December 15, 2016 / 2:36 PM / 8 months ago

Fitch Affirms Amundi at 'A+'/Stable on Pioneer Announcement

(The following statement was released by the rating agency) LONDON, December 15 (Fitch) Fitch Ratings has affirmed Amundi's Long-Term Issuer Default Rating (IDR) at 'A+' with Stable Outlook. At the same time, Fitch has affirmed Amundi's Short-Term IDR at 'F1' and Support Rating at '1'. These rating actions follow Amundi's announcement on 12 December 2016 that it has signed a binding agreement with UniCredit S.p.A. (UniCredit, BBB+/Negative) to acquire Pioneer Investments (Pioneer), UniCredit's investment management subsidiary, for a cash consideration of EUR3,545m and to enter a 10-year distribution agreement with UniCredit. Amundi intends to finance the transaction by using around EUR1.5bn of excess cash, by launching a capital increase of around EUR1.4bn in 1H17 and issuing around EUR600m in senior and subordinated debt, also in 1H17. Amundi's parent, Credit Agricole (CA, A/Positive), has committed to fully underwriting the planned capital increase and to maintain a minimum stake in Amundi of at least 66.7% (currently around 75%). Amundi expects the transaction, which still requires regulatory and anti-trust approvals, to close by end-1H17 with operational integration completed by end-2018. KEY RATING DRIVERS IDRS The affirmation reflects our view that the announced transaction is on balance credit-neutral to the company. Positively, the acquisition would materially strengthen and broaden Amundi's franchise, notably in multi-asset products outside France. It should also in the medium term support the earnings capacity of Amundi by adding Pioneer's higher-margin assets under management (AuM) to the former's historically lower-margin AuM base. The transaction would increase Amundi's AuM by around EUR222bn to around EUR1.3trn and would considerably strengthen its franchise and distribution capabilities in Italy and, to a lesser extent, Austria, Germany and the US. These benefits are balanced by a moderate increase in leverage (defined as gross debt/EBITDA) and heightened execution and integration risks in the short- to medium-term. Amundi's IDRs reflect the institution's leading domestic and growing international franchise, which is supported by continued access to strong distribution networks, and adequate net asset flows supporting average AuM. The ratings also reflect Amundi's strong revenue generation, sound risk management, adequate asset performance and low adjusted balance sheet leverage. The ratings also take into account the sensitivity of Amundi's earnings and AuM base to market volatility, reliance on the distribution networks of CA and previous minority shareholder Societe Generale (SocGen, A/Stable/a) and above-average reliance on fixed income products. The Pioneer acquisition would broaden Amundi's franchise, among other things, by increasing the share of multi-asset AuM to around 18% (from 12% at end-3Q16) and by improving its distribution capabilities outside France. It would also reduce Amundi's reliance on France (French AuM excluding insurance AuM will fall to 42% from 56%) and increase its exposure to higher-margin retail AuM (to 35% from 27%; including insurance AuM). Operationally, the acquisition would lead to heightened integration and execution risks, which are however largely mitigated by Amundi's sound track record in amalgamating businesses (starting with the merger between CA's and SocGen's asset management businesses in 2010). Incremental credit and market risk from acquiring Pioneer are, in Fitch's view, moderate. Amundi's profitability would in the short-term be negatively affected by significant integration costs (around EUR190m to be booked in 2017 and 2018 according to management) but should recover once estimated cost and revenue synergies, deemed as realistic by Fitch, start to feed through. As the bulk of the transaction is expected to be financed by utilising excess cash and through a capital increase, the impact on Amundi's leverage is expected to be contained. Based on Fitch's estimates, Amundi's gross debt/EBITDA ratio should peak at less than 0.7x in 2017, comfortably within Fitch's leverage benchmark of 0.25x to 1.5x for traditional investment managers in the 'A' rating category. Amundi's regulatory CET1 ratio would fall (to above 10% from around 36% at end-2015) but would remain well above regulatory requirements. SUPPORT RATING The affirmation of Amundi's Support Rating at '1' reflects Fitch's view that support from CA for Amundi will remain extremely likely following the closing of the transaction since CA has committed to maintaining a stake of at least 66.7% in Amundi. As the manager of CA's insurance assets as well as an important provider of investment management products for CA's retail networks, Amundi is viewed by Fitch as a core subsidiary of CA, which fits well into CA's asset-gathering strategy. In addition, compared with the more balance sheet-heavy banking activities that CA pursues, Amundi's business model only requires limited amounts of regulatory capital and liquidity, resulting in superior risk-adjusted returns. This also means that potential support for Amundi, if ever needed, would require limited resources relative to CA's overall size. RATING SENSITIVITIES IDRS In the short-term, material integration risks relating to the Pioneer acquisition and Amundi's reduced regulatory CET1 ratio limit upside for Amundi's ratings. In the medium- to longer-term, a successful integration of Pioneer in conjunction with further franchise improvements outside Amundi's already dominant European fixed income franchise and material improvements in its regulatory capitalisation, while maintaining or improving leverage could be credit-positive. A material postponement in integrating Pioneer leading to a delay in realising estimated synergies, integration costs significantly exceeding current estimates or higher-than-expected revenue or key staff attrition relating to the Pioneer acquisition could put pressure on Amundi's ratings. Since Amundi's IDRs are based on Fitch's stand-alone assessment of the company, an upgrade of CA would not lead to an upgrade of Amundi's Long-Term IDR. Similarly, a downgrade of CA's ratings would not automatically trigger a downgrade of Amundi's ratings but would nonetheless put pressure on Amundi's Long-Term IDR given the close integration between the two entities in terms of risk and liquidity management as well as Amundi's reliance on CA's distribution network. SUPPORT RATING The Support Rating is sensitive to a change in the assumptions around the propensity or ability of CA to provide timely support for Amundi. This may arise, for instance, if the importance of savings products in CA's overall strategy diminishes, if CA reduces its stake in Amundi materially below its stated minimum stake of 66.7% or if CA's Long-Term IDR is downgraded by two or more notches, which is considered unlikely by Fitch. Contact: Primary Analyst Christian Kuendig Senior Director +44 20 3530 1399 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Arnau Autonell Associate Director +44 203 530 1712 Committee Chairperson Nathan Flanders Managing Director +1 212 908-0827 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Summary of Financial Statement Adjustments When calculating gross leverage, Fitch excludes balance-sheet liabilities relating to Amundi's EMTN programme as the proceeds of these EMTN issuances are on-lent with matching terms to its parent bank. 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