Note de Moodys Sur BNP Paribas

8/4/2019 Note de Moodys Sur BNP Paribas

1/7

Moody's maintains review for downgrade on BNP Paribas' Aa2 long-

term ratings to consider impact of funding challenges on Credit

Profile

Further to the review initiated on 15 June 2011

Paris, September 14, 2011 -- Moody's Investors Service has

announced an extension of its review of the standalone Bank

Financial Strength Rating (BFSR) and long-term debt and deposit

ratings of BNP Paribas (BNPP), originally announced on 15 June,

2011.

In the meantime, the rating agency has concluded that

(i) BNPP's profitability and capital base currently provide an

adequate cushion to support its Greek, Portuguese, and Irishexposures, and

(ii) its long-term debt and deposit ratings are appropriately

positioned two notches above BNPP's standalone financial

strength to reflect the likelihood it will receive systemic

support from governmental authorities if needed.

However, Moody's announced that it will extend its review for

downgrade of BNPP's B- BFSR and Aa2 long-term debt and deposit

ratings to consider the implications of the potentially

persistent fragility in the bank financing markets, given BNPP'scontinued reliance on wholesale funding.

The review is unlikely to lead to a downgrade in the long-term

ratings of more than one notch.

The Prime-1 short-term ratings have been affirmed.

Moody's will publish separate press releases on other

institutions covered by the review announced on 15 June, 2011.

RATINGS RATIONALE

In its press release of 15 June 2011, Moody's announced a review

of the BFSRs and long-term ratings of three French banking

groups (BNP Paribas, Credit Agricole SA and Societe Generale),

because of concerns about the potential inconsistency between

their ratings and their exposures to the Greek economy, either


2/7

through their holdings of government bonds or the credit they

had extended to the Greek private sector.

Moody's has concluded that BNPP has a sufficient level of

profitability and capital that it can absorb potential losses it

is likely to incur over time on its Greek government bonds

(Greece is rated Ca, outlook developing), and to remain

capitalized consistent with its BFSR, even if the

creditworthiness of Irish and Portuguese government bonds were

to deteriorate further. This assessment incorporates loss

assumptions that are significantly higher than the impairments

the bank has already recognized (see below).

However, during the review, Moody's concerns about the

structural challenges to banks' funding and liquidity profiles

have increased, in light of worsening refinancing conditions,

and have prompted an extension of the review. The continuing

review will focus directly on these funding and liquiditychallenges for BNPP, which, given the current environment, could

become long-term constraints to the performance of its ranchise.

Limited Impact Of Greek And Other Peripheral Sovereign Exposures

On Overall Risk Profile

Since the start of the review for downgrade, BNPP, along with

many other financial institutions, has expressed its intention

to participate in a proposed restructuring of Greek debt. This

led to its recognition of EUR534 million of impairments against

the relevant bonds in the second quarter of 2011. BNPP was ableto absorb this amount easily, as it reported net earnings of

EUR2.1 billion (1) for the quarter and continues to build its

capital ratios.

BNPP still has very large exposures to the peripheral European

countries' government bonds in its banking and trading books,

totalling EUR5.9 billion for Greece, Ireland (Ba1, negative

outlook), and Portugal (Ba2, negative outlook) combined as at 30

June 2011 (1), the majority of which matures after five years.

Italian and Spanish bond holdings are much larger, at EUR24

billion and EUR3.9 billion respectively at end-2010, accordingto European Banking Authority disclosures. BNPP's exposure to

Greek private sector credit, by contrast, is relatively small,

around EUR3.6 billion at end-2010, and Moody's believes it is

mostly in the form of large corporate exposures that are less

sensitive to the domestic economy. On the same basis, BNPP's

loans to the Portuguese and Irish private sector totalled EUR4.5

billion and EUR4.8 billion respectively.


3/7

In its review, and in the context of a stress test covering

BNPP's global loan book and structured finance exposures,

Moody's considered a severe case scenario for certain government

bond holdings, using haircuts significantly higher than the

impairments the bank has already recognized: 60% for Greece, 50%

for Ireland, 50% for Portugal, 10% for Spain and 7% for Italy.

Taking into account the impairments already made against some

Greek bonds, we believe resultant pretax losses under this

scenario would total around EUR4.9 billion, 5.6% of BNPP's

common equity Tier 1 capital after tax and 54bp of risk-weighted

assets, with further mitigation possible via reduced dividends.

Loss assumptions for private sector credit were based upon those

previously published by Moody's, see "European Banking Credit

Loss Assumptions", published on 2 August, 2010.

As a result, Moody's considers BNPP to be sufficiently

profitable and capitalized that it can absorb potential relatedlosses. Like many banks, BNPP has sought to enhance its

capitalization, and reported a common equity Tier 1 ratio of

9.6% at end-June 2011 (2), up from about 6% at the start of

2008. More generally, BNPP also benefits from an exceptional

degree of diversity thanks to a broad array of businesses, most

of which have substantial scale and strong franchises in their

own rights and thus sound profitability. In addition, the bank

has been growing its deposit base and lengthening its market

funding. However, given the size of the Italian bond holdings,

BNPP's creditworthiness would be vulnerable to a deterioration

of that of Italy. Additionally, its capital markets business islarge and volatile, and in common with those of many other

banks, is characterised by a certain complexity and opacity of

risk profile, as well as a relatively confidence-sensitive

customer base.

CONTINUED REVIEW OF BFSR TO FOCUS ON FUNDING PROFILE

As noted above, BNPP's wholesale funding, the majority of which

is short-term, is still high in absolute terms and may pose a

vulnerability given considerable market tension. During the

summer, concerns over sovereign exposures and the health ofsovereign balance sheets grew significantly. This was most

manifest in the behaviour of US money market funds, which are an

important source of short-term US dollars for BNPP. These funds

became particularly risk-averse, resulting in reduced

availability and shorter tenors for this type of financing. For

more details, see Moody's Special Comment, "EU Banks: Stronger


4/7


5/7

review for possible downgrade, reflecting the review for

downgrade on the BFSR.

SUBORDINATED OBLIGATIONS AND HYBRID SECURITIES

The ratings on BNPP's dated subordinated obligations are notched

off the bank's fully supported, long-term GLC deposit ratings

and therefore remain under review for downgrade.

The ratings on the bank's hybrid obligations are notched off

BNPP's Adjusted BCA of A1, in accordance with "Moody's

Guidelines for Rating Bank Hybrid Securities and Subordinated

Debt", published 17 November 2009. They remain on review for

downgrade, reflecting the review for downgrade on the BFSR.

KEY RATING FACTORS FOR OTHER ENTITIES AFFECTED BY THIS RATING

ANNOUNCEMENT

For LaSer Cofinoga, rated C- / Baa1 / A1, on review for possible

downgrade, the key rating factors are (i) access to backup

funding facility from BNPP; (ii) the evolution of asset quality;

(iii) the potential impact of the reform of consumer credit in

France on the bank's strategy and franchise. For all other

entities affected by this rating announcement, please refer to

the rationale above.

PREVIOUS RATING ACTION AND METHODOLOGIES

Please see the ratings tab on the issuer/entity page onMoodys.com for the last Credit Rating Action and the rating

history.

The methodologies used in these ratings were Bank Financial

Strength Ratings: Global Methodology published in February 2007,

Incorporation of Joint-Default Analysis into Moody's Bank

Ratings: A Refined Methodology published in March 2007, and

Moody's Guidelines for Rating Bank Hybrid Securities and

Subordinated Debt published 17 November 2009. Please see the

Credit Policy page on www.moodys.com for a copy of these

methodologies.

SOURCES

(1) Source: unaudited interim financial statements

(2) Source: unaudited 2nd quarter financial results


6/7

(3) Source: company press release and audited 2010 financial

statements

(4) Source: audited 2010 financial statements

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of

debt, this announcement provides relevant regulatory disclosures

in relation to each rating of a subsequently issued bond or note

of the same series or category/class of debt or pursuant to a

program for which the ratings are derived exclusively from

existing ratings in accordance with Moody's rating practices.

For ratings issued on a support provider, this announcement

provides relevant regulatory disclosures in relation to the

rating action on the support provider and in relation to each

particular rating action for securities that derive their creditratings from the support provider's credit rating. For

provisional ratings, this announcement provides relevant

regulatory disclosures in relation to the provisional rating

assigned, and in relation to a definitive rating that may be

assigned subsequent to the final issuance of the debt, in each

case where the transaction structure and terms have not changed

prior to the assignment of the definitive rating in a manner

that would have affected the rating. For further information

please see the ratings tab on the issuer/entity page for the

respective issuer on www.moodys.com.

Moody's considers the quality of information available on the

rated entity, obligation or credit satisfactory for the purposes

of issuing a rating.

Moody's adopts all necessary measures so that the information it

uses in assigning a rating is of sufficient quality and from

sources Moody's considers to be reliable including, when

appropriate, independent third-party sources. However, Moody's

is not an auditor and cannot in every instance independently

verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating

Process page on www.moodys.com for further information on the

meaning of each rating category and the definition of default

and recovery.

Please see ratings tab on the issuer/entity page on

www.moodys.com for the last rating action and the rating


7/7

history. The date on which some ratings were first released goes

back to a time before Moody's ratings were fully digitized and

accurate data may not be available.

Consequently, Moody's provides a date that it believes is the

most reliable and accurate based on the information that is

available to it.

Please see the ratings disclosure page on our website

www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead

rating analyst and to the Moody's legal entity that has issued

the rating.

Documents

Note de Moodys Sur BNP Paribas