Wednesday, 28 January 2009

BNP Paribas Lost AA+ Counterparty Credit Rating With S&P

Standard and Poor's lowered its long-term counterparty credit rating on BNP Paribas SA, the French lender, to AA from AA+. S&P removed BNP from CreditWatch, where it was kept since Dec. 17. The action looks a bit surprising, because BNP Paribas has navigated through the credit better crisis in better shape than most of its global rivals.

"The rating action reflects the material negative impact on BNP Paribas' financial profile of the current market dislocation and rapidly deteriorating global economic cycle,'' said credit analyst Bernard de Longevialle. "We expect a significant decline in profitability,'' and ''recovery prospects'' remain limited, according to S&P. Net income probably dropped below 3 billion euros in 2008, compared with 7 billion euros in 2007, according to S&P estimates.

Despite the news, financial shares across the world went higher, on optimism the new U.S. administration will create a bad bank to absorb distressed assets (click here to read our previous posting on the bad bank. I think it went out yesterday.) The movers are: Wells Fargo, which gained more than 10 percent after refusing more government aid; the star of the day, Lloyds Plc. of the U.K., with a 43 percent gain today. Citigroup Inc. gained 20 percent in today's session. Light at the end of the tunnel? Not yet, let's first see how this bad bank proposal works.

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