Fitch Affirms Credit Agricole at 'A'; Stable Outlook

Fri Jul 26, 2013 11:06am EDT

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(The following statement was released by the rating agency) LONDON/PARIS, July 26 (Fitch) Fitch Ratings has affirmed Credit Agricole's (CA) Long-term Issuer Default Rating (IDR) at 'A' with a Stable Outlook and Short-term IDR at 'F1'. At the same time, the agency has affirmed the Viability Rating (VR) at 'a', Support Rating Floor (SRF) at 'A' and Support Rating at '1'. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS - IDRs, VR AND SENIOR DEBT Credit Agricole's (CA) Long- and Short-Term IDRs are driven by its standalone financial strength, as indicated by its VR. CA's IDRs, senior debt and VR reflect its strong French retail franchise, solid overall asset quality, limited market risk, solid funding base and satisfactory capital ratios. It also considers the bank's modest profitability and exposure to southern Europe, particularly to Italian consumer finance. CA is not a single entity, but a cooperative banking group. Its 39 regional banks (caisses regionales; CRs) and central body (Credit Agricole S.A.; CA S.A.) benefit from a cross-support mechanism. Accordingly, Fitch has the same IDRs for CA and CA S.A. CA is focusing on the mature low-risk/low-return French retail banking activities, has reduced its ambitions in corporate and investment banking (CIB) and should no longer suffer from its international retail banking activities following the sale of its loss-making Greek subsidiary in 2012. The group has also realised an adjustment plan to reduce its funding needs and risk weighted assets. CA's Fitch Core Capital (FCC) ratio is in line with those of similarly rated peers. CA's fully loaded Basel III core equity Tier 1 ratio stood at 9.6% at end-Q113 and Fitch views its 10% target by end-2013 as achievable. RATING SENSITIVITIES - IDRs, VR AND SENIOR DEBT CA's current IDRs, senior debt and VR factor in the expectation that it will continue to focus on its core domestic retail franchise, but would be sensitive to any change in strategy. An unexpected deterioration in earnings or weakening of capital ratios could also lead to a lower VR. If the group's VR were downgraded, its Long-Term IDR (and senior debt) would remain the same unless its SRF of 'A' was also revised downwards. A significant improvement in the bank's capital position could benefit to the VR. CA S.A.'s IDRs (and senior debt) would be sensitive to any change in those of CA. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR CA's Support Rating (SR) and SRF reflect Fitch's view that it is extremely likely that support from the French authorities would be forthcoming if needed. CA is systemically important in France given its size, its position as the leading French retail bank (with roughly 25% market share of customer deposits), and its importance as core provider of credit and other key financial services to the French economy. CA S.A.'s SR and SRF reflect its integral role within CA and Fitch's opinion that potential state support to the group would flow through CA S.A. RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR CA's and CA S.A.'s SRs and SRFs would be sensitive to a decrease in Fitch's view of France's ability (as measured by its rating) or willingness to support CA. These ratings are also sensitive to a change in Fitch's assumptions around the availability of sovereign support for French financial institutions. There is a clear political intention to ultimately reduce the implicit state support for systemically important banks in Europe, 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 SRFs down in the medium term, although the timing and degree of any change would depend on ongoing developments and 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 banks. KEY RATING DRIVERS AND SENSITIVITIES - SUBSIDIARY AND AFFILIATED COMPANY Credit Agricole Corporate and Investment Bank (CACIB) is CA's largest subsidiary, accounting for close to half of CA's total assets at end-2012. It operates like a business line of CA and it is highly integrated with its parent, meaning subsidiary and parent credit profiles are highly correlated. Therefore, Fitch assigns common VRs, and hence IDRs, to CA and CACIB in accordance with its criteria 'Rating FI Subsidiaries and Holding Companies'. The Long-and Short-term IDRs and SRs of other subsidiaries - CA Consumer Finance, Credit Agricole Leasing & Factoring and Le Credit Lyonnais - are based on an extremely high probability of support from CA if needed. CACIB's, CA Consumer Finance's, Credit Agricole Leasing & Factoring's and Le Credit Lyonnais' Long-and Short-term IDRs are equalised with those of CA as we view them as core subsidiaries given their strategic importance to and integration with their parent. Union de Banques Arabes et Francaises' Long- and Short-term IDRs and SR are based on a high probability of support from CA. Its Long-term IDR is two notches below its parent's, which is a minority shareholder, because we view Union de Banques Arabes et Francaises as a strategically important subsidiary rather than a core subsidiary. All these ratings are sensitive to changes in CA's IDRs and changes in the subsidiaries' importance to the group. Credit Agricole North America, Credit Agricole CIB Finance (Guernsey) and Credit Agricole CIB Financial Products (Guernsey) are wholly owned financing subsidiaries of Credit Agricole Corporate and Investment Bank. Their debt ratings are aligned with those of Credit Agricole Corporate and Investment Bank based on an extremely high probability of support if required. The ratings are sensitive to the same factors that might drive a change in Credit Agricole Corporate and Investment Bank's IDRs. Eurofactor is a wholly owned subsidiary of Credit Agricole Leasing & Factoring whose debt ratings are aligned with those of Credit Agricole Leasing & Factoring based on an extremely high probability of support if required. Its ratings are sensitive to the same factors that might drive a change in Credit Agricole Leasing & Factoring's IDRs. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by Credit Agricole S.A., CA Preferred Funding Trust, CA Preferred Funding Trust II and CA Preferred Funding Trust III are all notched down from CA'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 CA's VR. The rating actions are as follows: Credit Agricole Long-term IDR: affirmed at 'A'; Stable Outlook Short-term IDR: affirmed at 'F1' Viability Rating: affirmed at 'a' Support Rating: affirmed at '1' Support Rating Floor: affirmed at 'A' Credit Agricole S.A. Long-term IDR: affirmed at 'A'; Stable Outlook Short-term IDR: affirmed at 'F1' Support Rating: affirmed at '1' Support Rating Floor: affirmed at 'A' Senior debt: affirmed at 'A' Short-term debt: affirmed at 'F1' Lower Tier 2: affirmed at 'A-' Upper Tier 2: affirmed at 'BBB' Innovative Tier 1: affirmed at 'BBB-' Non-Innovative Tier 1: affirmed at 'BBB-' CA Preferred Funding Trust, CA Preferred Funding Trust II, CA Preferred Funding Trust III: Preferred stock: affirmed at 'BBB-' Credit Agricole North America: Commercial paper: affirmed at 'F1' Credit Agricole Corporate and Investment Bank: Long-term IDR: affirmed at 'A'; Stable Outlook Short-term IDR: affirmed at 'F1' Viability Rating: assigned at 'a' Support Rating affirmed at '1' Senior debt: affirmed at 'A' Senior debt: 'AAA(tha)'; unaffected Market-linked securities: affirmed at 'Aemr' Short-term debt: affirmed at 'F1' Credit Agricole CIB Finance (Guernsey): Senior debt: affirmed at 'A' Market-linked guaranteed securities: affirmed at 'Aemr' Guaranteed Notes: affirmed at 'A' Short-term debt: affirmed at 'F1' Credit Agricole CIB Financial Products (Guernsey): Senior debt: affirmed at 'A' Senior guaranteed securities: affirmed at 'A' Market-linked guaranteed securities: affirmed at 'Aemr' Short-term debt: affirmed at 'F1' Credit Agricole Corporate and Investment Bank (South Africa Branch): Long-term senior debt: affirmed at 'AAA(zaf)' CA Consumer Finance: Long-term IDR: affirmed at 'A'; Stable Outlook Short-term IDR: affirmed at 'F1' Support Rating: affirmed at '1' Senior debt: affirmed at 'A' Short-term debt: affirmed at 'F1' Credit Agricole Leasing & Factoring: Long-term IDR: affirmed at 'A'; Stable Outlook Short-term IDR: affirmed at 'F1' Support Rating: affirmed at '1' Eurofactor Certificate of Deposit: affirmed at 'F1' Le Credit Lyonnais (LCL): Long-term IDR: affirmed at 'A'; Stable Outlook Short-term IDR: affirmed at 'F1 'Viability Rating: 'a-' unaffected Support Rating: affirmed at '1' Certificates of Deposit: affirmed at 'F1' "Bons a Moyen Terme Negociables" (BMTN): affirmed at 'A' Union de Banques Arabes et Francaises: Long-term IDR: affirmed at 'BBB+' ; Stable Outlook Short-term IDR: affirmed at 'F2' Viability Rating: 'bbb-' unaffected Support Rating: affirmed at '2' Certificates of Deposit: affirmed at 'F2' Contact: Primary Analyst (Credit Agricole, Credit Agricole Corporate and Investment Bank, CA Consumer Finance, Credit Agricole Leasing & Factoring) Alain Branchey Senior Director +33 1 44 29 91 41 Fitch France S.A.S 60 rue de Monceau 75008 Paris Primary Analyst (Le Credit Lyonnais, Union de Banques Arabes et Francaises) Sonia Trabelsi Director +33 1 44 29 91 42 Fitch France S.A.S 60 rue de Monceau 75008 Paris Secondary Analyst (CA Consumer Finance, Credit Agricole Leasing & Factoring, Le Credit Lyonnais) Solena Gloaguen Director +44 20 3530 1126 Secondary Analyst (Credit Agricole, Credit Agricole Corporate and Investment Bank) Sonia Trabelsi Director +33 1 44 29 91 42 Secondary Analyst (Union de Banques Arabes et Francaises) Keranka Dimitrova Associate Director +44 20 3530 1223 Committee Chairperson Michael Dawson-Kropf Senior Director + 49 69 7680 76113 Additional information is available at www.fitchratings.com. Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15 August 2012; 'Rating FI Subsidiaries and Holding Companies' dated 10 August 2012; 'Rating Criteria for Banking Structures Backed by Mutual Support Mechanisms' dated 20 December 2012; 'Assessing and Rating Bank Subordinated and Hybrid Securities', dated 5 December 2012; 'Evaluating Corporate Governance', dated 12 December 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Rating FI Subsidiaries and Holding Companies here Rating Criteria for Banking Structures Backed by Mutual Support Mechanisms here Assessing and Rating Bank Subordinated and Hybrid Securities here Evaluating Corporate Governance 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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