Fitch Affirms Societe Generale at 'A+'; Outlook Negative

Thu May 16, 2013 4:17pm EDT

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(The following statement was released by the rating agency) LONDON/PARIS, May 16 (Fitch) Fitch Ratings has affirmed Societe Generale's (SG) Long-term Issuer Default Rating (IDR) at 'A+' with a Negative Outlook and Short-term IDR at 'F1+'. At the same time, the agency has affirmed the Viability Rating (VR) at 'a-', Support Rating Floor at 'A+' and Support Rating at '1'. A full list of rating actions is at the end of this rating action commentary. The rating actions have been taken in conjunction with Fitch's Global Trading and Universal Bank (GTUB) periodic review. Fitch's outlook for the sector is stable. Positive rating drivers include improved liquidity, funding, capitalisation and more streamlined businesses, all partly driven by regulation. Offsetting these positive drivers are substantial earnings pressure, regulatory uncertainty and heightened legal and operational risks. KEY RATING DRIVERS - IDRS, SENIOR DEBT, SUPPORT RATING AND SUPPORT RATING FLOOR SG's Long- and Short-term IDRs, Support Rating, Support Rating Floor and senior debt ratings continue to reflect potential support from France ('AAA'/Negative), if required, and the Long-term IDR is at the same level as its Support Rating Floor. The Negative Outlook on SG's Long-term IDR reflects that on France's Long-term IDR. RATING SENSITIVITIES - IDRS, SENIOR DEBT, SUPPORT RATING AND SUPPORT RATING FLOOR The Long- and Short-term IDRs, Support Rating, Support Rating Floor and senior debt ratings are sensitive to a decrease in France's ability (as measured by its rating) and willingness to support SG. A downgrade of France's Long-term IDR by one notch (to 'AA+') would lead to a downgrade of SG's Support Rating Floor, Long-term IDR and senior debt rating to 'A' and Short-term IDR to 'F1'. The IDRs, Support Rating and Support Rating Floor are also sensitive to a change in Fitch's assumptions around the availability of sovereign support for French banks. There is a clear political intention to ultimately reduce the implicit state support for systemically important banks in Europe and the US, as demonstrated by a series of policy and regulatory initiatives aimed at curbing systemic risk posed by the banking industry. This might result in Fitch revising Support Rating Floors downwards in the medium term, although the timing and degree of any change would depend on developments with respect to specific jurisdictions. In this context, Fitch is paying close attention to ongoing policy discussions around support and 'bail in' for eurozone banks. Until now, senior creditors in major global banks have been supported in full, but resolution legislation is developing quickly and the implementation of creditor "bail-in" is starting to make it look more feasible for taxpayers and creditors to share the burden of supporting large, complex banks. KEY RATING DRIVERS - VR SG's VR benefits from its solid and well-performing franchise in French retail and commercial banking and its leading global franchise in equity derivatives. However, the VR also factors in challenges around a somewhat fragmented business mix and underperformance in CEE/Russia as well as earnings volatility from corporate and investment banking (CIB) business. Further negative VR drivers include a high gross impaired loans ratio and a smaller liquidity buffer than at other GTUBs. Counterbalancing these, a key driver for the VR is management's focus on strengthening its balance sheet in terms of both liquidity and capital. RATING SENSITIVITIES - VR The bank's VR could be downgraded if performance in international retail banking fails to improve and contribute to material earnings diversification. This could arise from significant erosion in asset quality in CEE/Russia or from an inability to increase earnings generation. In CIB, SG is showing some success in expanding its eurobond activity and has established itself as a leading player in the euro corporate bond market, where it has natural synergies with its large French corporate customer base. Its VR is sensitive to its sustaining this success, while managing risk appropriately so as not to be caught by any hike in impairment charges. Moreover, negative pressure on the VR could come if the bank were to add to the fragmentation of its business mix and indicate a lack of strategic focus, for example by making a significant opportunistic acquisition that did not fit with one if its core businesses. The VR is also sensitive to SG continuing to strengthen capitalisation and liquidity. Fitch does not expect to upgrade SG's VR in the near term. KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by SG and SG Capital Trust III are all notched down from SG's VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably. Their ratings are primarily sensitive to any change in SG's VR. KEY RATING DRIVERS AND SENSITIVITIES - SUBSIDIARY AND AFFILIATED COMPANY Societe Generale Acceptance N.V., SG Option Europe and SG Structured Products Inc. are wholly owned financing subsidiaries of SG whose debt ratings are aligned with that of SG based on an extremely high probability of support if required and whose ratings are sensitive to the same factors that might drive a change in SG's IDR. The rating actions are as follows: Societe Generale Long-term IDR: affirmed at 'A+'; Outlook Negative Short-term IDR: affirmed at 'F1+' Viability Rating: affirmed at 'a-' Support Rating: affirmed at '1' Support Rating Floor: affirmed at 'A+' Commercial paper: affirmed at 'F1+' Senior unsecured debt: affirmed at 'A+'/'F1+' Short-term debt: affirmed at 'F1+' Lower Tier 2 notes: affirmed at 'BBB+' Upper Tier 2 notes: affirmed at 'BBB-' Hybrid capital instruments: affirmed at 'BB+' Societe Generale Acceptance N.V. Market-linked guaranteed notes: affirmed at 'A+emr' Senior notes: affirmed at 'A+'/'F1+' Senior guaranteed notes: affirmed at 'A+' SG Option Europe Market-linked guaranteed notes: affirmed at 'A+emr' Senior notes: affirmed at 'A+'/'F1+' SG Capital Trust III Preferred stock: affirmed at 'BB+' SG Structured Products Inc. Senior notes: affirmed at 'A+' Contact: Primary Analyst Alain Branchey Senior Director +33 (0) 1 44 29 91 41 Fitch France S.A.S 60 rue de Monceau, 75008 Paris Secondary Analyst Francois-Xavier Marchand Associate Director +33 1 44 29 91 46 Committee Chairperson Gordon Scott Managing Director +44 203 530 1075 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15 August 2012; 'Evaluating Corporate Governance', dated 12 December 2012 and 'Assessing and Rating Bank Subordinated and Hybrid Securities' dated 5 December 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research Global Financial Institutions Rating Criteria here Evaluating Corporate Governance here Assessing and Rating Bank Subordinated and Hybrid Securities here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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