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Fitch Affirms Amundi at 'A+', Outlook Stable
June 7, 2017 / 8:23 PM / 5 months ago

Fitch Affirms Amundi at 'A+', Outlook Stable

(The following statement was released by the rating agency) LONDON, June 07 (Fitch) Fitch Ratings has affirmed Paris-based Amundi's Long-Term Issuer Default Rating (IDR) at 'A+', Short-Term IDR at 'F1' and Support Rating at '1'. The Outlook on Amundi's Long-Term IDR is Stable. These rating actions were undertaken as part of Fitch's global peer review of traditional investment managers. For more information on the peer review, refer to the commentary "Fitch Completes Traditional Investment Managers Global Peer Review" dated 7 June 2017. Amundi is the parent company of Amundi group, one of Europe's largest asset management companies established in 2010. It has a leading franchise in French and European fixed income products and sound franchises in other asset classes. In December 2016, Amundi announced that it has signed a binding agreement with UniCredit S.p.A. (UniCredit, BBB/Stable) to acquire Pioneer Investments (Pioneer), UniCredit's investment management subsidiary (see 'Fitch Affirms Amundi at 'A+'/Stable on Pioneer Announcement', published 15 December 2016). Amundi is financing the EUR3,545 million transaction by using around EUR1.5 billion of excess cash, with a EUR1.4 billion capital increase and by issuing around EUR645 million in senior and subordinated debt, both completed in 2Q17. Following the capital increase, the shareholding of Credit Agricole (CA, A+/Stable), Amundi's parent, dropped to around 70% from 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 Amundi's IDRs are based on Fitch's standalone assessment of the company. The ratings reflect Amundi's leading domestic and growing international franchise, which is supported by continued access to strong distribution networks, and adequate net asset flows supporting average assets under management (AuM). The ratings also reflect Amundi's strong revenue generation, sound risk management, acceptable asset performance, low adjusted balance sheet leverage and Fitch's view that the Pioneer acquisition is on balance neutral to Amundi's IDRs. However, 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 ratings also reflect that the Pioneer acquisition will lead to heightened execution and integration risks in the short- to medium-term. Amundi's franchise is supported by extensive distribution agreements with CA and SocGen mainly in France (access to both retail and insurance distribution networks) and - once the Pioneer acquisition closes - with UniCredit in Italy, Germany and Austria. Adjusting for the Pioneer acquisition, at end-2016, retail AuM accounted for EUR468 billion, institutional AuM (excluding insurance AuM) for EUR448 billion and CA and SocGen insurance AuM for EUR391 billion. While France (42% of end-2016 pro forma AuM) remains Amundi's key market, its position in the rest of Europe and, to a lesser extent, the US (6% of AuM) has benefitted from above-peer average net money inflows and will be considerably improved by the Pioneer acquisition. The acquisition will also increase Amundi's share of multi-asset AuM to around 18% from currently around 12% as well as the share of higher-margin retail AuM (to 36% from 28%; including insurance AuM). In 2016, net inflows were strong at EUR62 billion and diversified by asset and geography. Overall asset performance was acceptable in 2016 with satisfactory one- and three-year performances in many fixed income and consultant "buy ratings" on around four-fifths of Amundi's rated strategies. Seed money exposure declined significantly in 2016 and is diversified by asset class and individual fund. Fitch views Amundi's risk control framework, which is centralised and integrated into CA's risk function, as sound. Earnings generation and profitability remained sound in 2016 and 1Q17, with higher average AuM and sound cost control supporting the operating margin (48% in 2016) of Amundi, which is at the upper end of its peer group. Despite some AuM margin pressure diversification and scale should help Amundi to continue reporting broadly stable profitability. The Pioneer acquisition will in the short-term negatively affect Amundi's profitability due to significant integration costs (around EUR190 million to be booked in 2017 and 2018 according to management) but profitability should recover once estimated cost and revenue synergies, deemed as realistic by Fitch, start to feed through. Amundi's capitalisation and leverage metrics compare well with peers'. Amundi's gross cash flow leverage (gross debt/EBITDA; 3.8x at end-2016) is materially higher than peers'. However, gross debt exclusively relates to Amundi's structured products issuance (where proceeds are on-lent to CA with matching terms) and interbank liabilities (where Amundi has a net positive interbank position). Consequently, Amundi's gross debt does not give rise to refinancing risk and its net debt/EBITDA ratio (which is negative) compares well with peers'. As part of the Pioneer transaction, Amundi has issued EUR645 million in senior unsecured and Tier 2 debt to its parent, CA. Balance sheet leverage, calculated as tangible equity-to-tangible assets, was better than sector average at 32% at end-2016. On closing of the Pioneer transaction, according to management, Amundi's regulatory CET1 ratio will be above 10% (around 38% at end-2016), before recovering in subsequent years. Amundi's Short-Term IDR of 'F1' reflects the company's sound standalone liquidity but also the Short-Term IDR of CA, which acts as the provider of Amundi's back-stop liquidity. Market and liquidity risks are moderate. However, Amundi's guaranteed products and structured products issuance activities mean that sound liquidity management is crucial for the overall risk profile. The Stable Outlook reflects Fitch's view that Amundi will continue to report sound profitability while maintaining acceptable gross and net balance sheet leverage. SUPPORT RATING Amundi's Support Rating of '1' reflects our view that support from CA for Amundi is extremely likely, if ever required. As the manager of CA's insurance assets as well as an important provider of asset management products for CA's retail networks, we view Amundi as a core subsidiary for 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 required resources to support Amundi, if ever needed, would be limited compared with 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 to 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 could be credit-positive. Further, material improvements to its regulatory capitalisation, while maintaining or improving its leverage could also 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 attrition or key staff departures 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 or if CA's Long-Term IDR is downgraded by two or more notches, which is currently viewed as 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 Nalini Kaladeen Director +44 20 3530 1806 Committee Chairperson Julie Solar Senior Director +1 312 368 5472 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 issuance are on-lent with matching terms to its parent bank. 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