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Rating Action:

Moody's downgrades Banque PSA Finance's ratings to C-/Baa1

23 Nov 2009

Outlook negative on C- BFSR and on Baa1 long-term ratings

Paris, November 23, 2009 -- Moody's Investors Service has today downgraded the bank financial strength rating (BFSR) of Banque PSA Finance (BPF) to C- -- mapping to a Baseline Credit Assessment (BCA) of Baa1 -- from C and its long-term debt and deposit ratings to Baa1 from A3, thus concluding the review for possible downgrade on the ratings initiated on 30 October 2008. The outlook on the BFSR and on the long-term debt and deposit ratings is negative. The Prime 2 short-term debt and deposit rating is affirmed.

Moody's downgrade of the BFSR to C- from C was driven by the rating agency's expectation of weakening profitability as a combination of subdued new business and lending volumes and a deterioriation in asset quality. Following the completion of Moody's stress tests on BPF's assets and earnings, the rating agency regards BPF's capital levels as adequate within its revised rating category given the bank's overall risk profile.

Moody's notes that BPF -- which is a wholly owned captive finance and non-diversified company that supports the sales of Peugeot S.A. (rated Baa3/negative) -- is reliant on the number of cars sold by its parent, which has been temporarily boosted by "scrappage" schemes. The bank may therefore suffer from a decrease in its lending volumes in the near future, thereby weakening its profitability. Although BPF increased its penetration rate (new car financing as a proportion of parent sales) to 27.8% at the end of H1 2009 from 25.5% at the end of H1 2008, a potential further increase of the bank's penetration rate may not be sufficient to offset the decrease in lending volumes expected by Moody's, given the deteriorating economic environment.

Furthermore, BPF is suffering from the deterioration of its asset quality -- notably in the retail loan portfolio, its main business line -- which has in turn resulted in an increase in its provisioning levels. Non-performing loans stemming from the French and Spanish retail loan books in particular, which represented 52% of the total retail loans as at year end 2008, have increased. However, Moody's acknowledges BPF's high capitalisation levels (the Tier 1 ratio stood at 11.94% at the end of June 2009), which provide the bank with significant loss absorption capacity.

Moody's also notes the bank's high reliance on wholesale funding and particularly on capital markets (36% at the end of June 2009), interbank (35%) and securitisation (19%), a funding profile that Moody's regards as a rating constraint. Although BPF has been able to issue debt on the markets since May 2009, the bank, as a wholesale-funded institution, suffers from high funding costs and remains highly sensitive to its need for access to wholesale funding as well as its potentially tighter access to funding through the European Central Bank.

The negative outlook on BPF's C- BFSR and Baa1 long-term debt and deposit rating is underpinned by the negative outlook on Peugeot's ratings. As a wholly owned captive bank, BPF is highly constrained by its strategic, commercial and financial links to its parent. Moody's points to the risks facing credit institutions that are concentrated on a single industry segment, especially given the current challenging environment of the European automobile sector. The captive bank's debt and deposit ratings are therefore inherently linked to Peugeot's performance and ratings. Given the lack of diversification of the institution coupled with the risk associated with its wholesale funding profile, Moody's says that the differential between Peugeot and BPF should not exceed two notches.

Moody's previous rating action on BPF was implemented on 30 October 2008 when the rating agency placed BPF's A3 long-term debt and deposit ratings and C BFSR on review for possible downgrade and affirmed the Prime-2 short-term ratings. Moody's subsequently reiterated the ongoing review of these ratings on 31 July 2009 further to Peugeot SA's interim results, and again on 30 October 2009 further to Peugeot SA's Q3 results.

The principal methodologies used in rating BPF were Moody's "Bank Financial Strength Ratings: Global Methodology", published in February 2007, and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", published in March 2007, which are available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Paris, Banque PSA Finance had total assets of EUR26.092 billion and reported shareholders' equity (including minority interests) of EUR3.025 billion as of 30 June 2009.

Paris
Virginie Merlin
Vice President - Senior Analyst
Financial Institutions Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt
Carola Schuler
Managing Director
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Banque PSA Finance's ratings to C-/Baa1
No Related Data.
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