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-term Issuer Default Rating (IDR) at 'A+', Short-term IDR at 'F1+' and Viability Rating (VR) at 'a+'. The Outlook on the Long-term IDR is Stable. The group's Support 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 rating action commentary.


CM11-CIC's Long-term IDR remains driven by its standalone strength, as reflected in its 'a+' VR. CM11-CIC is the name given to a subset of 11 regional banks of the 18 that make up Credit Mutuel (CM), the third-largest retail banking group in France. Although CM11-CIC is not a legal entity, Fitch bases its analysis on consolidated group figures given solidarity mechanisms in place within CM11-CIC. CM11-CIC's business mix is largely dominated by retail banking which represents around 90% of its consolidated revenues. CM11-CIC has a 13% market share of retail 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. Credit Industriel et Commercial (CIC) is CM11-CIC's largest subsidiary, representing around 50% of group's assets. CIC's main business is domestic retail banking and it runs all of CM11-CIC's limited Corporate and Investment Banking (CIB) activities. Fitch considers it to be a core subsidiary and, although not technically part of the mutual support mechanism, it is analysed on a consolidated basis with the group.


CM11-CIC's Long-term IDR and senior debt rating are driven by the group's intrinsic creditworthiness and therefore its Long-term IDR is equalised with its VR. 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 reflects the group's prudent strategy and solid capitalisation (10.3% Fitch core capital ratio at end-June 2012, a 230bp improvement from end-2011 of which around half comes from the removal of the Basel II transitional floors). In Fitch's view, the group's cooperative ownership structure removes it from excessive market return pressure and contributes to a prudent strategy, which defines CM11-CIC's culture.

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

The group's VR is sensitive to the progress in its funding profile, liquidity and capital. Further and enduring improvement in these areas could lead to an upgrade of CM11-CIC's VR, in the absence of any marked deterioration in its performance and/or risk profile. Any set-back in CM11-CIC's ambition to rebalance its funding mix, weakening liquidity position or any marked deterioration in the group's risk profile, for example linked to a long and severe 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 remain the same, unless its SRF of 'A+' was also downgraded. In this case, CM11-CIC's IDRs would no longer be based on its standalone strength but on expected support from the French state, if required.