RIO DE JANEIRO & SAO PAULO--(BUSINESS WIRE)--Fitch Ratings has affirmed the Issuer Default Rating (IDR) and National rating of Banco Societe Generale Brasil S.A. (SGBr) and its two wholly-owned subsidiaries, Banco Cacique S.A. (Cacique) and Banco Pecunia S.A. (Pecunia). All the Rating Outlooks remain Stable. A full list of rating actions can be found at the end of this release.
KEY RATING DRIVERS
SGBr:
The affirmation of SGBr's ratings reflects the continued support from its parent Societe Generale (SG, Fitch IDR of 'A+' with a Negative Outlook). Fitch classifies SGBr as a 'strategically important' subsidiary of SG, given their common branding, the unquestioned support from the parent as evidenced by the capital injections of 2011 and 2012, high proportion of parental non-equity funding, very strong operational synergies, and high level of managerial and commercial integration with SG. SGBr's local currency (LC) long-term (LT) IDR is set at the maximum level attributed to Brazilian banks and its foreign currency (FC) LT IDR is constrained by Brazil's country ceiling.
SG continues to be SGBr's main source of funds (70% of consolidated funding at FYE2012). Given the expected deleveraging of its subsidiaries, SGBr's funding needs are also easing. Therefore, SGBr is unlikely to renew the interbank lines it received following the changes in the Brazilian compulsory reserve requirements in the first half of 2012 and should pre-liquidate part of its funding from SG. Overall, the mix of funding is not expected to change significantly.
In 2012, SGBr's performance continued to be dragged down by Cacique and Pecunia. The bank posted a loss of BRL551 million, BRL308 million of which pertains to the subsidiaries. The bulk of the remaining losses is explained by SGBr's write off of its goodwill (BRL160 million) from its own balance sheet. SG injected a total of BRL317 million in SGBr in December 2012 (BRL353 million in 2011) to compensate for the period's loss, the majority of which was transferred to its two subsidiaries. Fitch believes that SGBr would receive further capital in case of need.
Cacique and Pecunia:
The affirmation of the ratings of Cacique and Pecunia also reflects the continued support from their ultimate parent, SG, which owns the banks through its wholly owned subsidiary SGBr. Fitch classifies both banks as subsidiaries of 'limited importance' for SG, given that their contribution to the group's results has been minimal and unlikely to increase in the near future considering their ongoing deleveraging, and that there are limited synergies between the banks and parent. However, Fitch recognizes that SG's support has been unquestioned, as evidenced by the capital injections in 2011 and 2012, high proportion of parental non-equity funding, and high managerial integration. It is unlikely that there will be a change in this stance given the relatively low cost of potential support. Their LC LT IDRs are set at the maximum level attributed to Brazilian banks and their FC LT IDRs are constrained by Brazil's country ceiling.
Almost all of Cacique and Pecunia's non-equity funding comes from SGBr (99% in 2012), which transfers the funds it receives both from SG and from the domestic market. The banks aim to increase funding from third parties to 25%-30% of their total funding over the medium term.
Half of Cacique and Pecunia's loss in 2012 is explained by the write-off of goodwill and deferred tax assets (BRL159 million). SG, via SGBr, injected BRL359 million to the two banks (BRL292 million in 2011) to restore their capital. Fitch believes that they would receive further injections in case of need. Central Bank of Brazil supervises and monitors the regulatory capital ratios of SGBr and its two subsidiaries on a consolidated basis.
The probability of support of all three banks by SG is high, as reflected by their Support rating of '2'. Fitch does not assign Viability ratings to the banks given their high operational and financial dependence on SG.
RATING SENSITIVITIES
Positive rating drivers: A Brazilian sovereign rating upgrade or change in its Rating Outlook could lead to similar changes in the ratings of all three banks. An upgrade of SG's ratings or change in its Outlook would not have an impact on the ratings, as long as the sovereign rating remains unchanged.
Negative rating drivers: A Brazilian sovereign rating downgrade or change in its Outlook could lead to similar changes in the ratings of all three banks. A downgrade of SG's IDR could also lead to a downgrade of the IDRs of the Brazilian subsidiaries, depending on the severity of the downgrade.
Fitch has affirmed the following ratings:
SGBr:
--Foreign Currency Long-term IDR at 'BBB+', Outlook Stable;
--Local Currency Long-term IDR at 'A-', Outlook Stable;
--Foreign Currency Short-term IDR at 'F2';
--Local Currency Short-term IDR at 'F1';
--Support Rating at '2';
--National Long-term Rating at 'AAA(bra)', Outlook Stable;
--National Short-term Rating at 'F1+(bra)'.
Cacique:
--Foreign Currency Long-term IDR at 'BBB+', Outlook Stable;
--Local Currency Long-term IDR at 'A-', Outlook Stable;
--Foreign Currency Short-term IDR at 'F2';
--Local Currency Short-term IDR at 'F1';
--Support Rating at '2';
--National Long-term Rating at 'AAA(bra)', Outlook Stable;
--National Short-term Rating at 'F1+(bra)'.
Pecunia:
--Foreign Currency Long-term IDR at 'BBB+', Outlook Stable;
--Local Currency Long-term IDR at 'A-', Outlook Stable;
--Foreign Currency Short-term IDR at 'F2';
--Local Currency Short-term IDR at 'F1';
--Support Rating at '2';
--National Long-term Rating at 'AAA(bra)', Outlook Stable;
--National Short-term Rating at 'F1+(bra)'.
Additional information is available at 'www.fitchratings.com'. 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:
-- National Ratings Criteria (Jan. 19, 2011);
-- Rating FI Subsidiaries and Holding Companies (Aug. 10, 2012);
-- Global Financial Institutions Rating Criteria (Aug. 15, 2012).
Applicable Criteria and Related Research
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
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