Paris, October 22, 2009 -- Moody's Investors Service today placed on review for possible downgrade
the following French banks' ratings:
- BNP Paribas' B BFSR and Aa1 long-term ratings;
- Credit Logement's Aa2 long-term ratings;
- HSBC France's C BFSR, while affirming the bank's
Aa3 long-term ratings;
- LaSer Cofinoga's C+ BFSR and Aa3 long-term
ratings.
The banks' short-term ratings were affirmed.
These rating actions were taken in the context of Moody's recalibration
exercise on French assets, the completion of which did not result
in rating actions on other French banks, except for those already
placed under review for possible downgrade. A full list of the
rating actions taken can be found below.
Today's rating actions on the BFSRs were prompted by Moody's expectation
that some French banks will experience increasing deterioration in asset
quality over the coming quarters. This is likely to lead to greater
credit-related write-downs than previously anticipated in
the ratings, exerting adverse pressure on profitability and capitalisation.
Please refer to our Special Comment published today, entitled "Moody's
Approach to Estimating French Banks' Credit Losses" for further
details.
The anticipated deterioration in banks' financial strengths reflects
Moody's expectation that the French banking system will remain under
pressure in the short-to-medium term given the continuation
of the worst economic downturn in decades as reflected by the negative
outlook on the French banking system since July 2009 (please refer to
the Banking System Outlook on France published on 6 July 2009).
MoodysEconomy.com expects France's real GDP to contract by
3% in 2009 and the unemployment rate to increase to 9.5%
this year and above 10% by the end of 2010. Adverse prospects
for the labour market, coupled with Moody's expectation of
the deterioration in the creditworthiness of banks' retail and corporate
customers, are likely to result in increased defaults in consumer
finance, professionals and micro-SME loans.
Moody's has already taken several individual rating actions since
the start of this year to reflect its expectation of pressure on the intrinsic
financial strength of some French financial institutions in a deteriorating
macro-economic environment.
Those rating actions reflected the rating agency's concerns about
the financial institutions' exposures to some complex structured
credit assets, and exposures to CEE and the CIS, as well as
its concerns about their domestic banking operations. For the latter
exposures, the early estimates of expected losses that were used,
have since been fine-tuned, as described in our Special Comment
(A list of rating actions taken earlier in the financial crisis is available
in the appendices of this Special Comment).
As a consequence of the rating actions earlier in 2009, the ratings
of the majority of the French banks have not been affected by the refinement
of Moody's methodology. However, the completion of
Moody's recalibration exercise on French assets resulted in a few
ratings being placed on review for possible downgrade in cases where its
fine-tuned expectation of losses exceeded its earlier estimates.
Moody's expects the downgrades of the senior debt and deposit ratings
to be limited and believes that banks in highly rated countries are likely
to continue to receive support depending on their level of systemic importance.
Moody's expects the downgrades of the senior debt and deposit ratings
to be also limited. Moody's believes that banks in highly rated
countries are likely to receive support depending on their level of systemic
importance.
The banks with ratings placed on review for possible downgrade today have
key credit drivers that are vulnerable to weaker performance in their
BFSR categories, under the rating agency's anticipated (baseline)
and worse-than-expected (stressed) scenarios. Among
the key credit drivers, Moody's focuses in particular on current
capital adequacy levels in relation to the banks' specific asset composition
and their respective anticipated loss levels. The rating agency's
expected macroeconomic scenario, briefly described above,
is used to establish its baseline expectations for a bank's performance,
while its worse-than-expected case helps to measure a bank's
potential vulnerability in the event of a shift to a more adverse environment.
More specifically, the banks that are most likely to have their
BFSRs downgraded are those with lower capital adequacy levels in relation
to their exposures to asset classes with the highest expected losses,
in accordance with Moody's published assumptions in the aforementioned
Special Comment. These asset classes include, for example,
exposures to commercial loans, real estate, construction and
consumer finance.
REVIEW OF BFSRs
Moody's BFSR reviews will focus on the extent to which factors such as
more modest profitability, weaker asset quality and, in particular,
lower capital adequacy leave banks more exposed to the ongoing economic
downturn, particularly where this may also be combined with exposure
to riskier sectors, such as real estate or consumer finance.
Moody's BFSR methodology is unchanged, although the weight attached
to certain rating considerations, particularly capital and future
earnings prospects, has been increased to better reflect the effects
of the current crisis. This refinement to Moody's approach to rating
banks in the current environment is discussed in a Special Comment entitled
"Calibrating Bank Ratings in the Context of the Global Financial
Crisis", which was published in February 2009.
REVIEW OF SENIOR DEBT AND DEPOSIT RATINGS
Moody's expects the downgrades of the senior debt and deposit ratings
to be limited to one or, at most, two notches and notes that
the probability of government support continues to underpin deposit and
senior debt ratings. This is in line with the rating agency's
expectation that banks in highly rated countries will receive, or
are likely to receive, support depending on their level of systemic
importance.
In reviewing the deposit and senior debt ratings, Moody's will consider:
(i) the support currently available to the banks, as well as the
probability of support once stability returns to the markets and the system;
(ii) the systemic importance of the rated institutions;
(iii) the banks' intrinsic financial strength; and
(iv) other sources of external support, in particular group support
for the co-operative credit banks and parental support.
LIST OF RATING ACTIONS: REVIEWS FOR POSSIBLE DOWNGRADE
The rating action on BNP Paribas -- BFSR and long-term ratings
placed on review for possible downgrade -- and other BNP Paribas
subsidiaries is commented on a separate press release, published
today.
Credit Logement:
- Aa2 issuer rating on review for possible downgrade;
- Aa3 subordinate and junior subordinate ratings on review for
possible downgrade;
- A1 preferred stock ratings on review for possible downgrade;
The rating action reflects pressures on the creditworthiness of Credit
Logement's shareholders and is triggered by the rating actions on some
of its shareholders taken today and over the course of this year.
Credit Logement's shareholders - the main French credit institutions
- are indeed committed through Credit Logement's statutes and towards
the French regulator to jointly and severally maintain Credit Logement's
solvency at all times. As the leading provider of guarantees for
French non-mortgage backed residential housing loans and given
notably its shareholders' commitment to maintain its solvency and the
mutual guarantee system in place, Credit Logement is viewed by Moody's
as a relatively low credit risk institution.
The previous rating action on Credit Logement was on June 23, 2005,
when Moody's assigned a rating of Aa3 to Credit Logement EURO 1.5billion
subordinated floating rate notes.
HSBC France:
- BFSR of C on review for possible downgrade;
- Aa3 long-term deposit and senior unsecured ratings affirmed
with unchanged negative outlook;
- A1 subordinate ratings affirmed with unchanged negative outlook;
- P-1 short-term deposit rating affirmed.
The review was prompted by Moody's concerns over the potential impact
on the bank's financial fundamentals of a worse-than-expected
deterioration of the macro-economic environment. Given our
understanding of the structure of HSBC France's portfolio,
which we need to investigate further, we believe the transition
risk in a worse-than-expected scenario could potentially
be higher than initially anticipated.
The last rating action on HSBC France was in 09 March 2009 when Moody's
downgraded the BFSR to C from C+, affirmed its long-term
bank deposits ratings at Aa3 but assigned to it a negative outlook,
to reflect the deterioration of the bank's underlying profitability.
LaSer Cofinoga:
- BFSR of C+ on review for possible downgrade;
- Aa3 long-term deposit and senior unsecured ratings on
review for possible downgrade;
- A1 subordinate ratings on review for possible downgrade;
- P-1 short-term deposit rating affirmed.
Moody's recognises the steps taken so far by LaSer Cofinoga to reduce
its risks (including reducing exposure to more risky countries) and the
still satisfactory financial fundamentals. However, we expect
the cost of risk, which already significantly increased in late
FY 2008 and H1 2009, to deteriorate further as a direct consequence
of a weaker macro-economic environment, and to weigh on profitability
and ultimately potentially on capital adequacy..
Cofinoga Funding One L.P.:
- A2 Preferred Stock under review for possible downgrade;
Cofinoga Funding Two L.P.:
- A2 Preferred Stock under review for possible downgrade;
The last rating action on LaSer Cofinoga was on 16 January 2009 when a
negative outlook was assigned bank's long-term debt ratings,
as a result of a similar action on BNP Paribas' BFSR.
The ratings of other French banks are unaffected by the completion of
Moody's recalibration exercise, except for those already placed
on review for downgrade.
(Please note that this press release does not deal with possible implications
for the covered bond ratings of French banks.)
MOODY'S METHODOLOGIES
The ratings of bank subordinated capital securities are assigned in line
with Moody's existing methodology entitled "Guidelines for Rating Bank
Junior Securities", dated April 2007. Moody's notes that
it released a Request for Comment on 16 June 2009 in which it has requested
market feedback on potential changes to its rating methodology for bank
subordinated capital. If the revised methodology is implemented
as proposed, the rating on bank subordinated capital securities
may be negatively affected. Please refer to Moody's Request
for Comment, entitled "Moody's Proposed Changes to Bank Subordinated
Capital Ratings", for further details regarding the implications
of the proposed methodology changes on Moody's ratings.
The principal methodologies used in rating the issuers mentioned in this
press release are "Moody's Bank Financial Strength Ratings: Global
Methodology", published in February 2007, and "Incorporation
of Joint-Default Analysis into Moody's Bank Ratings", published
in March 2007, and 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 these issuers can also be found in
the Rating Methodologies sub-directory on Moody's website.
Credit Logement, headquartered in Paris, had total assets
of EUR11 billion as of 31 December 2008.
HSBC France, headquartered in Paris, had total assets of EUR266
billion as of 31 December 2008.
LaSer Cofinoga, headquartered in Paris, had total assets of
EUR12 billion as of 31 December 2008.
Frankfurt
Carola Schuler
Managing Director
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Paris
Stephane Le Priol
VP - Senior Credit Officer
Financial Institutions Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's reviews four French financial institutions for downgrade
