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Rating Action:

Moody's downgrades Oddo to Ba1/NP/D+ from Baa2/P-2/C-; outlook stable

15 Jun 2012

Actions conclude review announced on 15 February 2012

Paris, June 15, 2012 -- Moody's Investors Service has today downgraded Oddo & Cie's standalone bank financial strength rating (BFSR) by one notch to D+ from C- and lowered the corresponding standalone credit assessment to ba1 from baa2. This prompted the downgrade of the long-term debt and deposit ratings by two notches to Ba1. The outlook is stable and the short-term rating was lowered to Not Prime from Prime-2.

The key drivers for today's downgrades are (i) weakened profitability and vulnerability to further downward pressure on revenues due to exposure to capital markets through its brokerage and asset-management businesses; and (ii) Moody's reassessment of the inherent vulnerabilities of its capital markets-oriented businesses, which, amidst the highly uncertain current European operating environment, render the bank susceptible to changes in client confidence, which could in turn weaken its risk profile.

Moody's notes several mitigating factors. These include (i) substantial reserves of liquid assets relative to its size, which means that Oddo can withstand a lack of access to market funding for well over 12 months, without a material impact on its business; (ii) sizeable capital resources which provide a substantial buffer against potential unexpected losses; and (iii) low vulnerability to asset-quality deterioration due to a relatively small loan book.

Today's rating actions on Oddo's BFSR and long-term debt and deposit ratings conclude the review initiated on 15 February 2012, see "Moody's reviews ratings for European Banks", 15 February 2012

(http://www.moodys.com/research/Moodys-Reviews-Ratings-for-European-Banks--PR_237914). For additional information on bank ratings, please refer to the webpage containing Moody's related announcements: http://www.moodys.com/bankratings2012.

Please click on this http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_143136 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

The lowering of the BFSR and the long-term rating was primarily driven by the following considerations.

-FIRST DRIVER ---WEAKENED PROFITABILITY

Moody's says that Oddo's core profitability has weakened sharply in recent years. This is a function of difficult business conditions that principally affect its asset management, brokerage and investment banking operations. Although Oddo has integrated several opportunistic acquisitions -- most recently Banque d'Orsay and Banque Robeco -- so far, these have not significantly boosted profitability beyond generating one off gains. Higher funding costs have also affected the group's metal-trading business, for example. The group has targeted a reduction in its cost base to adapt to the more difficult environment; however, despite a recent improvement, the benefits from this initiative will require time to take effect and in the meantime earnings will likely remain weak, in Moody's view.

-SECOND DRIVER --- CAPITAL MARKETS BUSINESSES ARE SENSITIVE TO CLIENT CONFIDENCE

Moody's has reassessed its view of the risks inherent to capital market businesses. As a result, we consider that Oddo's capital markets franchises are intrinsically more sensitive to changes in client confidence than retail-based operations. Whilst the recent acquisitions have bolstered its asset-management and private banking activities, inflows and hence fees are also likely to be sensitive to customer sentiment and product performance. Oddo's activities are far smaller than those of the global capital markets players; however, Moody's considers that Oddo's activities in this area introduce a level of complexity and dynamism into the group's risk profile that counterparties find difficult to monitor, given the limited public disclosure of the performance of these activities. Moody's therefore believes that amidst the highly uncertain current European operating environment, which renders the bank susceptible to changes in investor confidence, the vulnerability and confidence sensitivity of Oddo's franchise has increased.

MITIGATING FACTORS

Moody's notes certain mitigating factors. Firstly, Oddo has substantial reserves of liquid assets relative to its size, with cash and short-term deposits of EUR756 million accordingg to audied 2011 financials (one third of its non-derivative assets) and does not engage in meaningful maturity transformation, having an excess of short-term assets over its wholesale liabilities (notably EUR150 million of senior debt maturing in October 2013). The loan book is small and illiquid assets are financed with the bank's own equity. As such, it can withstand a lack of access to market funding for well over 12 months, without a material impact on its business.

Secondly, it has substantial capital resources, with a Tier 1 ratio of 16% according to audited 2011 financials, and a leverage ratio (non-derivative tangible assets-to-tangible equity) of 13x. This provides a substantial buffer against potential unexpected losses.

Thirdly, its loan book is relatively small, and it insures some of its trading counterparty risk; this implies that it has low vulnerability to asset-quality deterioration.

RATINGS RATIONALE -- DEBT & DEPOSIT RATINGS

The long-term debt and deposit ratings were downgraded by two notches to Ba1, in line with the BCA. The ratings purely reflect the firm's intrinsic creditworthiness, and in the absence of parental or government support, which we consider unlikely to materialise given Oddo's small scale and low systemic importance.

RATIONALE FOR STABLE OUTLOOK

The stable outlooks on all ratings express Moody's view that currently foreseen risks to creditors are now reflected in these ratings. Nevertheless, negative rating momentum could develop if conditions deteriorate beyond current expectations. Specifically, Moody's has factored into the ratings an increased risk of an exit of Greece from the euro area, but this is currently not Moody's central scenario. If a Greek exit became Moody's central scenario, further rating actions on European banks could well be needed.

RATINGS RATIONALE -- SUBORDINATED DEBT

The ratings on the dated subordinated obligations of Oddo were downgraded by two notches to Ba2, one notch below the standalone credit assessment.

WHAT COULD MOVE THE RATINGS UP /DOWN

The outlook on the long-term ratings is stable. Upward pressure on Oddo's BFSR and standalone credit assessment could arise from (i) heightened diversification and scale in key franchises; and/or (ii) a reduction in volatility of earnings over time. An upgrade of the BFSR would result in an upgrade of the deposit / debt ratings.

Downwards pressure on Oddo's BFSR and standalone credit assessment could be triggered by:

- An inability to improve efficiency and profitability metrics in the medium term;

- Material weakening in key franchises;

- Any substantial outflow of client funds and/or an attrition of private or institutional clients;

- A weakened ability to generate earnings from its franchises, e.g. in asset management, as a result of a continued poor performance of stock markets or a change in the regulatory or competitive landscape;

- Evidence of an increase in risk appetite or weakness in risk controls; and/or

- An acquisition leading to a material reduction in capital ratios or an increased risk profile.

A lowering of the standalone credit assessment would lead to a downgrade of the long-term ratings, in the absence of increased assumptions for potential external support.

METHODOLOGIES

The methodologies used in these ratings were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: Global Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_143136 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

Releasing Office

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

The ratings have been disclosed to the rated entities or their designated agents and issued with no amendment resulting from that disclosure.

Information sources used to prepare the ratings are the following : parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entities or their related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Nicholas Hill
Senior Vice President
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carola?Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Oddo to Ba1/NP/D+ from Baa2/P-2/C-; outlook stable
No Related Data.
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