Aa3 dated subordinated debt rating and A2 (hyb) preferred stock rating also placed on review for downgrade.
Paris, February 23, 2012 -- Moody's Investors Service has today placed the Aa2 long-term
issuer rating of Credit Logement (CL) on review for downgrade.
At the same time, the Aa3 dated subordinated debt rating and the
A2 (hyb) non-cumulative capital securities rating have been placed
on review for downgrade.
Today's rating action follows Moody's action on European banks taken
on February 15, 2012, when the ratings of some of CL's
shareholders were placed under review for downgrade, and reflects
CL's significant asset exposure to some of these shareholders.
For more details, please refer to the press release "Moody's
reviews ratings for European banks" dated 15 February 2012, available
on moodys.com.
Moody's will conclude its review on CL after it has concluded the
review on its main shareholders, whose long-term debt and
deposit ratings could be downgraded by up to two notches.
RATINGS RATIONALE
CL, a leading provider of guarantees for French non-mortgage
backed residential loans, is jointly owned by the main French banks.
In turn, CL has historically been exposed to its shareholders,
mainly through the placement of its cash in the form of sight and term
deposits. According to audited 2010 financial results, CL
had an EUR8.4 billion asset exposure to financial institutions,
most of which to its shareholders, while its regulatory Tier 1 Capital
amounted to EUR5.4 billion.
Moody's considers that the current macroeconomic environment exerts
pressure on the financial strength of CL's shareholders and therefore
on CL's credit profile as exposures to its shareholders account
for a large share of its assets.
In addition, while CL maintains very strong acceptance criteria
and the quality of the guaranteed loans has remained strong thus far,
we believe that the French housing market has shown signs of overheating
which may reduce CL's financial strength, in our view.
At year-end 2010, CL had outstanding guarantees of EUR202
billion (accounting for ca. 26% of the total domestic housing
loans), against a regulatory Tier 1 Capital of EUR5.4 billion
(including its mutual guarantee fund).
As part of its review, Moody's will assess whether the institution's
capital would be sufficient to cover risks stemming from its guaranteed
loans as well as on its asset exposures, in the context of the current
economic downturn. Moody's will also assess to which extent
the company's investment policy may insulate it from stresses on
the credit quality of its asset exposures.
Our stress assumptions will factor in the deteriorating macro-economic
environment in general, as well as the higher loss potentials of
loans originated in the French market in recent years, when house
prices peaked (see our special comment, "French Banks :
Ability to absorb moderate house price correction, but risks increase",
dated June 2011).
SUBORDINATED NOTES
The starting point for rating CL's subordinated notes is the issuer's
adjusted Baseline Credit Assessment, which is aligned with its issuer
rating, at Aa2. This reflects the absence of support assumptions
in our long-term issuer rating.
The dated subordinated notes are rated Aa3, i.e. one
notch below CL's adjusted BCA, reflecting their subordinated
claim in liquidation.
The non-cumulative capital securities are rated A2 (hyb),
i.e. three notches below CL's adjusted BCA,
reflecting their deeply subordinated claim in liquidation and the mandatory
non-cumulative coupon skip mechanism tied to a capital deficiency
event or a regulatory notification trigger.
Both the Aa3 dated subordinated debt rating and the A2 (hyb) non-cumulative
capital securities rating have been placed on review for downgrade,
reflecting the review on CL's issuer rating.
WHAT COULD CHANGE RATINGS UP
Credit Logement is highly exposed to its shareholders, most of which
are on review for possible downgrade, therefore we believe an upgrade
of its ratings is unlikely in the foreseeable future.
WHAT COULD CHANGE RATINGS DOWN
Downgrades in the long-term ratings of CL shareholders could lead
to a downgrade of the entity's issuer rating, if Moody's
were to consider that this would result in a higher asset risk that would
not be sufficiently covered by CL's capital.
CL's issuer rating could also be negatively affected by an increased expectation
of a significant reduction in asset quality, in Moody's view,
which could result in a material increase in losses on the guaranteed
loans and a reduction in CL's loss absorption capacity through recurring
earnings and capital, including its mutual guarantee fund.
Depending on our conclusion on the aforementioned elements, CL's
ratings could be confirmed or downgraded by one notch or more.
PRINCIPAL METHOLDOLOGIES
The methodologies used in these ratings were Moody's Global Rating Methodology
for the Mortgage Insurance Industry published in February 2007,
and Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated
Debt published in November 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
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 rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following :
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
this review.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating 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 Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its 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.
Stephane Herndl
Analyst
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 places Credit Logement's Aa2 issuer rating on review for downgrade
