Credit Agricole S.A.'s baseline credit assessment (BCA) and adjusted BCA are upgraded to baa3 and baa1, respectively
London, 19 July 2016 -- Moody's Investors Service has today upgraded the long-term
debt and deposit ratings of Credit Agricole S.A. (CASA)
and Credit Agricole Corporate and Investment Bank (CACIB) to A1 from A2,
and revised their outlooks to stable from positive. Moody's
also affirmed CASA's and CACIB's short-term ratings
at Prime-1.
Moody's upgraded CASA's baseline credit assessment (BCA) to
baa3 from ba1 and its adjusted BCA, which reflects Groupe Credit
Agricole's (GCA; unrated) credit strength, to baa1 from
baa2. These upgrades reflect improvements at both GCA and CASA
itself, particularly in asset risk and profitability. Concurrently,
CACIB's BCA was affirmed at ba2.
Moody's has also upgraded the ratings of all subordinated and hybrid
debt instruments issued by CASA and its backed subsidiaries by one notch.
Lastly, the long-term Counterparty Risk (CR) Assessments
of CASA and CACIB were upgraded to Aa3(cr) from A1(cr), while its
short-term CR Assessments were affirmed at Prime-1(cr).
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_191183
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_191183
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Methodology Used
UPGRADES REFLECT THE GROUP'S IMPROVED FUNDAMENTALS
The upgrade of CASA's BCA and adjusted BCA was driven by material
improvements in the financial strength of both GCA and CASA itself,
as well as expectations of further improvements in capitalisation,
despite Moody's view that the bank will operate in a difficult and
uncertain economic and regulatory environment.
As a result of the internal support mechanisms prevailing with the Credit
Agricole cooperative group, CASA's adjusted BCA is driven
by the analysis of the group on a consolidated basis, whereas its
BCA reflects its weaker overall credit fundamentals relative to those
of the group, in particular solvency, and its less retail-oriented
business focus. CACIB's adjusted BCA of baa1, equivalent
to CASA's adjusted BCA, is also driven by GCA's credit
strength.
CASA's asset quality has strengthened, largely thanks to the
reduction of credit issues in Italy, and its cost of risk fell to
39 basis points (bps) of outstanding loans in the twelve months ending
March 2016 from 51 bps a year earlier, while GCA's cost of
risk was only 28 bps in the same period versus 34 bps a year earlier.
This compares favourably to the average cost of risk of the French banking
system, which was 40 bps in 2015.
In addition, GCA reported a common equity tier one (CET1) ratio
of 13.9% on a fully-loaded basis as of end-March
2016, an improvement of 1.0 percentage points, placing
GCA's capitalisation at the high end of peers in France.
Moody's expects GCA to retain more than three-quarters of
its earnings and increase its CET1 ratio by close to one percentage point
every year. In Moody's opinion, high capital accretion
at GCA level makes the group's objective of a 16% CET1 ratio by
2019 achievable, unless regulatory changes are more stringent than
currently contemplated. Although capitalisation is not a strength
at this level of the group, CASA's CET1 ratio also improved
to 11% as of end-March 2016, pro forma for the transfer
of CASA's 25% stake in the Caisses Regionales de Credit Agricole
Mutuel (the "CRCAMs" or "regional banks").
CASA will effectively transfer its participation to a new vehicle entirely
owned by the CRCAMs themselves in the third quarter of 2016.
CASA and GCA's profitability has rebounded sharply on the back of
lower credit losses since year-end 2014, bringing reported
profits closer to underlying earnings power and in line with its peers.
Moody's expects the group's retail-focused activities
in France to generate stable and sustainable returns, despite protracted
low interest rates eroding net interest margins. International
operations ceased to weigh on profitability, in particular in Italy,
thanks to the provisioning of credit issues and improved risk management
practices. Cassa Di Risparmio Di Parma E Piacenza S.P.A.
(Cariparma, deposits and senior debt A3/A3 stable, BCA ba1;
ratings unaffected), CASA's retail bank in Italy, saw
its cost of risk fall to 113 bps in the twelve months ending March 2016
from 140 bps in full year 2014. In the meantime, the consumer
finance division also reported a declining cost of risk, at 140
bps in the twelve months ending March 2016 ccompared to 264 bps in full
year 2014, due to the sharp decrease of loan losses at Agos,
CASA's consumer finance unit in Italy. Overall, the
group should exhibit lower earnings volatility than in the past,
despite possible credit costs linked to exposures to troubled industries,
for instance in the energy and shipping sectors.
Despite significant wholesale funding needs, Moody's considers
GCA's funding structure as satisfactory in view of (1) the EUR 114
billion of long-term stable surplus reported by the group (long-term
stable resources less long-term assets) at end-March 2016,
illustrating the long term maturity of the majority of wholesale funding;
(2) the very strong geographic and product diversification of its funding
sources; and (3) its proven capacity to make private placements via
the retail networks and the structured notes market via CACIB.
In addition, GCA's liquidity is good in Moody's opinion,
as illustrated by the ratio of liquidity reserves to short-term
debt of 261% at end-March 2016.
The upgrade of the long-term deposit and senior unsecured ratings
to A1 from A2 was prompted by the upgrade of CASA's adjusted BCA.
These ratings are underpinned by (1) CASA's adjusted BCA; (2)
the application of Moody's Advanced Loss Given Failure (LGF) analysis,
resulting in a two-notch uplift from the adjusted BCA of baa1,
given the significant volumes of senior debt and junior deposits and resulting
in very low loss-given-failure for these instruments;
and (3) government support uplift of one notch, reflecting a moderate
probability of support.
The upgrade of the long-term CR Assessments follows the upgrade
of CASA's adjusted BCA to baa1. The CR Assessments of Aa3(cr)
are four notches above the Adjusted BCA, reflecting the substantial
volume of bail-in-able liabilities protecting operating
obligations as well as a moderate probability of government support.
RATIONALE FOR THE STABLE OUTLOOK
Moody's has assigned a stable outlook to CASA's A1 long-term
debt and deposit ratings in reflection of the group's diversified
and stable sources of retail-oriented earnings and its capacity
to retain the vast majority of its earnings to build capital buffers.
These factors counterbalance the profitability headwinds stemming from
the low interest rate environment and provide an effective "shock
absorber" against unexpectedly rising credit costs.
WHAT COULD CHANGE THE RATING -- UP/DOWN
An upgrade of CASA's adjusted BCA could occur if (1) the bank achieves
a longer track record of stable and sustainable profits, in line
with a low risk profile; and (2) GCA's capital metrics were
to improve significantly above the objectives currently set by the bank.
This would likely result in an upgrade of CASA's long-term
ratings.
CASA's BCA and adjusted BCA could be downgraded because of (1) a
significant deterioration in asset quality, driven for instance
by the energy or shipping sectors; (2) stronger-than-expected
erosion of revenues linked to declining net interest margins; or
(3) negative developments in the bank's capital or liquidity.
A downgrade in CASA's BCA and adjusted BCA would likely result in
a downgrade of the bank's long-term ratings. The bank's
long-term ratings could also be downgraded as a result of an increase
in loss-given-failure, should senior debt and deposits
account for a significantly smaller share of the bank's overall liability
structure, or benefit from lower subordination than is currently
the case.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_191183
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Releasing Office
• Person Approving the Credit Rating
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 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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. On
this basis Credit Agricole S.A. or their agents are considered
to be participating entities. These rated entities or their agents
generally provide Moody's with information for their ratings process.
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
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 Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's upgrades long-term ratings of Credit Agricole S.A. and CACIB to A1; stable outlook
