Fitch: Fortis Unit Deal Benefits BNP Paribas and Belgian State

Tue Nov 19, 2013 12:02pm EST

PARIS/LONDON, November 19 (Fitch) Last week's agreement for BNP Paribas (BNPP) to buy Belgium's 25% stake in its BNP Paribas Fortis subsidiary has benefits for both the French bank and the Belgian state, Fitch Ratings says. It simplifies BNPP's group structure while continuing to enhance earnings, and reduces public debt for Belgium. BNPP's earnings already benefit from its majority ownership of BNP Paribas Fortis. The bank says the deal is likely to be accretive to earnings per share in 2013. It estimated synergies from the 75% majority stake at EUR1.5bn in 2012, largely owing to rationalisation of IT systems, and there were additional revenues as BNPP's products were rolled out to BNP Paribas Fortis clients. These have continued into 2013. BNPP has also benefitted from the positive amortisation of fair-value adjustments related to the BNP Paribas Fortis acquisition (total adjustments of EUR6.8bn at purchase), but this is no longer material in 2013. The deal would be neutral to BNPP's 'A+' rating. There would also be no change to the ratings of BNP Paribas Fortis, which are already equalised with those of BNPP, as we view it as a core subsidiary and expect support to be forthcoming from the parent rather than the Belgian authorities. Belgium and Luxembourg are part of the group's core retail franchise and the original acquisition of BNP Paribas Fortis in 2009 has strengthened the customer base and been financially beneficial. BNPP's solid capitalisation gives it the flexibility to expand its franchise and seize growth opportunities. Its fully loaded Basel III common equity ratio of 10.8% at end-3Q13 exceeded management's target and compares well with its domestic and international peers. The purchase will lower this ratio by around 50bp, which is manageable. The deal will facilitate any further transfer of assets and businesses between BNPP and its subsidiary. The disengagement of the Belgian authorities is a sign that banking sector risks are receding in the country, although they are still high. The EUR3.25bn transaction should generate a capital gain of around EUR900m for the Belgian state and reduce 2013 debt by around 0.9% of GDP. However, weaker inflationary pressures in 2013-2014 and slower fiscal consolidation than previously envisaged has led us to extend our public debt peak estimate of 100% of GDP to 2014, from 2013. We believe public debt dynamics remain within the tolerance of the 'AA' sovereign rating, which we affirmed today. The Belgian state remains a major shareholder of BNP Paribas (10.3% of the group). Contact: Alain Branchey Senior Director Financial Institutions +33 1 44 29 91 41 Fitch France S.A.S. 60 rue du Monceau 75008 Paris Michele Napolitano Director Sovereigns +44 20 3530 1536 Cynthia Chan Senior Director Fitch Wire +44 20 3530 1655 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. 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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