Fitch Downgrades Italian Subsidiaries of French Banks

Thu Jul 18, 2013 12:32pm EDT

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(The following statement was released by the rating agency) MILAN/LONDON, July 18 (Fitch) Fitch Ratings has downgraded three Italian subsidiaries of French banks, following the downgrade of their parents' Long-Term Issuer Default Ratings (IDRs). Credit Agricole's (CA) Italian subsidiaries, car finance company FGA Capital S.p.A.'s (FGAC) and consumer lender Agos Ducato S.p.A.'s (Agos) Long-term Issuer Default Ratings (IDR) have been downgraded to 'BBB-' from 'BBB' and 'BBB+' from 'A-', respectively, following the downgrade of CA and its subsidiary CA Consumer Finance's (CACF) Long-term IDRs to 'A'/Stable from 'A+'/Negative. The Outlooks on FGAC and Agos are now Stable, in line with the Outlook on CA and CACF. Dexia Crediop's (Crediop) Long-term IDR has been downgraded to 'BBB' from 'BBB+' following the downgrade of Dexia's and Dexia Credit Local's (DCL) Long-term IDR to A/Stable from 'A+'/Negative. The Outlook on Crediop's Long-term IDR remains Negative. A full list of rating actions is at the end of this rating action commentary. Fitch downgraded CA, CACF and DCL on 17 July 2013 ('Fitch Downgrades Major French Banks' and 'Fitch Downgrades Major French Banks' Related Entities' available on www.fitchratings.com) as a result of the downgrade of France's sovereign rating to 'AA+/Stable. The downgrades of FGAC's, Agos's and Crediop's ratings reflects Fitch's view that the ability of their respective main shareholders to provide support has weakened, as reflected in the downgrade of their parents' IDRs. Fitch has maintained the existing notching between the Long-term IDRs of Agos, FGAC and Crediop and their respective parents. This reflects Fitch's opinion that the strategic importance of Agos, FGAC and Crediop has remained unchanged following the downgrades of their parents' IDRs. KEY RATING DRIVERS - IDRS, SENIOR DEBT AND SUPPORT RATING Agos's IDRs and Support Rating are driven by support from its majority shareholder, CACF, and ultimately from CA. The two-notch difference between the Long-term IDRs of Agos and CACF reflects it being majority, but not fully owned by CACF as well as Fitch's view that Agos is a strategically important subsidiary in a strategically important country for the CA group. CACF's propensity to support Agos was demonstrated in 2013 and 2012 when CACF participated in Agos's capital increases of EUR240m and EUR235m, respectively, together with the company's other shareholder, Banco Popolare. FGAC's IDRs, senior debt and Support Rating are based on potential support from CA, which holds a 50% stake in FGAC through its consumer finance subsidiary CACF. The four-notch difference between the Long-term IDRs of FGAC and CACF reflects its 50%/50% ownership structure and Fitch's view of its more limited strategic importance to the CA group compared with Agos. FGAC's funding and liquidity benefit from the joint venture agreement under which CA undertakes to cover the company's funding and liquidity needs through CACF. FGAC carries out Fiat Group Automobile, Chrysler group, Jaguar and Land Rover retail, dealer financing and car rental activities in 14 European countries. Crediop's IDRs and Support Rating are based on support from its majority owner Dexia, which holds a 70% stake in Crediop through its French subsidiary, DCL. Dexia's IDRs are based on support from the French and Belgian authorities. Consequently, Crediop's IDRs ultimately reflect support from the French and Belgian states. The three-notch difference between the Long-term IDRs of Crediop and DCL reflects Fitch's opinion that Crediop's strategic importance for Dexia is limited and could decline over time. The Negative Outlook mirrors the Negative Outlook on Italy's sovereign ratings as Crediop's business is focussed on Italian public sector lending. The agency believes that Crediop's strategic importance for its parent is limited as Dexia and DCL are in an orderly run-down and rely on extraordinary support from central banks and sovereigns for its funding. RATING SENSITIVITIES - IDRS, SENIOR DEBT AND SUPPORT RATING Agos's ratings are sensitive to changes in CA's and CACF's propensity and ability to provide support. The ratings would come under further pressure if Italy became a less strategically important market for CA, which could arise if the operating environment in Italy materially deteriorated. This could be reflected, for example, in a downgrade of the Italian sovereign rating. A downgrade of CA's and CACF's Long-term IDRs, could also result in a downgrade of Agos's Long-term IDR as it would reflect a weakening of their ability to support a strategically important subsidiary. FGAC's ratings are also sensitive to changes in CA's and CACF's propensity and ability to provide support. Pressure on FGAC's ratings might also arise if CACF reduced its stake in FGAC, exited the joint venture agreement - which Fitch currently does not expect - or if the terms of the joint venture agreement were changed and resulted in the agency considering timely and full support from the CA group less likely. The ratings would also come under pressure if CA's or CACF's ability to support FGAC, as indicated by its Long-term IDR, deteriorated further. An upgrade of FGAC's and Agos's ratings is considered unlikely as this would depend on an upgrade of CA's IDRs, which is not Fitch's base case. The Outlooks on FGAC and Agos are linked to that on CA and are likely to move in tandem with it provided that the strategic importance of FGAC and Agos for CA remains unchanged. Crediop's IDRs are sensitive to changes in Dexia's and DCL's propensity and ability to provide support to Crediop. A further downgrade of Dexia's or DCL's Long-term IDR would likely result in a downgrade of Crediop. Crediop's Long-term IDR is also sensitive to Italy's sovereign rating as Fitch believes there is a high level of correlation between Crediop's risk and Italian sovereign risk. The rating actions are as follows: FGAC Long-term IDR: downgraded to 'BBB-' from 'BBB'; Outlook Stable Short-term IDR: affirmed at 'F3' Support Rating: affirmed at '2' Senior unsecured debt rating: downgraded to 'BBB-' from 'BBB' Agos Long-term IDR: downgraded to 'BBB+' from 'A-'; Outlook Stable Short-term IDR: downgraded to 'F2' from 'F1' Support Rating: downgraded to '2' from '1' Crediop Long-term IDR downgraded to 'BBB' from 'BBB+', Negative Outlook Short-term IDR: downgraded to 'F3' from 'F2' Viability Rating: 'ccc'; unaffected Support Rating: affirmed at '2' Contact: Primary Analyst (FGAC and Agos) Francesca Vasciminno Senior Director +39 02 87 90 87 225 Fitch Italia S.p.A. Vicolo Santa Maria alla Porta, 1 20123 Milano Primary Analyst (Crediop) Christian Scarafia Senior Director +39 02 87 90 87 212 Fitch Italia S.p.A. Vicolo Santa Maria alla Porta, 1 20123 Milano Secondary Analyst (FGAC, Crediop) Alessandro Musto Associate Director +39 02 87 90 87 201 Secondary Analyst (Agos) Fabio Ianno Associate Director +44 20 3530 1232 Committee Chairperson Janine Dow Senior Director +44 20 3530 1464 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria 'Global Financial Institutions Rating Criteria' dated 15 August 2012, 'Evaluating Corporate Governance' dated 12 December 2012, 'Finance and Leasing Companies Rating Criteria' dated 11 December 2012, 'Rating Financial Institutions Above the Sovereign', dated 11 December 2012 and 'Rating FI Subsidiaries and Holding Companies' dated 10 August 2012 are available on www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Evaluating Corporate Governance here Finance and Leasing Companies Criteria here Rating Financial Institutions Above the Sovereign here Rating FI Subsidiaries and Holding Companies 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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