BNP Paribas SA (BNP), France’s largest bank, shrugged off a Moody’s Investors Service downgrade, saying the ratings company failed to take into account lowered liquidity needs, in particular at its Italian unit.
“There are especially two points on which we disagree” with Moody’s,” Francois Villeroy de Galhau, co-chief operating officer, said in a telephone interview today. “They take into account neither our deleveraging plan and its execution speed, nor the reduction of our liquidity needs.”
BNP Paribas, together with French rivals Societe Generale SA (GLE) and Credit Agricole SA, was among 15 global banks downgraded by Moody’s yesterday. The three large banks have “weaker” funding than many of their global competitors, Nicholas Hill, senior vice president at Moody’s in Paris, said in an interview today.
The Moody’s action on BNP Paribas was based partly on funding needs at its Rome-based Banca Nazionale del Lavoro, or BNL, unit in Italy. BNP Paribas’s cross-border funding to BNL is down to 20 billion euros ($25 billion) from close to 30 billion euros at the end of 2010, Villeroy said.
BNP Paribas plans to keep cutting the funding exposure “by developing BNL’s own financings,” he said, adding that the business is “ extremely solid,” allowing the reduced support.
“Our strategy for BNL is extremely clear: continually improve operational performance and progressively reduce intra- group funding,” he said.
The possibility of the downgrades had weighed on the banks since Moody’s said Feb. 15 it was reviewing 17 banks with capital-markets operations because of fragile confidence and tighter regulations that pinched revenue. Pressure has mounted as Europe’s sovereign-debt crisis intensified and cast doubt on the health of some of the continent’s lenders.
BNP Paribas rose 0.7 percent in Paris today to 29.40 euros, Societe Generale closed 0.3 percent higher at 17.80 euros and Credit Agricole (ACA) climbed 0.4 percent at 3.35 euros. Before today, BNP Paribas had fallen 3.8 percent this year, Societe Generale had risen 3.1 percent and Credit Agricole had tumbled 23 percent.
BNP Paribas has a “strong liquidity profile” with 201 billion euros liquid asset reserves as of the end of March, the Paris-based bank said in a statement earlier today. BNP Paribas has 51 billion euros of “excess stable resources against customer funding needs,” it said.
BNP Paribas’s weakness comes in part from its risks in Italy, including its sovereign-debt holdings and BNL’s loan book, Moody’s Hill said.
Italy is “by far not the weakest economy, but at the same time it’s not as strong as France,” he said.
BNL’s “focus on midsize corporate loans in central and southern Italy has weakened its asset quality,” Moody’s said in its statement yesterday. “Profitability was low in 2011 and is unlikely to improve significantly in 2012.”
BNP Paribas dismissed the concerns.
“Our client portfolio doesn’t correspond to Moody’s description,” Villeroy said. “You can’t say that the bank’s focus is on midcaps in central and southern Italy. In reality we are a bank for large Italian corporates. The proportion of our portfolio of very-small companies -- with less than 7.5 million euros in revenue and therefore managed by the branches -- is smaller than in our other European networks.”
BNL’s loans are equivalent to 212 percent of its retail funding and BNP’s Italian unit relies “heavily” on its parent support, Moody’s said.
“Over time BNL may be required to reduce its use of parental funding, which may in turn create pressure to reduce its balance sheet,” the ratings company said.
At the end of 2011, BNL borrowed 5.2 billion euros from the European Central Bank in its three-year loan program at 1 percent, according to BNL’s financial statements. BNP Paribas declined to give details on BNL’s use of a second round of long- term funds the ECB provided to the region’s lenders in February.
BNL had 32.2 billion euros of deposits at the end of March, 1.6 percent higher than a year earlier, BNP Paribas said on May 4. Loans at the Italian retail-banking unit were at 71.3 billion euros by the end of the first quarter, unchanged from a year earlier, it said.
“Demand for loans is inching down in Italy,” Villeroy said. “There is no credit crunch from BNL.”
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