TEXT-Moody's cuts global capital markets firms ratings

++++ CITIGROUP Citigroup Inc.'s (Citi) long-term senior rating was lowered to Baa2 from A3. Citigroup Inc.'s Prime-2 short-term rating was affirmed. In addition, the long-term and short-term deposit ratings of Citibank N.A. were lowered to A3 and Prime-2 from A1 and Prime-1, respectively. Moody's also downgraded the bank's standalone credit assessment to D+/baa3 from C-/baa1. The outlook on the standalone credit assessment and the ratings of Citi's operating subsidiaries are stable, while that on the senior debt and subordinated debt ratings of (or guaranteed by) the parent holding company is negative. Citi's ratings benefit from three notches of uplift from the standalone credit assessment at the subsidiary bank level, and from two notches of uplift at the holding company level, reflecting Moody's assumption of a very high likelihood of government support for bondholders or other creditors in the event such support was required to prevent a default. Citi is in the third group of firms with significant global capital markets activities. This position reflects i) the bank's very high commitment to the capital markets; ii) the bank's historically high earnings volatility and the problems Citi experienced during the crisis in terms of risk management and controls; and iii) the challenges of instilling a risk culture that results in low volatility, considering Citi's commitment to the capital markets business and the pressure to return capital to shareholders. Partly mitigating these factors are (i) Citi's sizable "shock absorbers" in the form of earnings from other, more stable businesses, although this benefit is somewhat less than it is for banks with a dominant domestic franchise. Other mitigating factors are the bank's (ii) strong liquidity; (iii) sound capital; and (iv) the visible progress Citi has made in rebuilding its corporate governance and risk management structure. The stable outlook (on Citi's standalone credit assessment and its bank-level ratings) reflects the view that these risk factors have now been fully incorporated into the bank's ratings. Upward rating pressure would emerge if Moody's felt that Citi's improved risk management structure had traction throughout the bank's large and complex global network. Signals of traction would include a superior comparative performance in adverse market conditions. Other indicators would be conservative capital management and maintenance of a prudent liquidity profile. Upward rating pressure would also emerge if Citi were successful in gaining market share, in a controlled manner, in its global branch banking business. Any indications of control failures, a marked increase in risk appetite or deterioration in capital levels would lead to downward rating pressure. The negative outlook on the holding company ratings reflects Moody's view that government support for US bank holding company creditors is becoming less certain and less predictable, given the evolving attitude of US authorities to the resolution of large financial institutions, whereas support for creditors of operating entities remains sufficiently likely and predictable to warrant stable outlooks. ++++ CREDIT AGRICOLE SA Credit Agricole SA's (CASA) long-term debt and deposit ratings were downgraded by two notches, to A2 from Aa3. The bank's Prime-1 short-term rating was affirmed. The standalone credit assessment was lowered by three notches, to D/ba2 from C-/baa2, and the adjusted baseline credit assessment -- incorporating cooperative support from Groupe Credit Agricole (GCA) -- to baa2 from a3. The outlook on both the standalone credit assessments and the long-term debt and deposit ratings is negative. The bank's senior debt and deposit ratings are rated A2 and incorporate three notches of uplift from government support assumptions. CASA's dated subordinated and junior subordinated debt ratings were downgraded to Baa3 and Ba1(hyb), respectively (one and two notches below its baa2 adjusted BCA). The downgrade reflects the removal of government support assumptions from the dated subordinated debt instruments. In Moody's view, government support in many European countries, including France, is no longer sufficiently predictable or reliable to warrant incorporating government support-driven uplift into these debt ratings. The ratings on preference shares were downgraded by two notches, to Ba2(hyb), and continue to be positioned three notches below the baseline credit assessment. The lowering of the adjusted baseline credit assessment to baa2 places CASA in the second group of firms with significant global capital market activities. This position reflects (i) the risks to CASA from its significant exposure to the Greek economy, particularly in view of the EUR4.6 billion of financing currently extended to its local subsidiary, Emporiki (Caa2, E/caa3 negative); and (ii) 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, which Moody's thus considers to be of lower intrinsic quality. Moody's considers that capital markets activities, which have contributed about 8% of group revenue over the past three years, are a more marginal risk factor for CASA than for most other banks, even if their earnings remain volatile. Moody's also recognizes some mitigating factors: (i) GCA is primarily a retail and commercial bancassurance group whose activities generate stable revenue streams, which allows the group to withstand substantial shocks within its smaller, more volatile business lines; (ii) the group has taken strategic decisions to reduce its riskier activities and has invested in improving its risk management; and (iii) group capital resources have been increased, and display a good level of resistance under Moody's stress tests.? The negative outlook on the standalone credit assessment and long-term ratings recognizes that the balance of risks lies to the downside, given the increased probability Moody's attaches to a potential exit of Greece from the euro area. Although such an event would likely be financially manageable for the group, it would nonetheless be very significant. An increase in the likelihood of a Greek exit could result in further downward rating pressure. ? Given the negative outlook on long-term ratings and the BFSR, the probability of an upgrade is low for either rating. The outlook could revert to stable if the risks associated with a Greek exit from the euro area subside significantly, such that CASA's standalone credit strength stabilizes. Downward pressure on the ratings could result from (i) an increase in the risk of a Greek exit from the euro area; (ii) further deterioration in funding conditions; (iii) an aggressive recommitment to the capital markets business, as evidenced through greater balance sheet usage or market risk appetite; (iv) a weakening in the availability of cooperative support mechanisms; and/or (v) a marked weakening in the capacity or willingness of the French government to provide support for the benefit of creditors. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK (CACIB) CACIB's long-term debt and deposit ratings were downgraded by two notches, to A2 from Aa3, in line with those of CASA. The Prime-1 short-term rating was affirmed. The standalone credit assessment was lowered by one notch, to D-/ba3 from D/ba2, and the adjusted baseline credit assessment -- incorporating cooperative support from GCA -- to baa2 from a3. The lowering of CACIB's standalone credit assessment reflects principally the wholesale bias of CACIB, and hence its exposure to both capital markets and funding constraints, as evidenced by its current deleveraging program. The outlook on the standalone credit assessment is stable and that on the long-term debt and deposit ratings is negative. The downgrade in the long-term rating principally reflects the decline in the creditworthiness of GCA, which Moody's expects to support CACIB in the event of need. LE CREDIT LYONNAIS SA (LCL) LCL's long-term debt and deposit ratings were downgraded by two notches, to A2 from Aa3, in line with those of CASA. The Prime-1 short-term rating was affirmed. The standalone credit assessment was lowered by one notch, to C/a3 from C+/a2. The outlook on the standalone credit assessment is stable and that on the long-term debt and deposit is negative. The lowering of LCL's standalone credit assessment reflects the more difficult operating environment in which LCL operates, and which is expected to modestly impact profitability and asset quality going forward. The downgrade of the long-term debt and deposit ratings for the most part reflects the decline in the creditworthiness of GCA, which Moody's expects to support LCL in the event of need. ++++ CREDIT SUISSE Credit Suisse AG's deposit and senior debt ratings were downgraded to A1 from Aa1 and the bank's Prime-1 short-term rating was affirmed. The bank's standalone credit assessment was downgraded to C-/baa1 from B/aa3. The provisional senior debt ratings of the bank's parent holding company, Credit Suisse Group AG, were downgraded to (P)A2 from (P)Aa2 and its provisional short-term rating was affirmed at (P)Prime-1. The outlook on all the ratings is stable. Credit Suisse's deposit and senior debt ratings benefit from three notches of uplift from the bank's standalone credit assessment, reflecting Moody's assumptions about a very high likelihood of support from the Swiss government for senior bondholders and other senior creditors in the event that such support was required to prevent a default. On the other hand, Credit Suisse's subordinated debt ratings (at Baa2 for Credit Suisse AG) are now notched off the bank's standalone credit assessment, following the removal of the assumption of government support for this class of debt at Swiss banks. Moody's views government support for the subordinated debt of Swiss banks as no longer sufficiently predictable or reliable to warrant incorporating any related uplift into its ratings. The lowering of the standalone credit assessment to baa1 positions Credit Suisse in the second group of firms with significant global capital markets activities. This position reflects (i) a relatively high proportion of revenues and earnings from, and a clear commitment to, the global capital markets business; (ii) the large absolute size of the bank's wholesale funding requirements; and (iii) relatively high historical earnings volatility. These factors are partly mitigated by (i) the stable stream of earnings from the bank's wealth management and Swiss banking businesses; (ii) a highly pro-active approach to risk management; (iii) a sound structural liquidity profile and strong liquidity risk management; (iv) an improving capital position that is expected to result in lower leverage and capital ratios above the average for the bank's peers; and (v) resilience to the weak operating environment in Europe, given low exposures to peripheral Europe and Switzerland's perceived safe-haven status among investors. The stable outlook on Credit Suisse's ratings reflects the view that capital markets-related risk factors have now been fully incorporated into the bank's ratings. Given the bank's high ratings compared with those of most of its global capital markets peers, Moody's does not expect significant upward pressure on the bank's ratings absent a significant reduction in the bank's reliance on earnings from its capital markets business. Any indications of control failures, a marked increase in risk appetite, a significant decline in the Swiss economy or deterioration in capital levels would lead to downward pressure on the ratings. ++++ CITIGROUP Citigroup Inc.'s (Citi) long-term senior rating was lowered to Baa2 from A3. Citigroup Inc.'s Prime-2 short-term rating was affirmed. In addition, the long-term and short-term deposit ratings of Citibank N.A. were lowered to A3 and Prime-2 from A1 and Prime-1, respectively. Moody's also downgraded the bank's standalone credit assessment to D+/baa3 from C-/baa1. The outlook on the standalone credit assessment and the ratings of Citi's operating subsidiaries are stable, while that on the senior debt and subordinated debt ratings of (or guaranteed by) the parent holding company is negative. Citi's ratings benefit from three notches of uplift from the standalone credit assessment at the subsidiary bank level, and from two notches of uplift at the holding company level, reflecting Moody's assumption of a very high likelihood of government support for bondholders or other creditors in the event such support was required to prevent a default. Citi is in the third group of firms with significant global capital markets activities. This position reflects i) the bank's very high commitment to the capital markets; ii) the bank's historically high earnings volatility and the problems Citi experienced during the crisis in terms of risk management and controls; and iii) the challenges of instilling a risk culture that results in low volatility, considering Citi's commitment to the capital markets business and the pressure to return capital to shareholders. Partly mitigating these factors are (i) Citi's sizable "shock absorbers" in the form of earnings from other, more stable businesses, although this benefit is somewhat less than it is for banks with a dominant domestic franchise. Other mitigating factors are the bank's (ii) strong liquidity; (iii) sound capital; and (iv) the visible progress Citi has made in rebuilding its corporate governance and risk management structure. The stable outlook (on Citi's standalone credit assessment and its bank-level ratings) reflects the view that these risk factors have now been fully incorporated into the bank's ratings. Upward rating pressure would emerge if Moody's felt that Citi's improved risk management structure had traction throughout the bank's large and complex global network. Signals of traction would include a superior comparative performance in adverse market conditions. Other indicators would be conservative capital management and maintenance of a prudent liquidity profile. Upward rating pressure would also emerge if Citi were successful in gaining market share, in a controlled manner, in its global branch banking business. Any indications of control failures, a marked increase in risk appetite or deterioration in capital levels would lead to downward rating pressure. The negative outlook on the holding company ratings reflects Moody's view that government support for US bank holding company creditors is becoming less certain and less predictable, given the evolving attitude of US authorities to the resolution of large financial institutions, whereas support for creditors of operating entities remains sufficiently likely and predictable to warrant stable outlooks. ++++ CREDIT AGRICOLE SA Credit Agricole SA's (CASA) long-term debt and deposit ratings were downgraded by two notches, to A2 from Aa3. The bank's Prime-1 short-term rating was affirmed. The standalone credit assessment was lowered by three notches, to D/ba2 from C-/baa2, and the adjusted baseline credit assessment -- incorporating cooperative support from Groupe Credit Agricole (GCA) -- to baa2 from a3. The outlook on both the standalone credit assessments and the long-term debt and deposit ratings is negative. The bank's senior debt and deposit ratings are rated A2 and incorporate three notches of uplift from government support assumptions. CASA's dated subordinated and junior subordinated debt ratings were downgraded to Baa3 and Ba1(hyb), respectively (one and two notches below its baa2 adjusted BCA). The downgrade reflects the removal of government support assumptions from the dated subordinated debt instruments. In Moody's view, government support in many European countries, including France, is no longer sufficiently predictable or reliable to warrant incorporating government support-driven uplift into these debt ratings. The ratings on preference shares were downgraded by two notches, to Ba2(hyb), and continue to be positioned three notches below the baseline credit assessment. The lowering of the adjusted baseline credit assessment to baa2 places CASA in the second group of firms with significant global capital market activities. This position reflects (i) the risks to CASA from its significant exposure to the Greek economy, particularly in view of the EUR4.6 billion of financing currently extended to its local subsidiary, Emporiki (Caa2, E/caa3 negative); and (ii) 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, which Moody's thus considers to be of lower intrinsic quality. Moody's considers that capital markets activities, which have contributed about 8% of group revenue over the past three years, are a more marginal risk factor for CASA than for most other banks, even if their earnings remain volatile. Moody's also recognizes some mitigating factors: (i) GCA is primarily a retail and commercial bancassurance group whose activities generate stable revenue streams, which allows the group to withstand substantial shocks within its smaller, more volatile business lines; (ii) the group has taken strategic decisions to reduce its riskier activities and has invested in improving its risk management; and (iii) group capital resources have been increased, and display a good level of resistance under Moody's stress tests.? The negative outlook on the standalone credit assessment and long-term ratings recognizes that the balance of risks lies to the downside, given the increased probability Moody's attaches to a potential exit of Greece from the euro area. Although such an event would likely be financially manageable for the group, it would nonetheless be very significant. An increase in the likelihood of a Greek exit could result in further downward rating pressure. ? Given the negative outlook on long-term ratings and the BFSR, the probability of an upgrade is low for either rating. The outlook could revert to stable if the risks associated with a Greek exit from the euro area subside significantly, such that CASA's standalone credit strength stabilizes. Downward pressure on the ratings could result from (i) an increase in the risk of a Greek exit from the euro area; (ii) further deterioration in funding conditions; (iii) an aggressive recommitment to the capital markets business, as evidenced through greater balance sheet usage or market risk appetite; (iv) a weakening in the availability of cooperative support mechanisms; and/or (v) a marked weakening in the capacity or willingness of the French government to provide support for the benefit of creditors. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK (CACIB) CACIB's long-term debt and deposit ratings were downgraded by two notches, to A2 from Aa3, in line with those of CASA. The Prime-1 short-term rating was affirmed. The standalone credit assessment was lowered by one notch, to D-/ba3 from D/ba2, and the adjusted baseline credit assessment -- incorporating cooperative support from GCA -- to baa2 from a3. The lowering of CACIB's standalone credit assessment reflects principally the wholesale bias of CACIB, and hence its exposure to both capital markets and funding constraints, as evidenced by its current deleveraging program. The outlook on the standalone credit assessment is stable and that on the long-term debt and deposit ratings is negative. The downgrade in the long-term rating principally reflects the decline in the creditworthiness of GCA, which Moody's expects to support CACIB in the event of need. LE CREDIT LYONNAIS SA (LCL) LCL's long-term debt and deposit ratings were downgraded by two notches, to A2 from Aa3, in line with those of CASA. The Prime-1 short-term rating was affirmed. The standalone credit assessment was lowered by one notch, to C/a3 from C+/a2. The outlook on the standalone credit assessment is stable and that on the long-term debt and deposit is negative. The lowering of LCL's standalone credit assessment reflects the more difficult operating environment in which LCL operates, and which is expected to modestly impact profitability and asset quality going forward. The downgrade of the long-term debt and deposit ratings for the most part reflects the decline in the creditworthiness of GCA, which Moody's expects to support LCL in the event of need. ++++ CREDIT SUISSE Credit Suisse AG's deposit and senior debt ratings were downgraded to A1 from Aa1 and the bank's Prime-1 short-term rating was affirmed. The bank's standalone credit assessment was downgraded to C-/baa1 from B/aa3. The provisional senior debt ratings of the bank's parent holding company, Credit Suisse Group AG, were downgraded to (P)A2 from (P)Aa2 and its provisional short-term rating was affirmed at (P)Prime-1. The outlook on all the ratings is stable. Credit Suisse's deposit and senior debt ratings benefit from three notches of uplift from the bank's standalone credit assessment, reflecting Moody's assumptions about a very high likelihood of support from the Swiss government for senior bondholders and other senior creditors in the event that such support was required to prevent a default. On the other hand, Credit Suisse's subordinated debt ratings (at Baa2 for Credit Suisse AG) are now notched off the bank's standalone credit assessment, following the removal of the assumption of government support for this class of debt at Swiss banks. Moody's views government support for the subordinated debt of Swiss banks as no longer sufficiently predictable or reliable to warrant incorporating any related uplift into its ratings. The lowering of the standalone credit assessment to baa1 positions Credit Suisse in the second group of firms with significant global capital markets activities. This position reflects (i) a relatively high proportion of revenues and earnings from, and a clear commitment to, the global capital markets business; (ii) the large absolute size of the bank's wholesale funding requirements; and (iii) relatively high historical earnings volatility. These factors are partly mitigated by (i) the stable stream of earnings from the bank's wealth management and Swiss banking businesses; (ii) a highly pro-active approach to risk management; (iii) a sound structural liquidity profile and strong liquidity risk management; (iv) an improving capital position that is expected to result in lower leverage and capital ratios above the average for the bank's peers; and (v) resilience to the weak operating environment in Europe, given low exposures to peripheral Europe and Switzerland's perceived safe-haven status among investors. The stable outlook on Credit Suisse's ratings reflects the view that capital markets-related risk factors have now been fully incorporated into the bank's ratings. Given the bank's high ratings compared with those of most of its global capital markets peers, Moody's does not expect significant upward pressure on the bank's ratings absent a significant reduction in the bank's reliance on earnings from its capital markets business. Any indications of control failures, a marked increase in risk appetite, a significant decline in the Swiss economy or deterioration in capital levels would lead to downward pressure on the ratings.