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Fitch Affirms La Banque Postale at 'A+', Revises Outlook to Negative
July 22, 2014 / 4:37 PM / 3 years ago

Fitch Affirms La Banque Postale at 'A+', Revises Outlook to Negative

(The following statement was released by the rating agency) PARIS/LONDON, July 22 (Fitch) Fitch Ratings has affirmed La Banque Postale's (LBP) Long-term Issuer Default Rating (IDR) at 'A+' and Short-term IDR at 'F1+'. The Outlook on the Long-term IDR has been revised to Negative from Stable. At the same time, Fitch has affirmed LBP's Viability Rating (VR) at 'bbb+' and Support Rating (SR) at '1', and assigned a Support Rating Floor (SRF) of 'A+'. A full list of rating actions is at the end of this rating action commentary. The revision of the Outlook to Negative reflects the potential obstacles that the French state could face in providing capital support to LBP in the scenario of an extraordinary sudden and major problem requiring an immediate injection of funds. These obstacles relate to progress being made in implementing the legislative and practical aspects of enabling effective bank resolution frameworks in the EU, which is likely to reduce implicit sovereign support for EU banks, specifically the Bank Recovery and Resolution Directive (BRRD) and Single Resolution Mechanism (SRM). Fitch will review the potential effect of the BRRD and SRM on the French state's ability and propensity to provide extraordinary support to LBP at all times as part of its broader review of support for EU state-sponsored banks, which it expects to conclude by end-2014 or 1H15. Given the important role the French state considers LBP plays in France as part of La Poste (LP; AA-/Stable), it is likely that any downgrade of LBP's Long-term IDR would be contained to one or two notches. The assignment of a 'A+' SRF to LBP reflects Fitch's opinion that there is an extremely high probability that the French state would provide support to LBP in case of need. While LP's willingness to do so is also considered extremely high, its ability to do so it independently is considered more limited. KEY RATING DRIVERS - IDRs, SR, SRF AND SENIOR DEBT LBP's IDRs (and senior debt rating), SR and SRF reflect Fitch's view that there is an extremely high probability that the French state would provide support to LBP in case of need. The French state (AA+/Stable) is the bank's 100% indirect shareholder through LP, France's state-owned post office. Fitch considers the probability of support would be extremely high given LBP's key importance to and integration with LP, full ownership by LP and LP's full ownership by the French state. LBP operates through LP's postal agencies network and uses LP's sales employees. As the major contributor to LP's operating profit, any large losses at LBP would severely impact LP. In addition, we understand that LP is legally required to retain a majority stake in LBP. In Fitch's view, support would ultimately be provided by the French state, possibly through LP, whose own IDRs reflect potential support from the French state. RATING SENSITIVITIES - IDRs, SR, SRF AND SENIOR DEBT The greatest sensitivity for LBP's IDRs (and senior debt), SR and SRF is a weakening of the ability or propensity of the French state to inject capital into LBP as a result of the BRRD and SRM. Fitch does not consider that the BRRD changes the possibility of pre-emptive capital support from a sovereign owner, but the BRRD generally requires bail-in of equity and credit investors before state funds are injected into an insolvent bank. In the scenario of an extraordinary sudden and major problem requiring an immediate injection of funds, it is uncertain whether the French state would have the propensity to inject funds without senior debt bail in with other options available under the BRRD or whether doing so would be in accordance with the European Commission's state aid rules. This would be a different scenario to ordinary, on-going state injection of capital into LBP (directly or through LP) to accompany LBP's and LP's growth. A one to two notch downward revision of LBP's SRF would be mirrored by the bank's Long-term IDR. LBP's Short-term IDR would be downgraded to 'F1' and the SR would remain at '1'. LBP's IDRs would also be downgraded if the French state's Long-term IDR was downgraded or if state control of LBP diminished, which Fitch does not expect. KEY RATING DRIVERS - VR LBP's VR reflects its solid funding and liquidity, low-risk appetite, healthy asset quality and adequate capital position. The VR is constrained by the bank's limited ability to generate profits from its core retail activities and, to a lesser extent, by its undiversified franchise. LBP's modest profitability remains a key constraint on LBP's VR. Performance is undermined by limited, albeit stable, revenue generation, which translates into a very high cost/income ratio (84.6% in 2013). LBP's profitability also reflects its low, but increasing loans/assets ratio (29% at end-2013). In 2014, Fitch expects LBP's profitability to improve slightly, driven by higher revenues from increased lending activity and largely manageable loan impairment charges. The equity accounted affiliate, CNP Assurances, contributes 34% of the bank's net income. While LBP is a large collector of customers deposits (15% market share), its lending franchise remains modest (5% market share in housing loans; its flagship product), and diversification into higher return lending, such as consumer finance and corporate loans, is recent. While these are improving, Fitch expects these to remain a relatively small part of the balance sheet in the medium term. LBP has a low risk profile. The loan book, which consists essentially of domestic housing loans, is of good quality. Impaired loans represented a low 1% of total loans at end-2013. Fitch expects a moderate and slow increase in the risk profile in the medium term due to LBP's diversification into corporate and consumer lending. Fitch considers the remaining exposure to peripheral eurozone sovereign debt, which is in run-off, to be manageable. Fitch views LBP's liquidity and funding as solid. LBP is predominantly retail-funded. It has limited recourse to the wholesale market for funding and holds a comfortable liquid securities portfolio, which largely covers the amount of debt maturing over the next year. Fitch views LBP's Fitch Core Capital (FCC) ratio (9.2% at end-2013) as only adequate but notes that LP regularly injects capital in LBP. In addition, capitalisation is strengthened when also considering hybrid instruments subscribed to by LP (Fitch Eligible Capital (FEC) of 12.9% at end-2013) and, including this, leverage is also relatively sound, as measured by the FEC/tangible assets ratio of 2.7%. RATING SENSITIVITIES - VR LBP's VR would benefit from higher profitability and capital ratios. A material deterioration in asset quality and/or capital ratios could put pressure on the VR. The rating actions are as follows: Long-term IDR: affirmed at 'A+'; Outlook revised to Negative from Stable Short-term IDR: affirmed at 'F1+' VR: affirmed at 'bbb+' Support Rating: affirmed at '1' Support Rating Floor: assigned at 'A+' Short-term debt: affirmed at 'F1+' Senior unsecured long-term debt: affirmed at 'A+' Contact: Primary Analyst Sonia Trabelsi Director +33 1 44 29 91 42 Fitch France S.A.S 60 rue de Monceau 75008 Paris Secondary Analyst Solena Gloaguen Director +44 20 3530 1126 Committee Chairperson Eric Dupont Senior Director +33 1 44 29 91 31 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 31 January 2014, is available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria 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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