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20 Jan 2010
London, 20 January 2010 -- Moody's today lowered by one notch the senior debt and deposit ratings
of BNP Paribas (BNPP) from Aa1 to Aa2. Moody's also lowered
by one notch the BFSR from B to B- (mapping to a Baseline Credit
Assessment of A1), and all other long-term debt ratings by
one notch: the subordinated debt ratings to Aa3, the Undated
Subordinated Notes to A2 and the Non-Cumulative Trust Preferred
Securities and Undated Deeply Subordinated Non-Cumulative Notes
("TSS") to Baa1. The bank's Prime-1 short-term ratings
were affirmed. The outlook on all ratings is stable. BNPP's
rated subsidiaries are discussed at the end of the press release.
This concludes the review of BNPP's ratings initiated on 22 October
Although BNPP has weathered the financial crisis well relative to peers,
Moody's considers BNPP's ratings are more appropriately positioned
at B-/ Aa2 to capture the tail risks from the bank's investment
banking operations and ongoing pressure on asset quality from loan books.
In addition, although BNPP has structured its acquisition of Fortis
Bank SA/ NV (Fortis) (rated C- negative outlook/ A1 stable) to
minimise the impact from Fortis Bank's riskier exposures,
the integration of such a large bank remains a sizable challenge for management.
The new rating level incorporates the benefit of recent measures taken
by BNPP to strengthen capital, as well as the offsetting impact
of our own assessment of risks from further deterioration in loan books
and structured exposures.
As mentioned in our December 2009 report "Update Challenges and
Key Ratios for Wholesale Investment Bank Ratings", which discusses
the risks facing all banks with sizable investment banking activities,
Moody's considers that despite recent measures taken by many institutions
since the crisis to reduce risks, such activities entail concentrations
and interconnected risks, creating challenges for measuring risk.
In the case of BNPP, with around of one third of the group's
capital committed to capital market/ investment banking activities,
BNPP is exposed to many similar risks - the EUR2bn losses at BNPP's
investment banking division in Q408 led to a EUR1.2bn net loss
for the whole bank that quarter. We note positively that BNPP's
capital allocation takes account of potential losses beyond VaR,
however, by definition, some extreme events are not captured
within this framework. Moreover, we notice that equity risk
outside the trading book remains material. If we were to see significant
growth in the risk appetite for BNPP's investment banking activities,
this could place further downward pressure on the rating.
The cost of risk at BNPP has increased through the financial crisis and
during the economic downturn and our own analysis of the bank's
loan books, based on our published Approach to Estimating Banks'
Credit Losses for different geographical jurisdictions, indicates
the bank could continue to see elevated loan losses in Italy, Emerging
Markets, the US and Personal Finance. However, we note
that the core French retail banking franchise is expected to remain resilient,
thanks to the bank's conservative lending as well as the lower levels
of economic stress in the French market.
In terms of capital Moody's notes positively that BNPP boosted its Tier
1 ratio from 7.81% at the end of 2008 to 10.0%
at the end of September 2009, and has improved the quality of capital
with the replacement of government capital with equity capital through
the rights issue. However, over 2010 -- 2011 there will
be a number of regulatory adjustments affecting banks, including
BNPP, including the revised regulatory framework for market risk,
which we expect will require the bank to further strengthen capital buffers.
The structure of the Fortis acquisition has meant that BNPP has not assumed
some of the riskiest structured assets within Fortis and this prevented
a negative rating action at the time of the acquisition, however
there are still significant financial and management challenges in turning
around the Fortis businesses, which may take some time to make a
meaningful contribution to group profits. Moody's notes that
BNPP has already made progress with the integration, and this has
included reducing at the group level some of the larger credit risk exposures
resulting from the acquisition.
Moody's has assigned a stable outlook to all ratings. This
reflects the fact that the additional capital built up by BNPP and the
measures implemented to reduce market risk exposures following the losses
of Q408, indicate that the bank would be able to weather our stress
scenario encompassing significantly higher provisions on loan books and
further writedowns on structured assets without further downward pressure
on the rating.
SENIOR DEBT RATINGS
The long-term debt and deposit ratings of BNPP continue to include
2 notches of systemic support, reflecting the bank's important role
in the French economy, and this lifts the B- BFSR (which
maps to a baseline credit assessment of A1) to the Aa2 senior debt and
RATINGS OF SUBSIDIARIES
The A1 senior debt and deposit ratings with stable outlook of Fortis Bank
S.A./ N.V. and BGL BNP Paribas S.A.,
as well as the A3 debt ratings with negative outlook of Exane S.A.
and Exane Derivates SNC were unchanged. There is also no change
to the ratings of Banca Nazionale Del Lavoro S.P.A.
Separate press releases will follow on LaSer Cofinoga and BancWest Corporation
and its subsidiaries.
LAST RATING ACTION
The last rating action on BNPP was on 22 December, 2009, when
the ratings of the hybrid securities were revised in line with our new
The principal methodology used in rating this issuer was 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, 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.
The ratings of bank subordinated capital securities are assigned in line
with Moody's revised methodology entitled "Guidelines for Rating Bank
Junior Securities", dated November 2009.
Based in Paris, BNP Paribas had total assets amounting to 2,289
billion and a Tier 1 ratio of 9.3% at end-June 2009.
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's lowers BNPP's ratings to Aa2/ B-
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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