Oct 3 - Fitch Ratings has downgraded Oddo et Compagnie's (Oddo) Long-Term
Issuer Default Rating (IDR) to 'BBB-' from 'BBB+', Short-Term IDR to 'F3' from
'F2' and Viability Rating (VR) to 'bbb-' from 'bbb+'. The Outlook on the
Long-Term IDR is Negative. A full list of rating actions is at the end of this
RATING ACTIONS RATIONALE
The downgrades of Oddo's IDRs and VR reflect Fitch's view that Oddo's franchise
and earnings generation have been negatively affected by the tougher operating
environment, particularly for the investment banking (IB) division. It is not
clear to Fitch whether Oddo can establish a viable IB franchise in the medium
term. Oddo has recently acquired two small companies that focus on asset
management and private banking.
RATING DRIVERS AND SENSITIVITIES - IDR and VR
Oddo's IDRs and VR reflect the bank's niche franchise, small size and weak
profitability in the IB division. They also take into account the bank's prudent
risk-taking approach, sound liquidity and adequate capital.
Several of Oddo's IB businesses are suffering from overall lower volumes in the
industry. Moreover, Oddo's lack of scale means that some of its IB businesses
are not profitable. In H112, Oddo managed to reduce costs through synergies with
entities acquired in 2010 and 2011 (Robeco, Banque d'Orsay) and headcount
reduction in less profitable businesses. However, cost reduction may not be
sufficient to offset Oddo's weak revenue generation. The IB industry as a whole
is in a process of change without much transparency around how developments will
play out. In Fitch's view, Oddo's small franchise makes it particularly
vulnerable to such changes.
Fitch considers Oddo's ownership to drive a prudent risk-taking approach.
Philippe Oddo (one of the two unlimited partners) is personally liable for any
loss, and around one-third of Oddo's employees hold 30% of the bank's capital.
Moreover, Oddo maintains cautious liquidity management and relatively low
leverage, in line with its ambition to remain an independent financial
institution. The bank runs an ample liquid asset portfolio, which largely covers
its relatively modest short-term funding needs.
The Negative Outlook on Oddo's Long-Term IDR reflects Fitch's concerns that the
prevailing difficult operating environment is likely to continue weighing on
both the bank's IB and asset management revenue generation. Any further
deterioration in Oddo's recurring profitability, or indication of a weakening of
its IB franchise, could result in a downgrade of Oddo's IDRs and VR. A similar
rating action could be taken if the bank's capital level materially worsened or
its liquidity position materially decreased. Upside potential for the IDRs and
VR is not expected.
RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch considers that the probability of sovereign or institutional support for
Oddo, although possible, cannot be relied upon, resulting in a '5' Support
Rating and a 'No Floor' Support Rating Floor This is not expected to change.
RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT
The lower Tier 2 subordinated debt issued by Oddo is notched off Oddo's VR in
accordance with Fitch's criteria 'Rating Bank Regulatory Capital and Similar
Securities'. Therefore, lower Tier 2 debt's rating has been downgraded to 'BB+'
from 'BBB' and is sensitive to any change in Oddo's VR.
Subordinated lower Tier 2 debt is rated one notch below Oddo's VR to reflect
below average loss severity of this type of debt when compared to average
The rating actions are as follows:
Long-Term IDR: downgraded to 'BBB-' from 'BBB+'; Negative Outlook
Short-Term IDR: downgraded to 'F3' from 'F2'
Viability Rating: downgraded to 'bbb-' from 'bbb+'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
Senior unsecured debt: downgraded to 'BBB-' from 'BBB+'
Subordinated (Lower Tier 2) debt (FR0010494419): downgraded to 'BB+' from 'BBB'
Commercial paper: downgraded to 'F3' from 'F2'
Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15
August 2012, 'Evaluating Corporate Governance', dated 13 December 2011, 'Rating
Bank Regulatory Capital and Similar Securities', dated 15 December 2011;
'Investment Manager and Alternative Funds Criteria', dated 23 December 2011 and
'Securities Firms Criteria', dated 15 August 2012, are available at
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Evaluating Corporate Governance
Rating Bank Regulatory Capital and Similar Securities
Investment Manager and Alternative Funds Criteria