Dec 18 - Fitch Ratings has affirmed Le Credit Lyonnais' (LCL) Long-term
Issuer Default Rating (IDR) at 'A+' and Viability Rating (VR) at 'a-'. The
Outlook on the Long-term IDR is Negative. A full rating breakdown is provided at
the end of this comment.
RATING DRIVERS AND SENSITIVITIES - IDRs AND SUPPORT RATING
LCL's IDRs are driven by the potential support available from Credit Agricole
(CA; 'A+'/Negative) and from of its 95% shareholder, Credit Agricole S.A. (CA
S.A.; 'A+'/Negative), CA's central body, and are aligned with CA's and CA
S.A.'s. Although LCL does not participate in CA's cross-support mechanism, the
equalisation reflects LCL's high strategic importance to, and integration in,
CA. Given the integration and strategic importance, Fitch views there would be
an extremely high likelihood of support from CA S.A., and in turn CA to LCL if
LCL is core to CA's domestic retail banking strategy. It contributes around 20%
to CA's domestic retail banking operating profit and around 11% to its client
deposit base. Additionally, LCL is strongly integrated into CA. LCL and CA share
common management and strategic goals, CA S.A. oversees all LCL's risks, and LCL
benefits greatly from CA's organisation, and systems and tools.
LCL's IDRs would be expected to move in line with those of CA S.A. LCL's
Long-Term IDR could be notched down if Fitch considered that its core importance
to the group is likely to diminish or if ownership changes and integration into
CA weakens, which Fitch does not expect.
The Negative Outlook on LCL's Long-term IDR is aligned with CA's and indirectly
reflects the Negative Outlook on France's Long-term IDR, given that CA's
Long-term IDR is based on potential support from the French state.
RATING DRIVERS AND SENSITIVITIES - VR
LCL's VR reflects its solid performance and resilience to the increasingly
difficult operating environment for European banks, thanks to its well-developed
French retail and commercial banking franchise, sound loan quality and limited
market risk. It also factors in LCL's fairly limited size, relatively high
leverage, and declining demand for housing loans in France.
LCL's profitability continued to improve in 2011 and H112, driven by active
mortgage lending, low impairments and slightly improved cost efficiency, despite
higher funding costs from increased competition for retail funding. Challenging
economic prospects, decreased demand for housing loans and intensification of
competition in the retail banking market may put some pressure on profitability
in the near term.
Asset quality is healthy (impaired loans accounted for a low 2.7% of gross loans
at end-H112) although a slowing down of both the property market and economic
growth in France could put the bank under pressure. LCL's liquidity is
centralised at CA S.A. and the bank is reducing its already low reliance the
wholesale funding market. Its loan/deposit ratio declined to a reasonable 119%
at end-H112 (from a peak of 130% at end-H111). Leverage has quickly increased
since 2008. However, LCL's Fitch core capital ratio benefited from the removal
of Basel II transitional floors in 2012 and is acceptable (10.8% at end-H112).
The bank's VR could be downgraded if the bank's exposure to the French economy
and housing market led to worsening asset quality and leverage.
The rating actions are as follows:
Long-Term Issuer Default Rating: affirmed at 'A+', Negative Outlook
Short-Term Issuer Default Rating: affirmed at 'F1+'
Viability Rating: affirmed at 'a-'
Support Rating: affirmed at '1'
Certificate of Deposit: affirmed at 'F1+'
Bons a Moyen Terme Negociables (BMTN): affirmed at 'A+'
Additional information is available on 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 Criteria', dated 15 August
2012, and 'Evaluating Corporate Governance', dated 12 December 2012 are
available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Evaluating Corporate Governance