3 Global Banks with Local Presence, Downgraded by Moody's
Moody's Investors Service downgraded the ratings of HSBC Holdings, Crédit Agricole SA and Société Générale due to the volatility and risks that their global capital markets operations face,as reported by Lebanon This Week, Byblos Bank economic publication. The agency downgraded HSBC Holdings' senior debt rating to 'Aa3' from 'Aa2' with a 'negative' outlook, while it affirmed the group's provisional short-term rating '(P) Prime-1'.
It also lowered by one notch the intrinsic standalone financial strength of the consolidated group to 'a1'. It said that the downgrade reflects HSBC's moderately large capital markets operation; and its links with other financial institutions, given the size and presence of the group and its role in the inter- bank and repo markets. But the agency said that HSBC is one of the strongest banking groups globally given its very strong geographic diversification, and its conservative funding profile that is based on a strong global retail deposit base and a strict liquidity frame- work at each subsidiary.
HSBC Holdings has a direct presence in the Middle East through its wholly-owned subsidiary HSBC Bank Middle East. It operates through a network of 47 branches in Lebanon, Jordan, the UAE, Oman, Bahrain, Qatar, Kuwait, Pakistan, and the Palestinian Territories. HSBC was established in Lebanon in 1946 and operates in the country through three branches located in the Beirut area.
Moody's Investors Service also downgraded Crédit Agricole SA's (CASA) long-term debt and deposit ratings by two notches to 'A2' from 'Aa3', and affirmed the bank's 'Prime-1' short-term rating. It also lowered the bank's standalone credit assessment by three notch- es to 'D/ba2' from 'C-/baa2' and the adjusted baseline credit assessment, incorporating cooperative support from Groupe Credit Agricole, to 'baa2' from 'a3'. It said that the outlook on all the rating is 'negative'. It attributed the downgrade to the risks to CASA from its significant exposure to the Greek economy, particularly in view of the €4.6bn of financing currently extended to its Greek sub- sidiary; as well as the bank's greater dependence compared to many peers on short-term wholesale funding and a higher reliance on Central Bank eligible loans for its liquidity reserves. It added that capital markets activities constitute a higher marginal risk factor for CASA than for most other banks.
It said that the balance of risks lies to the downside, given the increased probability to a potential exit of Greece from the Eurozone. Crédit Agricole has a direct presence in Lebanon through its subsidiary Crédit Agricole Suisse (Liban) Financial Services sal. The bank also has a 9% stake in Banque Libano-Française and a 6% stake in Fransabank sal.
In parallel, the agency downgraded Société Générale's (SocGen) long-term debt and deposit ratings by one notch to 'A2' from 'A1' and affirmed its 'Prime-1' short-term rating. It also lowered the bank's standalone credit assessment by one notch to 'C-/baa2' from 'C-/baa1'.
It said that the outlook on all the ratings is 'stable'. It pointed out that the downgrade reflects the bank's significant and relatively volatile capital markets business; SocGen's continued reliance on short-term wholesale funding and its smaller liquidity pool compared with some other banks; and challenges arising from the expected deterioration in macroeconomic conditions in Western Europe that would affect many of the countries in which SocGen operates. Société Générale has a 19% stake in Société Générale de Banque au Liban sal. Moody's downgrade of the three banks is part of a series of downgrades for 15 global financial institutions.
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