Fitch Affirms Ratings of Banco Societe Generale Brasil, Banco Cacique and Banco Pecunia

Wed Mar 19, 2014 1:52pm EDT

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(The following statement was released by the rating agency) RIO DE JANEIRO/NEW YORK, March 19 (Fitch) Fitch Ratings has affirmed the Issuer Default Ratings (IDRs) and National ratings of Banco Societe Generale Brasil S.A. (SGBr) and its two wholly-owned subsidiaries, Banco Cacique S.A. (Cacique) and Banco Pecunia S.A. (Pecunia). All the Rating Outlooks remain Stable. A full list of rating actions can be found at the end of this release. The IDRs and the National ratings of all three banks are based on support from their ultimate parent Societe Generale (SG, Long-term IDR 'A'/Outlook Stable). The Support Rating of '2' of each bank reflects Fitch's belief that the probability of support by SG, in case of need, would be high. Fitch does not assign a Viability Rating to any of the three banks, due to their significant reliance on parental support and relatively small franchises. KEY RATING DRIVERS SGBr: The affirmation of SGBr's ratings reflects the continued support from its parent SG. Fitch considers SGBr as a strategically important subsidiary of SG, given their common branding, the unquestioned support from the parent as evidenced by the capital injections in the recent years, high proportion of parental non-equity funding, strong operational synergies, and high level of managerial and commercial integration with SG. SG remains SGBr's main source of funding (78% and 70% of consolidated funding, in 2013 and 2012, respectively). In 2013, SGBr's funding needs declined in line with the deleveraging of its subsidiaries. As a result of this, SGBr reduced local funding and pre-paid part of its funding from SG. The mix of funding is not expected to change significantly in 2014. In 2013, SG injected BRL300 million of capital into SGBr (BRL317 million in 2012) in order to support growth of the treasury activities that consume capital mainly through market risk. With this, SGBr's Fitch core capital ratio improved to 19.85% (11.89% in 2012). The Central Bank of Brazil supervises and monitors the regulatory capital ratios of SGBr and its two subsidiaries on a consolidated basis (19.69% and 11.96%, in 2013 and 2012, respectively). In 2013, SGBr's performance continued to be dragged down by Cacique and Pecunia (net consolidated loss was BRL30 million). Its individual operating result, excluding those of it subsidiaries, was positive. The bulk of its revenues is generated by its treasury unit, which is active in the foreign exchange, fixed income, derivatives and equity markets. In 2013, the bank established a closed equity fund fully funded by SG and has become its manager. Meanwhile, SGBr's individual corporate loan portfolio expanded 2.5 times, reaching BRL246 million in 2013, although it still represents only 9% of the consolidated loan portfolio (3% in 2012). Cacique and Pecunia: The affirmation of the ratings of Cacique and Pecunia also reflects the continued support from their ultimate parent, SG, which owns the banks through SGBr. Fitch considers both banks as subsidiaries of limited importance for SG, as their contribution to the group's results has been minimal and is unlikely to increase in the near future (considering their small franchise), and as there are limited synergies between the banks and parent. However, Fitch recognizes that SG's support to both banks has been unquestioned, as evidenced by the timely capital injections in 2011 and 2012, high proportion of parental non-equity funding, and high managerial integration. Considering the relatively low cost of potential support, Fitch does not expect a change in this stance. In addition, the agency views SGBr and its subsidiaries as a group; thus, the ratings of the three banks are equalized. Almost all of Cacique and Pecunia's non-equity funding comes from SGBr, which transfers the funds it receives both from SG and from the domestic market. The funding needs of the two banks eased significantly as outstanding loans continued to fall. Cacique's loans continued to decrease (BRL1.1 billion and BRL1.6 billion, in 2013 and 2012, respectively), following its decision to exit a number of segments in 2011 and 2012, and the closure of two-thirds of its points of sale in 2013. Pecunia's loans registered a smaller decline (BRL1 billion and BRL1.1 billion, in 2013 and 2012, respectively). In 2013, the performance of Cacique and Pecunia remained poor (net losses were BRL59 million and BRL57 thousand, respectively). This was mainly the result of continued high loan impairment charges, and in the case of Cacique, also due to significant provisioning expenses (about BRL50 million) related to a reduction in headcount. Pecunia's bottom-line result was affected positively by the reversal of provisions (BRL36 million) following its adherence to the government's tax recovery program (Refis). RATING SENSITIVITIES Positive rating drivers: A Brazilian sovereign rating upgrade or change in its Rating Outlook could lead to a similar change in the foreign currency IDRs of all three banks, which are currently limited by the country ceiling. An upgrade of SG's ratings or change in its Outlook would not have an impact on the ratings, as long as the sovereign rating remains unchanged. Negative rating drivers: A Brazilian sovereign rating downgrade or change in its Outlook could lead to a similar change in the ratings of all three banks. A one-notch downgrade of SG's IDR would lead to a downgrade of the local currency IDRs of the Brazilian subsidiaries, while a more than one-notch downgrade of SG's IDR would affect both the local currency and the foreign currency IDRs of the Brazilian subsidiaries. The banks' National ratings may be affected by a multi-notch downgrade of the parent. In addition, a change in Fitch's evaluation of the strategic importance of the three banks for SG could result in changes to their ratings. Fitch has affirmed the following ratings: SGBr: --Foreign Currency Long-term IDR at 'BBB+', Outlook Stable; --Local Currency Long-term IDR at 'A-', Outlook Stable; --Foreign Currency Short-term IDR at 'F2'; --Local Currency Short-term IDR at 'F1'; --Support Rating at '2'; --National Long-term rating at 'AAA(bra)', Outlook Stable; --National Short-term rating at 'F1+(bra)'. Cacique: --Foreign Currency Long-term IDR at 'BBB+', Outlook Stable; --Local Currency Long-term IDR at 'A-', Outlook Stable; --Foreign Currency Short-term IDR at 'F2'; --Local Currency Short-term IDR at 'F1'; --Support Rating at '2'; --National Long-term rating at 'AAA(bra)', Outlook Stable; --National Short-term rating at 'F1+(bra)'. Pecunia: --Foreign Currency Long-term IDR at 'BBB+', Outlook Stable; --Local Currency Long-term IDR at 'A-', Outlook Stable; --Foreign Currency Short-term IDR at 'F2'; --Local Currency Short-term IDR at 'F1'; --Support Rating at '2'; --National Long-term rating at 'AAA(bra)', Outlook Stable; --National Short-term rating at 'F1+(bra)'. Contact: Primary Analyst Esin Celasun Director +55 21 4503 2626 Fitch Ratings Brasil Ltda. Praca XV de Novembro, 20 - 401 B Rio de Janeiro, RJ, Brasil Secondary Analyst Robert Stoll Director +1 212 908 9155 Committee Chairperson Franklin Santarelli Managing Director +1 212 908 0739 Media Relations: Jaqueline Carvalho, Rio de Janeiro, Tel: +55 21 4503 2623, Email: jaqueline.carvalho@fitchratings.com; Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: -- National Ratings Criteria (Oct. 30, 2013); -- Rating FI Subsidiaries and Holding Companies (Aug. 10, 2012); -- Global Financial Institutions Rating Criteria (Jan. 31, 2014). Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria 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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