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Rating Action:

Moody's upgrades Credit Mutuel Arkea's long-term deposit rating to Aa2

30 Jun 2015

Rating action concludes methodology-related review

Paris, June 30, 2015 -- Moody's Investors Service has today concluded its rating review on Credit Mutuel Arkea (CMA). This review was initiated on 17 March (see press release at https://www.moodys.com/research/--PR_321005) following the publication of the agency's new bank rating methodology (see "Banks," published on 16 March 2015, available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_179038).

Moody's upgraded CMA's long-term deposit rating to Aa2 from Aa3. The bank's short-term deposit rating was affirmed at Prime-1. Moody's upgraded CMA's Baseline Credit Assessment (BCA) to baa1 from baa3, and its adjusted BCA to a2 from a3. The long-term deposit rating carries a negative outlook, reflecting a potential downgrade in the event of a downgrade of the government of France (Aa1 negative).

Concurrently, Moody's assigned a long and short-term Counterparty Risk Assessment (CR Assessment) of Aa1(cr)/Prime-1(cr) to CMA.

RATINGS RATIONALE

--UPGRADE OF ADJUSTED BCA

The substantial improvements in liquidity and funding that the main operating sub-groups -- including Credit Mutuel Arkea -- of Groupe Credit Mutuel (unrated) have achieved over the past two years -- increasing customer deposits and lengthening the term structure of their wholesale funding -- prompted the upgrade of CMA's adjusted BCA to a2. The upgrade was also underpinned by the incorporation in the adjusted BCA of (1) the relatively stable nature of Groupe Credit Mutuel's consolidated profits over the past six years, reflecting its resilient earnings and low-risk profile based on a domestic and robust bancassurance-focused franchise; and (2) its ability to retain the majority of these profits to consistently increase its capital base, which the cooperative structure allows. The adjusted BCA of a2 is also underpinned by Groupe Credit Mutuel's sound asset quality and the high solvency it has managed to preserve while achieving reasonable business growth.

CMA is the central entity of the Credit Mutuel Arkea group (CMA group), which also comprises three regional federations of the wider Groupe Credit Mutuel. It also acts as the CMA group's refinancing vehicle and holding company for the CMA group's subsidiaries that are out of the scope of the solidarity mechanism. Notwithstanding these exclusions, CMA is an integral part of the cooperative solidarity mechanisms of Groupe Credit Mutuel, which are enshrined in law. As such, Groupe Credit Mutuel group's central body (Confederation Nationale du Credit Mutuel) assumes legal responsibility for CMA's solvency and liquidity. This strong commitment from the group's central body is reflected in Moody's assumption of affiliate-backed support for CMA from Groupe Credit Mutuel.

--UPGRADE OF CMA'S STANDALONE BCA

The upgrade of CMA's BCA to baa1 primarily reflects the institution's substantial improvement in its funding structure over the past three years through a material increase in customer deposits, and further improvement in solvency. The BCA reflects CMA's (1) high solvency; (2) good asset quality underpinned by its retail bancassurance-focused business and resilient franchise in the regions where it operates; and (3) its sound liquidity and funding position.

--UPGRADE OF LONG-TERM DEPOSIT RATING

Moody's upgrade of CMA's long-term deposit rating to Aa2 results from (1) its adjusted BCA of a2; (2) two notches of uplift under the Advanced Loss Given Failure (LGF) analysis stemming from Groupe Credit Mutuel's significant volume of senior debt and junior deposits; and (3) a one-notch uplift for government support reflecting a "moderate" probability of such support.

The negative outlook reflects the negative outlook on the Aa1 rating of the government of France and the fact that CMA's deposit rating could be downgraded if the sovereign rating is downgraded.

ASSIGNMENT OF COUNTERPARTY RISK ASSESSMENT

As part of today's rating action, Moody's has assigned a CR Assessment to CMA. CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails, and are distinct from debt and deposit ratings in that they (1) consider only the risk of default rather than both the likelihood of default and the expected financial loss incurred in the event of default; and (2) apply to counterparty obligations and contractual commitments rather than debt or deposit instruments. The CR Assessment is an opinion of the counterparty risk related to a bank's covered bonds, contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities.

Moody's CR Assessments for banks subject to a going-concern operational resolution regime, which includes CMA, start with the banks' adjusted BCA and use an advanced LGF approach that takes into account the volume of liabilities subordinated to counterparty obligations in the bank's liability structure as well as any assumption of government support. As a result, the CR Assessment is one notch higher than the deposit rating for CMA, at Aa1(cr)/Prime-1(cr).

WHAT COULD CHANGE THE RATINGS UP/DOWN

CMA's adjusted BCA is already at the higher end of banks' BCAs globally, making any further upgrades unlikely. However, it could be upgraded if Groupe Credit Mutuel's makes material improvements in its solvency, asset quality, profitability and liquidity, although Moody's does not expect this in the medium term.

CMA's deposit rating could be upgraded if (1) its adjusted BCAs is upgraded; or (2) if Groupe Credit Mutuel's liability structure results in a lower loss-given-failure for deposits through a material increase in subordinated liabilities. An upgrade of CMA's BCA of baa1 will likely not trigger an upgrade of its deposit rating because it is currently lower than its adjusted BCA.

The main factors that would exert negative pressure on the bank's adjusted BCA include (1) a material weakening of Groupe Credit Mutuel's underlying profitability, chiefly as a result of asset-quality deterioration or a structural increase in the cost of funding; or (2) a weakening liquidity position or funding profile.

CMA's deposit rating could be downgraded as a result of (1) a deterioration of the standalone financial strength of Groupe Credit Mutuel, resulting in a lower adjusted BCA; or (2) Groupe Credit Mutuel's liability structure resulting in higher loss-given failure for deposits through a lower volume of deposits or reduced subordination; or (3) a downgrade of France's government bond rating.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 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 rating action, and whose ratings may change as a result of this 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.

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person that paid Moody's to determine this credit rating.

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.

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

Nicholas Hill
Managing Director
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 upgrades Credit Mutuel Arkea's long-term deposit rating to Aa2
No Related Data.
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