Baseline Credit Assessment on review with direction uncertain
NOTE: On October 31, 2019, the press release was corrected as follows: The second paragraph of the RATINGS RATIONALE section was changed to: “The review for downgrade on ABB’s A2 deposit rating and a2 Adjusted BCA reflects the significantly reduced probability of support from AXA, notwithstanding its continued association with ABB via its minority stake in the future group and the distribution agreement for insurance products in Belgium. ABB’s current ratings incorporate a three-notch upflit stemming from Moody’s assumption of a very high probability of affiliate support. ABB’s Adjusted BCA and long-term ratings could therefore lose up to three notches of affiliate support as a result.” Revised release follows.
Paris, October 30, 2019 -- Moody's Investors Service ("Moody's") today placed
on review for downgrade the A2/Prime-1 deposit ratings of Axa Bank
Belgium (ABB), its Counterparty Risk Assessment of Aa2(cr)/Prime-1(cr),
its Counterparty Risk Ratings of Aa3/Prime-1 and its Adjusted Baseline
Credit Assessment (BCA) of a2.
Moody's also placed ABB's BCA of baa2 on review with direction
uncertain.
Today's actions reflect the announcement made on 25 October 2019
that AXA (senior unsecured A2, stable) will sell ABB to Belgian
cooperative bank Crelan NV (Crelan).
The sale of ABB by AXA to Crelan, to be finalised during the second
quarter of 2020, will comprise a cash consideration of €540
million and the transfer of 100% of Crelan Insurance valued at
€80 million to AXA Belgium, AXA's insurance subsidiary
in Belgium. AXA and Crelan also concluded a long-term distribution
agreement under which Crelan will distribute AXA's property and
casualty (P&C) insurance and loan insurance products in Belgium.
In addition, AXA will take a minority share of 9.9%
in Crelan NV and ABB. Under the agreement, Crelan will have
a call option to purchase AXA's participation after an undisclosed
lock-up period.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
The review of ABB's baa2 BCA, with direction uncertain,
reflects current uncertainties in relation to the creditworthiness of
the new Crelan group, incorporating ABB, notably regarding
capitalisation and profitability. The acquisition of ABB could
bring critical mass and cost synergies to Crelan, improving its
profitability prospects over time, but its capitalisation may be
reduced by the acquisition. The transaction awaits regulatory approvals
towards the second quarter of 2020, by which time Moody's
expects to close its review.
The review for downgrade on ABB’s A2 deposit rating and a2 Adjusted BCA reflects the significantly reduced probability of support from AXA, notwithstanding its continued association with ABB via its minority stake in the future group and the distribution agreement for insurance products in Belgium. ABB’s current ratings incorporate a three-notch upflit stemming from Moody’s assumption of a very high probability of affiliate support. ABB’s Adjusted BCA and long-term ratings could therefore lose up to three notches of affiliate support as a result.
In addition, ABB's deposits are currently likely to be subject
to moderate loss-given-failure resulting in no rating uplift,
given the amount of debt and equity subordinated to them. After
ABB's integration into Crelan, deposits could benefit from
lower loss-given-failure, notably if the bank issues
bail-in-able debt in the context of its future minimum requirement
for eligible liabilities and own funds (MREL).
ABB's long-term deposit rating benefits only from a low probability
of government support, owing to the bank's limited systemic
importance in Belgium. This will likely remain unchanged after
Crelan finalises ABB's integration in two years' time,
approximately doubling its size.
WHAT COULD MOVE THE RATINGS UP/DOWN
Given the reviews for downgrade, an upgrade of ABB's deposit
ratings and Adjusted BCA is unlikely at the moment. An upgrade
of ABB's BCA could occur if the future group benefits from strong
capitalisation and improving profitability prospects thanks to merger
synergies.
ABB's deposit ratings, counterparty risk ratings and Adjusted
BCA are currently on review for downgrade. The magnitude of a downgrade
will depend on (1) the conclusion of the review on the BCA; (2) the
reduced probability of affiliate support from AXA; and (3) a possible
rating uplift stemming from lower loss-given-failure in
the context of MREL. A downgrade of the BCA could occur if the
future group's capitalisation and profitability are likely to be
relatively weak.
LIST OF AFFECTED RATINGS
Issuer: AXA Bank Belgium
..Placed on Review for Downgrade:
....Long-term Counterparty Risk Ratings,
currently Aa3
....Short-term Counterparty Risk Ratings,
currently P-1
....Long-term Bank Deposits,
currently A2, outlook changed to Ratings under Review from Stable
....Short-term Bank Deposits,
currently P-1
....Long-term Counterparty Risk Assessment,
currently Aa2(cr)
....Short-term Counterparty Risk Assessment,
currently P-1(cr)
....Adjusted Baseline Credit Assessment,
currently a2
..Placed on Review with Direction Uncertain:
....Baseline Credit Assessment, currently
baa2
..Outlook Actions:
....Outlook changed to Rating under Review
from Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 credit rating action on the
support provider and in relation to each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
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.
Guillaume Lucien-Baugas
Vice President - Senior Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
