Fitch Affirms Rothschild & Cie Banque at 'A'; Outlook Stable
KEY RATING DRIVERS
IDRS AND VR
RCB's ratings are based on the bank's leading advisory business in France, robust management, low risk appetite, resilient profitability, lack of debt and healthy capital ratios. The ratings also factor in its small size, relatively narrow product offering and some business concentration in France.
RCB remains a market leader in M&A business in France in terms of number of deals, and in Europe through the wider Rothschild group, underpinned by the bank's experienced executives, and its solid network of contacts. The lack of conflict of interest as an independent advisory bank is a key competitive advantage for RCB. Through joint-ventures with foreign entities of the Rothschild group, the bank benefits from some geographical revenue diversification. The strengthening of its asset and wealth management businesses is also a source of revenue diversification for the bank.
In Fitch's view, RCB has a low risk appetite, partly driven by the partnership structure of the bank, which leaves general partners personally liable for the bank's liabilities. Compliance and operational controls are a key focus for RCB to avoid any damage to its reputation and the Rothschild name. Fitch views favourably the strong involvement of the Rothschild family in the day-to-day management of the bank to safeguard its reputation.
Exposure to potential revenue volatility is high. However, even during depressed business cycles RCB's profitability remained strong, and Fitch expects this to continue. Although there is a limit to the bank's ability to adjust its cost base, with a large part being staff expenses, RCB has proven that it has some cost flexibility to remain profitable and generate solid cash flow if the economic environment were to become adverse.
RCB has no financial debt (i.e. excluding deposits). Its balance sheet is low-risk and essentially liability-driven, and the bulk of its assets are high quality and liquid. The bank's capital base is sufficient, given its low risk profile, although it is small in absolute terms. Net income is generally fully distributed to the partners, meaning internal capital generation is low, but Fitch believes pay-out ratios could be reduced if needed.
SUPPORT RATING AND SUPPORT RATING FLOOR
The bank's Support Rating reflects Fitch's view that any external support to RCB, if needed, would be uncertain.
RCB is fully-controlled by Paris-Orleans (PO), a listed financial company regulated by the French banking authority and mainly owned by the French and English Rothschild families. RCB would look to PO or its shareholders for support if needed. Fitch believes that it is the Rothschild family's priority to uphold the reputation of all family companies and that resources would be made available to support RCB, to the best of the family's ability, should the need arise.
In Fitch's opinion, such external support cannot be relied upon given the difficulties associated with evaluating private family fortunes. In addition, Fitch views support from French authorities as unlikely.
RATING SENSITIVITIES
IDRS AND VR
Fitch views RCB's size and business concentration as constraints to upside potential for its ratings. A tarnishing of the Rothschild reputation and loss of franchise would put negative pressure on RCB's ratings. Lower revenue diversification, for example linked to material outflows of asset under management, or failure to address shrinking revenue by adjusting costs could have negative implications for the ratings. RCB's ratings would be sensitive to a downgrade of its sister bank (N M Rothschild & Sons Limited, BBB+/Stable), as this could potentially weigh on RCB's reputation.
SUPPORT RATING AND SUPPORT RATING FLOOR
An upgrade of RCB's Support Rating and upward revision of its Support Rating Floor would be contingent on a positive change in the sovereign's propensity to support its banks and in the systemic importance of the bank. While not impossible, this is highly unlikely in Fitch's view.
The rating actions are as follows:
Long-term IDR: affirmed at 'A'; Outlook Stable
Short-term IDR: affirmed at 'F1'
Viability Rating: affirmed at a
Support Rating: affirmed at 5
Support Rating Floor: affirmed at 'No Floor'
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