported fully-loaded common equity Tier 1 (CET1) ratio was 12.9% at Q3 2014 unaudited results and the group targets a fully-loaded CET1 ratio of 14% as of 2016.

Asset quality has been resilient with a 3.8% problem loan ratio as of Q2 2014 (Moody's calculation) and tail risk (mainly stemming from Italian exposures, accounting for 103% of end-2013 CET1 capital) is now manageable, as reflected in the recently published results of the European Central Bank's Comprehensive Assessment.

Earnings and capital generation are now more in line with those of its peers, following years of significant impairments because of the global financial and the euro area crises. GCA's strong and stable earnings deriving from its large domestic retail activities have supported its profitability. International and capital market activities as well as potential costs stemming from pending litigations may add volatility, but provisions, capital and underlying core earnings should provide solid buffers against these risks.

Moody's notes the progress made in GCA's funding structure with the loan-to-deposit ratio at 113% as of Q3 2014 (from 126% at end-2011) and the significant steps the firm has taken to improve its funding profile, in particular by increasing the volume and duration of its resources. At the same time, GCA's credit profile is constrained by its structural heavy exposure on confidence-sensitive wholesale funding (EUR311 billion as of Q3 2014, including repos). Also, the group's liquidity buffer remains of somewhat lower quality than some domestic and European peers, as part of eligible liquidity reserves are credit loans and retained securitisations, which in Moody's view are likely to be unable to generate immediate liquidity in secondary markets.

Sustained performance in asset quality and profitability against challenging operating conditions in France and further progress in its funding and liquidity structure could exert some mild upward pressure on the group's creditworthiness.

Nonetheless, the negative outlook assigned to the banks' deposits and senior debt reflects the fact that the implementation of the BRRD in the EU could have negative consequences for banks' creditors and increase the likelihood that Moody's might lower its systemic support assumptions.

--- CASA'S AND CACIB'S STANDALONE BCAs POSITIONED HIGHER AT ba1 AND ba2 RESPECTIVELY

The revision of CASA's standalone BCA to ba1 reflects Moody's view on the improvements of the bank's risk profile. The bank has established a track record of low but more stable profits from diversified retail, consumer finance, asset-management businesses and international activities including reduced tail risk in relation to its Italian exposures, which CASA consolidates on its balance sheet. Solvency has also strengthened, although the rating agency notes the moderate quality of CASA's capital, which is supported by intra-group capital guarantees.

As a consolidated entity of CASA, CACIB's financial fundamentals have also strengthened which is reflected in Moody's revision of the entity's BCA to ba2 from ba3. CACIB's capitalisation and asset quality have significantly improved and are now positioned more in line with peers. Profitability has stabilised but on a lower level compared with CASA.

The high exposure on confidence-sensitive wholesale funding still dominates CASA's and CACIB's funding profiles and continues to constraint their standalone BCA. The outlook on the banks' standalone credit assessment is stable.

WHAT COULD CHANGE THE RATING -- UP/DOWN

Upward pressure on CASA's and CACIB's senior long-term ratings is unlikely to develop in the foreseeable future given the negative outlook assigned to those ratings.

A downgrade of those ratings could result from (1) a weakening of GCA's intrinsic financial strength, although unlikely at this stage; (2) a weakening in the solidarity mechanism within the group, which Moody's believes is unlikely ; and/or (3) a decline in the prospects for systemic support in France and in the EU, in light of the implementation of the resolution mechanisms and burden-sharing, which could have a negative bearing on European banks' creditors.

An upgrade of CASA's and CACIB's subordinated and hybrid debt instruments would depend on a further strengthening of the group's creditworthiness based on sustainability in asset quality, profitability and capitalisation against challenging operating conditions in France and further progress in the group's funding and liquidity structure. Similarly, a downgrade of those ratings could result from a weakening of GCA's intrinsic financial strength and/or a weakening of the solidarity mechanism within the group, which Moody's considers unlikely at present.

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.

The rating of Pref. Stock Non-cumulative security (824149675) of rated entity Credit Agricole S.A. was initiated by Moody's and was not requested by the rated entity.

Rated entity Credit Agricole S.A. or its agent(s) participated in the rating process. This rated entity or its agent(s), if any, provided Moody's - access to the books, records and other relevant internal documents of the 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

Johannes Felix Wassenberg
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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 long-term ratings of Credit Agricole S.A. and CACIB at A2
No Related Data.
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