BNP Cut to A From A+ by S&P on `Tighter' Capital Cushion

  • S&P cites lack of sufficiently large loss-absorbing buffer
  • BNP's capital management may remain `tighter' than rivals

BNP Paribas SA, France’s largest bank, had its long-term credit rating cut to A from A+ by Standard & Poor’s, which cited a “less favorable” view of the lender’s capital cushion.

The bank hasn’t laid out plans to issue enough securities to increase its total loss-absorbing capacity, or TLAC, to meet S&P’s preferred level by 2018, the ratings company said in a statement Friday. S&P said it has a stable outlook on BNP Paribas’s ratings, reflecting an expectation that the bank will continue to strengthen and sustain capital at adequate levels, and that it will continue to deliver strong operating performance.

“The bank’s capital management is expected to remain tighter than that of its peers,” S&P said in a statement Friday. “The volatile market conditions are not helping BNP Paribas to bridge the gap with its peers, which have been steadily building up their buffers” for TLAC.

TLAC-Eligible Debt

S&P estimates that BNP’s additional loss-absorbing capacity buffer, aimed at protecting senior bondholders, was at between 1 percent and 1.5 percent of the bank’s risk-weighted assets at the end of 2015, below other lenders. BNP has issued less subordinated debt and hybrid instruments than rivals before the finalization of TLAC rules, S&P said.

BNP said last month that it plans to issue about 30 billion euros ($33 billion) of TLAC-eligible senior debt by the start of 2019, equivalent to 10 billion euros of annual issuances “to be realised within the usual medium-long-term funding program.”

The French finance ministry in December proposed a draft law to shield senior bank bonds, creating a new class of debt rather than subordinating senior unsecured bonds. The Financial Stability Board set out the criteria for TLAC-eligible bonds last year to ensure that giant lenders can be wound down and recapitalized in an orderly way.

In the face of tougher economic conditions, the European Central Bank Thursday announced a new round of targeted longer-term refinancing operations. The program will help banks stimulate lending while also providing funding “in an environment of increasing volatility and large upcoming bank bond redemptions,” ECB President Mario Draghi said, without referring to any specific lender.

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