[FONT="]Moody's lowers BNPP's ratings to Aa2/ B-[/FONT][FONT="] [/FONT]
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[FONT="]MOODPR0020100120e61k0015q[/FONT][FONT="] [/FONT]
[FONT="] 1828 Words [/FONT]
[FONT="] 20 January 2010 [/FONT]
[FONT="] Moody's Investors Service Press Release [/FONT]
[FONT="] moodpr [/FONT]
[FONT="] English [/FONT]
[FONT="] (c) 2010[/FONT]
[FONT="]Moody's today lowered by one notch the senior debt and deposit ratings of BNP Paribas (BNPP) from Aa1 to Aa2. Moody's also lowered by one notch the BFSR from B to B- (mapping to a Baseline Credit Assessment of A1), and all other long-term debt ratings by one notch: the subordinated debt ratings to Aa3, the Undated Subordinated Notes to A2 and the Non-Cumulative Trust Preferred Securities and Undated Deeply Subordinated Non-Cumulative Notes ("TSS") to Baa1. The bank's Prime-1 short-term ratings were affirmed. The outlook on all ratings is stable. BNPP's rated subsidiaries are discussed at the end of the press release. This concludes the review of BNPP's ratings initiated on 22 October 2009.[/FONT]
[FONT="]Although BNPP has weathered the financial crisis well relative to peers, Moody's considers BNPP's ratings are more appropriately positioned at B-/ Aa2 to capture the tail risks from the bank's investment banking operations and ongoing pressure on asset quality from loan books. In addition, although BNPP has structured its acquisition of Fortis Bank SA/ NV (Fortis) (rated C- negative outlook/ A1 stable) to minimise the impact from Fortis Bank's riskier exposures, the integration of such a large bank remains a sizable challenge for management. The new rating level incorporates the benefit of recent measures taken by BNPP to strengthen capital, as well as the offsetting impact of our own assessment of risks from further deterioration in loan books and structured exposures.[/FONT]
[FONT="]As mentioned in our December 2009 report "Update Challenges and Key Ratios for Wholesale Investment Bank Ratings", which discusses the risks facing all banks with sizable investment banking activities, Moody's considers that despite recent measures taken by many institutions since the crisis to reduce risks, such activities entail concentrations and interconnected risks, creating challenges for measuring risk. In the case of BNPP, with around of one third of the group's capital committed to capital market/ investment banking activities, BNPP is exposed to many similar risks - the EUR2bn losses at BNPP's investment banking division in Q408 led to a EUR1.2bn net loss for the whole bank that quarter. We note positively that BNPP's capital allocation takes account of potential losses beyond VaR, however, by definition, some extreme events are not captured within this framework. Moreover, we notice that equity risk outside the trading book remains material. If we were to see significant growth in the risk appetite for BNPP's investment banking activities, this could place further downward pressure on the rating.[/FONT]
[FONT="]The cost of risk at BNPP has increased through the financial crisis and during the economic downturn and our own analysis of the bank's loan books, based on our published Approach to Estimating Banks' Credit Losses for different geographical jurisdictions, indicates the bank could continue to see elevated loan losses in Italy, Emerging Markets, the US and Personal Finance. However, we note that the core French retail banking franchise is expected to remain resilient, thanks to the bank's conservative lending as well as the lower levels of economic stress in the French market.[/FONT]
[FONT="]In terms of capital Moody's notes positively that BNPP boosted its Tier 1 ratio from 7.81% at the end of 2008 to 10.0% at the end of September 2009, and has improved the quality of capital with the replacement of government capital with equity capital through the rights issue. However, over 2010 - 2011 there will be a number of regulatory adjustments affecting banks, including BNPP, including the revised regulatory framework for market risk, which we expect will require the bank to further strengthen capital buffers.[/FONT]
[FONT="]The structure of the Fortis acquisition has meant that BNPP has not assumed some of the riskiest structured assets within Fortis and this prevented a negative rating action at the time of the acquisition, however there are still significant financial and management challenges in turning around the Fortis businesses, which may take some time to make a meaningful contribution to group profits. Moody's notes that BNPP has already made progress with the integration, and this has included reducing at the group level some of the larger credit risk exposures resulting from the acquisition.[/FONT]
[FONT="]STABLE OUTLOOK[/FONT]
[FONT="]Moody's has assigned a stable outlook to all ratings. This reflects the fact that the additional capital built up by BNPP and the measures implemented to reduce market risk exposures following the losses of Q408, indicate that the bank would be able to weather our stress scenario encompassing significantly higher provisions on loan books and further writedowns on structured assets without further downward pressure on the rating.[/FONT]
[FONT="]SENIOR DEBT RATINGS[/FONT]
[FONT="]The long-term debt and deposit ratings of BNPP continue to include 2 notches of systemic support, reflecting the bank's important role in the French economy, and this lifts the B- BFSR (which maps to a baseline credit assessment of A1) to the Aa2 senior debt and deposit ratings.[/FONT]
[FONT="]RATINGS OF SUBSIDIARIES[/FONT]
[FONT="]The A1 senior debt and deposit ratings with stable outlook of Fortis Bank S.A./ N.V. and BGL BNP Paribas S.A., as well as the A3 debt ratings with negative outlook of Exane S.A. and Exane Derivates SNC were unchanged. There is also no change to the ratings of Banca Nazionale Del Lavoro S.P.A. or UkrSibbank.[/FONT]
[FONT="]Separate press releases will follow on LaSer Cofinoga and BancWest Corporation and its subsidiaries.[/FONT]
[FONT="]LAST RATING ACTION[/FONT]
[FONT="]The last rating action on BNPP was on 22 December, 2009, when the ratings of the hybrid securities were revised in line with our new methodology.[/FONT]
[FONT="]The principal methodology used in rating this issuer was Moody's "Bank Financial Strength Ratings: Global Methodology", published in February 2007 and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" published in March 2007, available on
www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.[/FONT]
[FONT="]The ratings of bank subordinated capital securities are assigned in line with Moody's revised methodology entitled "Guidelines for Rating Bank Junior Securities", dated November 2009.[/FONT]
[FONT="]Based in Paris, BNP Paribas had total assets amounting to €2,289 billion and a Tier 1 ratio of 9.3% at end-June 2009.[/FONT]
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[FONT="]Moody's Investors Service Pty Ltd holds a limited AFSL (number 336969) which does not authorize it to provide advice to retail investors. This credit rating is an opinion as to the creditworthiness or a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be dangerous for retail investors to make any investment decision based on this credit rating. If in doubt you should contact your financial or other professional adviser.[/FONT]
