(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 and Short-term IDR at 'F1+'. At the same time, the agency has affirmed the Viability Rating (VR) at 'a-', Support Rating Floor at 'A+' and Support Rating at '1'. A full list of rating actions is at the end of this rating action commentary.
RATING ACTION RATIONALE SG's Long- and Short-term IDRs, Support Rating and Support Rating Floor continue to reflect potential support from France ('AAA'/Negative), if required. The Negative 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 Trading and Universal Bank (GTUB) periodic review. Fitch's outlook for the industry is stable on balance. The positive rating drivers include improved liquidity, funding, capitalization and more streamlined businesses, all partly driven by regulation. 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 FLOOR SG's Long- and Short-term Term IDRs are driven by potential support and the Long-term IDR is at the same level as its Support Rating Floor. The Long- and Short-term IDRs, Support Rating and Support Rating Floor are sensitive to a decrease in France's ability (as measured by its rating) and willingness to support SG. A downgrade of France's Long-term IDR by one notch (to 'AA+') would lead to a downgrade of SG's Support Rating Floor and Long-term IDRs to 'A' and Short-term IDR to 'F1'. The ratings are also sensitive to a change in Fitch's assumptions around the availability of sovereign support for the bank. In this context, Fitch is paying close attention to on-going policy discussions around bank support and 'bail in', especially in Europe. An upgrade of SG's IDRs is unlikely given Fitch's expectation of diminishing sovereign support for banks generally in Europe and globally.
RATING DRIVERS AND SENSITIVITIES - VR SG's VR reflects its franchise in retail banking and corporate and investment banking (CIB), notably in equities, and its focus on strengthening its balance sheet in terms of both liquidity and capital. However, the VR also considers the bank's volatile and currently mediocre profitability as well as its dependence on capital markets activity, where it has a second-tier ranking in fixed-income products. The VR is negatively affected by exposure through commercial bank subsidiaries in CEE/Russia, which are showing disappointing results. Further negative VR drivers include a high gross impaired loans ratio, low - albeit improving - capitalisation given SG's business mix and a lower quality liquidity buffer than those at other GTUBs.
The bank's VR could be downgraded if it does not generate higher returns in CEE/Russia, does not continue to strengthen capital ratios and/or does not increase its stock of high quality liquid assets. Moreover, higher risk in its CIB or international retail banking businesses could lead to negative rating pressure. Fitch does not expect to upgrade SG's VR in the near term.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by SG and SG Capital Trust III are all notched down from SG's VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably. Their ratings are primarily sensitive to any change in SG's VR.
SUSBIDIARY AND AFFILIATED COMPANY RATING DRIVERS AND SENSITIVITIES The 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 from SG if needed and are therefore sensitive to changes in SG's IDRs. The ratings of this subsidiary could also be sensitive to changes in its strategic importance to the rest of the group.
Societe Generale Acceptance N.V., SG Option Europe and SG Structured Products Inc. are wholly owned financing subsidiaries of SG whose debt ratings are aligned with that of SG based on an extremely high probability of support if required and whose ratings are sensitive to the same factors that might drive a change in SG's IDR.
The rating actions are as follows:
Societe Generale 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+' 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 SFH Long-term IDR: affirmed at 'A+'; Outlook Negative Short-term IDR: affirmed at 'F1+' Support Rating: affirmed at '1' Mortgage Covered Bonds: 'AAA' Unaffected Societe 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 Europe Market-linked guaranteed notes: affirmed at 'A+emr' Senior notes: affirmed at 'A+'/'F1+'
SG Capital Trust III Preferred stock: affirmed at 'BB+' SG Structured Products Inc. Senior notes: affirmed at 'A+' Contact: Primary Analyst Alain Branchey Senior Director +33 (0) 1 44 29 91 41 Fitch France S.A.S 60 rue de Monceau, 75008 Paris Secondary Analyst Eric Dupont Senior Director +33 (0) 1 44 29 91 31 Committee Chairperson Gordon Scott Managing 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 Criteria Treatment of Hybrids in Bank Capital Analysis Rating Bank Regulatory Capital and Similar Securities Rating FI Subsidiaries and Holding Companies