(The following statement was released by the rating agency)
Oct 10 - Fitch Ratings has affirmed Societe Generale's
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 RATIONALESG's Long- and Short-term IDRs, Support Rating and Support Rating Floor continueto reflect potential support from France ('AAA'/Negative), if required. TheNegative Outlook on SG's Long-term IDR reflects that on France's Long-term IDR.
This rating action on SG was taken in conjunction with Fitch's Global Tradingand Universal Bank (GTUB) periodic review. Fitch's outlook for the industry isstable on balance. The positive rating drivers include improved liquidity,funding, capitalization and more streamlined businesses, all partly driven byregulation. Offsetting these positive drivers are substantial earnings pressure,regulatory uncertainty and heightened legal and operational risk.
RATING DRIVERS AND SENSITIVITIES - IDRS, SUPPORT RATING AND SUPPORT RATING FLOORSG's Long- and Short-term Term IDRs are driven by potential support and theLong-term IDR is at the same level as its Support Rating Floor. The Long- andShort-term IDRs, Support Rating and Support Rating Floor are sensitive to adecrease in France's ability (as measured by its rating) and willingness tosupport SG. A downgrade of France's Long-term IDR by one notch (to 'AA+') wouldlead to a downgrade of SG's Support Rating Floor and Long-term IDRs to 'A' andShort-term IDR to 'F1'. The ratings are also sensitive to a change in Fitch'sassumptions around the availability of sovereign support for the bank. In thiscontext, Fitch is paying close attention to on-going policy discussions aroundbank support and 'bail in', especially in Europe. An upgrade of SG's IDRs isunlikely given Fitch's expectation of diminishing sovereign support for banksgenerally in Europe and globally.
RATING DRIVERS AND SENSITIVITIES - VRSG's VR reflects its franchise in retail banking and corporate and investmentbanking (CIB), notably in equities, and its focus on strengthening its balancesheet in terms of both liquidity and capital. However, the VR also considers thebank's volatile and currently mediocre profitability as well as its dependenceon capital markets activity, where it has a second-tier ranking in fixed-incomeproducts. The VR is negatively affected by exposure through commercial banksubsidiaries in CEE/Russia, which are showing disappointing results. Furthernegative VR drivers include a high gross impaired loans ratio, low - albeitimproving - capitalisation given SG's business mix and a lower quality liquiditybuffer than those at other GTUBs.
The bank's VR could be downgraded if it does not generate higher returns inCEE/Russia, does not continue to strengthen capital ratios and/or does notincrease its stock of high quality liquid assets. Moreover, higher risk in itsCIB or international retail banking businesses could lead to negative ratingpressure. Fitch does not expect to upgrade SG's VR in the near term.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIESSubordinated debt and other hybrid capital issued by SG and SG Capital Trust IIIare all notched down from SG's VR in accordance with Fitch's assessment of eachinstrument's respective non-performance and relative loss severity riskprofiles, which vary considerably. Their ratings are primarily sensitive to anychange in SG's VR.
SUSBIDIARY AND AFFILIATED COMPANY RATING DRIVERS AND SENSITIVITIESThe Long-and Short-term IDRs and Support Rating of SG's French subsidiary,Societe Generale SFH, is based on an extremely high probability of support fromSG if needed and are therefore sensitive to changes in SG's IDRs. The ratings ofthis subsidiary could also be sensitive to changes in its strategic importanceto the rest of the group.
Societe Generale Acceptance N.V., SG Option Europe and SG Structured ProductsInc. are wholly owned financing subsidiaries of SG whose debt ratings arealigned with that of SG based on an extremely high probability of support ifrequired and whose ratings are sensitive to the same factors that might drive achange in SG's IDR.
The rating actions are as follows:
Societe GeneraleLong-term IDR: affirmed at 'A+'; Outlook NegativeShort-term IDR: affirmed at 'F1+'Viability Rating: affirmed at 'a-'Support Rating: affirmed at '1'Support Rating Floor: affirmed at 'A+'Commercial paper: affirmed at 'F1+'Senior unsecured debt: affirmed at 'A+'/'F1+'Short-term debt: affirmed at 'F1+'Lower Tier 2 notes: affirmed at 'BBB+'Hybrid capital instruments: affirmed at 'BB+'Societe Generale SFHLong-term IDR: affirmed at 'A+'; Outlook NegativeShort-term IDR: affirmed at 'F1+'Support Rating: affirmed at '1'Mortgage Covered Bonds: 'AAA' UnaffectedSociete Generale Acceptance N.V.Market-linked guaranteed notes: affirmed at 'A+emr'Senior notes: affirmed at 'A+'/'F1+'Senior guaranteed notes: affirmed at 'A+'
SG Option EuropeMarket-linked guaranteed notes: affirmed at 'A+emr'Senior notes: affirmed at 'A+'/'F1+'
SG Capital Trust IIIPreferred stock: affirmed at 'BB+'SG Structured Products Inc.Senior notes: affirmed at 'A+'Contact:Primary AnalystAlain BrancheySenior Director+33 (0) 1 44 29 91 41Fitch France S.A.S60 rue de Monceau,75008 ParisSecondary AnalystEric DupontSenior Director+33 (0) 1 44 29 91 31Committee ChairpersonGordon ScottManaging Director+44 203 530 1075
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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 and Related Research:Global Financial Institutions Rating CriteriaTreatment of Hybrids in Bank Capital AnalysisRating Bank Regulatory Capital and Similar SecuritiesRating FI Subsidiaries and Holding Companies