Mar 06, 2013
London, March 1st 2013 - Moody's Investors Service has today changed the outlook to stable from negative on Credit Agricole S.A.'s (CASA) banking financial strength rating/ baseline credit assessment of D/ba2, and long-term global local-currency (GLC) debt and deposit rating of A2. As a result of the rating action, the rating outlooks on 48 rated entities within Groupe Credit Agricole (GCA; unrated) have also been changed to stable from negative.
The rating action reflects CASA's announcement on 1 February that it had completed the sale of its entire stake in Emporiki Bank of Greece S.A. (Emporiki; Caa2 negative; E/caa3 stable) to Alpha Bank AE (Caa2 negative; E/caa3 stable).
Concurrently, Moody's has affirmed CASA's D/ba2 standalone credit strength and all of its long-term senior and subordinated ratings as well as all of the long-term senior and subordinated ratings of 48 rated entities of GCA and their debt. Moody's notes that the adjusted baseline credit assessment remains unchanged at baa2.
Given CASA's relatively large position within GCA, CASA's more stable credit profile has stabilising credit implications for the other rated members of GCA. For this reason, Moody's has also changed to stable from negative the rating outlooks for subsidiaries including the long-term senior and subordinated debt and deposit ratings of Credit Agricole Corporate and Investment Banking (CACIB), Le Credit Lyonnais (LCL), and the rated regional banks (CRCAMs) of GCA.
- OUTLOOK CHANGE TO STABLE FOLLOWING COMPLETION OF SALE OF GREEK SUBSIDIARY
The finalisation of the sale of Emporiki to Alpha Bank is the primary reason for changing the outlook on CASA's ratings to stable from negative, as it will significantly decrease its exposure to Greece (rated C), thereby minimising the large tail risk arising in the event of a Greek exit from the euro. Following the sale, GCA's gross exposure to Greece and Cyprus is now limited to EUR 4.1 billion net customer loans. GCA's net sovereign exposure to Greece was nil at end-2012.
- RATIONALE FOR AFFIRMATION
Whilst recognising the credit positive aspects of the Emporiki sale with the change in outlook to stable, Moody's notes that CASA and GCA continue to retain significant exposures to other European markets under pressure, particularly Italy. In addition, although GCA has taken steps to improve its liquidity profile, its liquidity profile remains weak relative to its global peers, and the bank remains heavily reliant on confidence-sensitive wholesale funds.
The affirmation of CASA's standalone credit assessment of ba2 reflects these remaining risks, as well as CASA's relatively weak overall credit fundamentals and narrow business focus. CASA's adjusted standalone credit assessment of baa2 reflects the additional strengths found within GCA, notably the group's strong domestic banking franchises, which provide relatively strong and stable earnings, as well as the probability of full support for CASA from the strong solidarity mechanisms prevailing within the GCA domestic retail network. Finally, the affirmation of CASA's deposit and senior debt ratings reflects Moody's unchanged view that there remains a very high probability of systemic support for GCA and CASA due to GCA's substantial market shares of above 20% both in loans and deposits in France (Aa1 negative).
WHAT COULD CHANGE THE RATING -- UP/DOWN
Given the recent change in the outlook to stable from negative on the long-term ratings of CASA and the rated GCA entities affected by this announcement, the probability of an upgrade is low. The outlook could move to positive in the event the group were to significantly improve its funding and liquidity positions.
The long-term ratings of CASA and rated GCA entities affected by this announcement could be downgraded in the event of (1) a deterioration in funding and liquidity conditions; (2) a worsening in asset quality; (3) an aggressive recommitment to the capital markets business (which Moody's believes is unlikely); (4) weakening in the solidarity mechanisms within the group; and/or (5) a marked weakening in the capacity or willingness of France to provide support to the benefit of senior creditors.
Re-disseminated by The Asian Banker