TEXT-Fitch affirms CM11-CIC at 'A+'; outlook stable

(The following statement was released by the rating agency)

Oct 09 - Fitch Ratings has affirmed CM11-CIC's Long-termIssuer Default Rating (IDR) at 'A+', Short-term IDR at 'F1+' and ViabilityRating (VR) at 'a+'. The Outlook on the Long-term IDR is Stable. The group'sSupport Rating (SR) and Support Rating Floor (SRF) have been affirmed at '1' and'A+', respectively. A full list of rating actions is at the end of this ratingaction commentary.


CM11-CIC's Long-term IDR remains driven by its standalone strength, as reflectedin its 'a+' VR. CM11-CIC is the name given to a subset of 11 regional banks ofthe 18 that make up Credit Mutuel (CM), the third-largest retail banking groupin France. Although CM11-CIC is not a legal entity, Fitch bases its analysis onconsolidated group figures given solidarity mechanisms in place within CM11-CIC.CM11-CIC's business mix is largely dominated by retail banking which representsaround 90% of its consolidated revenues. CM11-CIC has a 13% market share ofretail banking market in France.

Banque Federative du Credit Mutuel (BFCM) is the issuing vehicle of CM11-CIC,manages the group's liquidity and coordinates the group's subsidiaries. CreditIndustriel et Commercial (CIC) is CM11-CIC's largest subsidiary, representingaround 50% of group's assets. CIC's main business is domestic retail banking andit runs all of CM11-CIC's limited Corporate and Investment Banking (CIB)activities. Fitch considers it to be a core subsidiary and, although nottechnically part of the mutual support mechanism, it is analysed on aconsolidated basis with the group.


CM11-CIC's Long-term IDR and senior debt rating are driven by the group'sintrinsic creditworthiness and therefore its Long-term IDR is equalised with itsVR. The group's VR is driven by its healthy franchise in French retail banking,which generates recurring earnings and carries low risk. The VR also reflectsthe group's prudent strategy and solid capitalisation (10.3% Fitch core capitalratio at end-June 2012, a 230bp improvement from end-2011 of which around halfcomes from the removal of the Basel II transitional floors). In Fitch's view,the group's cooperative ownership structure removes it from excessive marketreturn pressure and contributes to a prudent strategy, which defines CM11-CIC'sculture.

CM11-CIC's VR also takes into account some reliance, albeit reducing, on capitalmarkets, a highly confidence-sensitive funding source. A strategic focus of thegroup has been improving its funding mix by increasing the share of customerdeposits (with success regarding the marked improvement of its loan/depositsratios over the past years: 133% at end-June 2012 versus 170% at end-2008) andlengthening the maturity of its wholesale funding. CM11-CIC has also increasedits portfolio of liquid assets, but not all is 'high quality' as defined by theprovisional Basel III LCR criteria.

The group's VR is sensitive to the progress in its funding profile, liquidityand capital. Further and enduring improvement in these areas could lead to anupgrade of CM11-CIC's VR, in the absence of any marked deterioration in itsperformance and/or risk profile. Any set-back in CM11-CIC's ambition torebalance its funding mix, weakening liquidity position or any markeddeterioration in the group's risk profile, for example linked to a long andsevere recession in France, could lead to negative pressure on the VR.

However, even if the group's VR was downgraded, its Long-Term IDR would remainthe same, unless its SRF of 'A+' was also downgraded. In this case, CM11-CIC'sIDRs would no longer be based on its standalone strength but on expected supportfrom the French state, if required.