Fitch Affirms Banque Pictet at 'AA-' on Legal Structure Change

Thu Jan 9, 2014 9:35am EST

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(The following statement was released by the rating agency) LONDON, January 09 (Fitch) Fitch Ratings has affirmed Banque Pictet & Cie SA's (Banque Pictet) Long-term Issuer Default Rating (IDR) at 'AA-' with a Stable Outlook. Banque Pictet is the legal successor of Pictet & Cie. A full list of rating actions is at the end of this rating action commentary. The affirmation follows a change in the legal structure of the Pictet group effective 1 January 2014 whereby Pictet has transformed its unlimited liability partnership (Geneva-based Pictet & Cie) into a limited liability bank (societe anonyme; SA) and created an unlimited liability holding company (societe en commandite par actions; Pictet & Cie Group SCA; Pictet SCA) as sole owner of the operating bank. Pictet's current partners will remain the sole indirect owners of Banque Pictet through Pictet SCA. A supervisory board for Banque Pictet and a monitoring board (organe de controle) for Pictet SCA with independent members have been established. Pictet SCA, which consolidates most of Pictet's non-bank and bank subsidiaries (including Banque Pictet), will be supervised together with other Pictet financial entities on a consolidated basis by the Swiss banking regulator, FINMA, which also separately supervises Banque Pictet. KEY RATING DRIVERS - VIABILITY RATING (VR) AND IDRs Banque Pictet SA's VR and IDRs reflect the bank's intrinsic creditworthiness and also factor in Fitch's assumptions that liquidity and capital will remain fungible among the various Pictet financial companies for the foreseeable future, despite the change in legal form. Banque Pictet's ratings reflect the bank's core importance for Pictet, its strong and profitable wealth management franchise, its low risk appetite, strong balance sheet, solid funding and liquidity profile and solid capitalisation. The ratings also take into account regulatory pressure on the Swiss private banking industry as well as cyclical earnings pressure on the wealth management industry in general from the low interest rate environment, sluggish market developments and low risk appetite. However, due to their size, diversification and low overall risk profile, Pictet and Banque Pictet are, in Fitch's view, better placed than most peers to face these challenges. The Stable Outlook on Banque Pictet's Long-term IDR reflects Fitch's expectation that Banque Pictet will continue to generate stable and adequate profitability while avoiding significant operational or reputational losses. RATING SENSITIVITIES - VR AND IDRs Banque Pictet's VR and IDRs are sensitive to potentially sizeable litigation or operational losses in the context of the ever-tighter regulated wealth management industry although Fitch considers the occurrence of such losses unlikely. An increasing balance sheet risk appetite, also considered unlikely, or an inability to adjust its cost base to the currently difficult operating environment, could also put the ratings under pressure. In the short term, Banque Pictet's ratings are sensitive to the outcome of a US Department of Justice (DoJ) inquiry into Pictet's US off-shore client base. Banque Pictet's ratings are based on Fitch's assumption that any settlement with the DoJ will be of a manageable size and would be absorbed by Pictet's and Banque Pictet's underlying profitability. Should the outcome be worse than expected by Fitch, affecting Banque Pictet's capitalisation, or should the US authorities take more drastic action against Pictet, this would likely have negative rating implications. Moreover, Banque Pictet's ratings are also sensitive to any declining degree of integration into Pictet, which Fitch does not anticipate. While from 1 January 2014, new creditors of Banque Pictet will no longer have direct recourse to Pictet's partners, Fitch expects the partners to remain fully committed to Banque Pictet in the long term. Should Fitch conclude that the bank's risk appetite and risk exposure are no longer aligned with Pictet's as a whole, then this could be negative for Banque Pictet's ratings. In addition, with the unlimited liability no longer in place at Banque Pictet, the relative financial profiles of Pictet's operating entities within the group as well as the fungibility of capital and liquidity will become an increasingly important part of Fitch's analysis. Given the already high ratings compared with peers and challenges facing the sector, ratings upside potential for Banque Pictet is limited. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR (SRF) The bank's Support Rating and SRF reflect Fitch's view that sovereign support for Banque Pictet, while possible, cannot be relied upon. Banque Pictet caters for an affluent international client base and does not have a retail deposit franchise in Switzerland. In case of need, support from within the Swiss private banking sector and/or the Swiss banking industry in general might be possible but has not been factored into Fitch's support-driven ratings. In addition, Banque Pictet might receive funding and capital support from Pictet's partners' private wealth. Again, this potential support has not been included in the ratings as such support would be difficult to quantify. RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR Given Banque Pictet's business model, any change in its Support Rating and SRF is highly unlikely. Banque Pictet is Pictet SCA's main bank subsidiary, consolidating the bulk of its global private banking activities. Other sizeable subsidiaries of Pictet SCA include its Luxembourg-based private bank (Pictet & Cie (EU) SA) and its asset management activities (Pictet Asset Management Holding SA; PAM Holding). The rating actions are as follows: Banque Pictet & Cie SA (legal successor of Pictet & Cie) Long-term IDR affirmed at 'AA-'; Outlook Stable Short-term IDR affirmed at 'F1+' Viability Rating affirmed at 'aa-' Support Rating affirmed at '5' Support Rating Floor affirmed at 'No Floor' Contact: Primary Analyst Christian Kuendig Senior Director +44 20 3530 1399 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Erwin van Lumich Managing Director +34 93 323 8403 Committee Chairperson Maria Jose Lockerbie Managing Director +44 20 3530 1083 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 and 'Rating FI Subsidiaries and Holding Companies' dated 10 August 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 Pictet & Cie here Lombard Odier & Cie 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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