(The following statement was released by the rating agency)
Oct 09 - Fitch Ratings has affirmed Credit Agricole's(CA) Long-term Issuer Default Rating (IDR) at 'A+' with a Negative Outlook andShort-term IDR at 'F1+'. At the same time, the agency has affirmed the ViabilityRating (VR) at 'a', Support Rating Floor at 'A+' and Support Rating at '1'. Afull list of rating actions is at the end of this rating action commentary.
RATING ACTION RATIONALE
CA's Long- and Short-term IDRs, Support Rating and Support Rating Floor continueto reflect the potential support from France ('AAA'/Negative), if required. TheNegative Outlook on CA's Long-term IDR reflects that of France's Long-term IDR.CA is not a single entity, but a cooperative banking group. Its 39 regionalbanks (caisses regionales; CRs) and central body (Credit Agricole S.A.; CA S.A.)benefit from a cross-support mechanism. Fitch has the same IDRs for CA and CAS.A. Fitch considers there to be an extremely high probability that support fromthe French authorities would be forthcoming if needed. CA is the leading Frenchretail bank (with a 25% market share of customer deposits) and is systemicallyimportant.
CA's VR reflects its strong French retail franchise, solid overall assetquality, limited market risk and solid funding base. It also considers CA'smodest profitability, an only adequate Fitch Core Capital ratio and exposure tosouthern Europe. CA is focusing on the mature low-risk/low-return French retailbanking activities more than many of its peers and has reduced its ambitions incorporate and investment banking (CIB). The group has also largely implementedan adjustment plan to reduce its funding needs.
RATING DRIVERS AND SENSITIVITIES - IDRS, SUPPORT RATING AND SUPPORT RATING FLOOR
CA's Long- and Short-term Term IDRs are driven by support and the Long-term IDRis at the same level as its Support Rating Floor. The Long- and Short-Term IDRs,Support Rating and Support Rating Floor would be sensitive to a decrease inFrance's ability (as measured by its rating) or willingness to support CA. Adowngrade of France's Long-term IDR by one notch (to 'AA+') would lead to adowngrade of CA's Support Rating Floor and Long-term IDRs to 'A' and Short-termIDR to 'F1'. These ratings could also be downgraded if Fitch came to theconclusion that government support in France was being diluted through acombination of regulatory, legal and political changes.
RATING DRIVERS AND SENSITIVITIES - VR
Fitch expects CA's operating profitability to remain subdued in the short-termgiven lower revenues as a result of deleveraging and continued high loanimpairment charges. This means that CA's loss absorption capacity and capitalgeneration is likely to be weaker. CA is increasing its capital ratios andtargeting a fully loaded Basel III core equity Tier 1 ratio of 10% by end-2013.This would be commensurate with its 'a' VR as long as the group's modest capitalgeneration improved.
CA's announcement of exclusive negotiations to sell its Greek subsidiary(Emporiki Bank of Greece) will reduce its exposure to southern Europe. Theestimated pre-tax loss of roughly EUR3bn, while at the upper end of Fitch'sexpectations, is consistent with the group's current VR. This loss includes theEUR2.3bn capital injection made in July and an additional EUR0.6bn still to bemade. However, the after-tax impact will be lower. Moreover, the funded exposureto Emporiki will decline given the additional capital increase and this exposurewill be collateralised by high quality assets.
CA's VR is negatively sensitive to any unexpected deterioration in earnings orweakening of capital ratios. A VR upgrade is unlikely in the near term and wouldrequire a strong increase in on-going internal capital generation, which Fitchconsiders possible to achieve in the medium term given the bank's strongfranchise.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt and other hybrid capital issued by Credit Agricole S.A., CAPreferred Funding Trust, CA Preferred Funding Trust II and CA Preferred FundingTrust III are all notched down from CA's VR in accordance with Fitch'sassessment of each instrument's respective non-performance and relative lossseverity risk profiles, which vary considerably. Their ratings are primarilysensitive to any change in CA's VR.
SUSBIDIARY AND AFFILIATED COMPANY RATING DRIVERS AND SENSITIVITIES
The Long-and Short-term IDRs and Support Rating of the group's Frenchsubsidiaries - Credit Agricole Corporate and Investment Bank , CA ConsumerFinance and Credit Agricole Leasing & Factoring - are based on an extremely highprobability of support from CA if needed and are therefore sensitive to changesin CA's IDRs. The ratings of these subsidiaries could also be sensitive tochanges in their core strategic importance to the group.
Credit Agricole North America, Credit Agricole CIB Finance (Guernsey) and CreditAgricole CIB Financial Products (Guernsey) are wholly owned financingsubsidiaries of Credit Agricole Corporate and Investment Bank whose debt ratingsare aligned with those of Credit Agricole Corporate and Investment Bank based onan extremely high probability of support if required and whose ratings aresensitive to the same factors that might drive a change in Credit AgricoleCorporate and Investment Bank's IDR.
The rating actions are as follows: CA: Long-term IDR: affirmed at 'A+'; Outlook Negative Short-term IDR: affirmed at 'F1+' Viability Rating: affirmed at 'a' Support Rating: affirmed at '1' Support Rating Floor: affirmed at 'A+' Credit Agricole S.A. (CA's central body): Long-term IDR: affirmed at 'A+'; Outlook Negative Short-term IDR: affirmed at 'F1+' Support Rating: affirmed at '1' Support Rating Floor: affirmed at 'A+' Senior debt: affirmed at 'A+' Short-term debt: affirmed at 'F1+' Lower Tier 2: affirmed at 'A-' Upper Tier 2: affirmed at 'BBB' Innovative Tier 1: affirmed at 'BBB-' Non-Innovative Tier 1: affirmed at 'BBB-'
CA Preferred Funding Trust, CA Preferred Funding Trust II, CA Preferred FundingTrust III:
Preferred stock: affirmed at 'BBB-' Credit Agricole North America: Commercial paper: affirmed at 'F1+' Credit Agricole Corporate and Investment Bank: Long-term IDR: affirmed at 'A+'; Outlook Negative Short-term IDR: affirmed at 'F1+' Support Rating affirmed at '1' Senior debt: affirmed at 'A+' Senior debt: affirmed at 'AAA(THA)' Market-linked securities: affirmed at 'A+emr' Short-term debt: affirmed at 'F1+' Credit Agricole Corporate and Investment Bank (South Africa Branch): Long-term senior debt: affirmed at 'AAA(zaf)' Credit Agricole CIB Finance (Guernsey): Senior debt: affirmed at 'A+' Market-linked securities: affirmed at 'A+emr' Short-term debt: affirmed at 'F1+' Credit Agricole CIB Financial Products (Guernsey): Senior debt: affirmed at 'A+' Market-linked securities: affirmed at 'A+emr' Short-term debt: affirmed at 'F1+' CA Consumer Finance: Long-term IDR: affirmed at 'A+'; Outlook Negative Short-term IDR: affirmed at 'F1+' Support Rating: affirmed at '1' Senior debt: affirmed at 'A+' Short-term debt: affirmed at 'F1+' Credit Agricole Leasing & Factoring: Long-term IDR: affirmed at 'A+'; Outlook Negative Short-term IDR: affirmed at 'F1+' Support Rating: affirmed at '1' For all of Fitch's Eurozone Crisis commentary go to ((Bangalore Ratings Team, Hotline: +91 80 41355898, Bhanu.priya@thomsonreuters.com,Group id: BangaloreRatings@thomsonreuters.com,Reuters Messaging: Bhanu.Priya.reuters.com@reuters.net))