French Public Financial Institution Groupe Caisse des Depots et Consignations Affirmed At 'AA/A-1+'; Outlook Stable

  • France's new PACTE law affirms Groupe Caisse des Depots et Consignations's (CDC's) general public interest mandate, allows state and parliamentary controls over CDC to be maintained, and permits CDC's majority take-over of La Poste in return for transferring its 40.9%-stake in CNP Assurances to La Poste.
  • In our view, the PACTE law does not affect the almost certain likelihood that CDC would receive timely and sufficient extraordinary support from the French government in the case of financial distress.
  • Consequently, we are affirming our 'AA/A-1+' ratings on CDC, which we equalize with our sovereign ratings on France.
  • The stable outlook on CDC reflects that on France.
PARIS (S&P Global Ratings) April 23, 2019--S&P Global Ratings today affirmed its 'AA/A-1+' long- and short-term issuer credit ratings on Groupe Caisse des Depots et Consignations (CDC). The outlook is stable.
We equalize our ratings on CDC with those on France (unsolicited, AA/Stable/A-1+) because, based on our view of CDC's critical role for and integral link with the French government, we consider that there is an almost certain likelihood that the government would provide timely and sufficient extraordinary support to CDC in the event of financial distress. Because we do not see the likelihood of government support as subject to transition risk, we expect that the ratings and outlook on CDC will move in line with those on France.
Supporting our view of its critical role for the French government, CDC conducts key public missions and provides support in implementing government policies. Its prime public role is to guarantee the financial security of the funds it manages. Its key mandates include:
  • Centralizing and managing most of the regulated savings deposits collected by French banks (primarily the Livret A) and providing long-term financing to general interest programs, including social housing and local investments entrusted to Direction des Fonds d'Epargne (DFE). We note that DFE is not consolidated into CDC's balance sheet. DFE's regulated savings portfolio amounted to a very large €253 billion as of year-end 2018. About 70% of this total routinely funds long-term loans to support public investments and social housing, the balance being invested in a portfolio of securities under prudent guidelines;
  • Administering several public retirement schemes, and deposits of legal professions, including notaries;
  • Acting as a long-term investor in affiliates and through strategic shareholdings to support government policies, directly and through Banque Publique d'Investissement (BPI France). Jointly-owned by CDC and the French government, BPI France's key role is to support and fund investments by French small and midsize enterprises. CDC's other major equity investments currently include leading French life insurer CNP Assurances, postal operator La Poste, real-estate operator CDC Habitat, developer Icade, and electricity transmission system operator Réseau de Transport d'Electricité (through Coentreprise de Transport d'Electricité). CDC also has a portfolio of highly rated bonds and equities in large listed French companies and, to a lesser extent, operates as a private equity investor.
  • Supporting regional and local development, and acting as a key stakeholder in the long-term funding of local authorities, including through direct lending (from DFE) and through investments in local projects, and indirectly through its 20% stake in public development bank SFIL (AA/Stable/A-1+) and its 35% stake in Banque Postale Collectivités Locales, a joint venture with La Banque Postale (LBP) that distributes loans to LRGs and public hospitals, and whose loans are partly being refinanced by SFIL.
The Plan d'Action pour la Croissance et la Transformation des Entreprises ("PACTE") law (agreed on April 11, 2019 by parliament) affirms CDC's public interest mandate, carried out on behalf of the French government. The law also allows CDC's majority take-over of La Poste (A/Positive/A-1) in return for transferring its 40.9%-stake in French life insurer CNP Assurances (A/Stable/--) to La Poste, as announced in late August 2018. However, we still lack clarity regarding the project's calendar and specifics. We note some potential regulatory obstacles, including a possible requirement of a buy back of the CNP Assurances' shares held by minority shareholders, could cause the project to depart from the initially announced terms. If so, we would then assess the potential effect on CDC's financial standing, considering that CNP Assurances has historically been a key contributor to CDC's earnings. In addition, we will also monitor the effects of a recently announced project that would involve CDC taking over SFIL, which is currently majority-owned by the State (75%), with CDC owning 20% and LBP 5%.
In our view, CDC retains its integral link with the French government. As a public agency ("Etablissement public") defined by a special law dating from 1816, we understand that CDC is immune to liquidation and bankruptcy law, and decisions on its dissolution would revert to the French government, which we view as ultimately responsible for CDC's liabilities (under Law 80-539 enacted on July 16, 1980). Strict procedures ensure effective governance, monitoring, and control of CDC. CDC's CEO is appointed by the French president for a five-year term, most recently in November 2017. Under the French Monetary and Financial Code, CDC is subject to parliamentary supervision. Its supervisory board (CS) comprises members of the French parliament and senior civil servants, and is responsible for ensuring that CDC's strategy is in line with its mandate, and that its financial policy remains defined under sound principles.
While it will change the composition and activities of CDC's CS, the PACTE Law will not alter the links between CDC and the government, in our view, as the government and parliament will still fully control CDC and its strategy. We also note the new law indicates the level of dividends paid to the state will be set by government decree, after CS review, but so that CDC's solvency is preserved. Additionally, the PACTE law also indicates that the French banking regulator ACPR will supervise CDC.
CDC's financial profile has distinctive features, with comparatively limited lending activity and generally low counterparty risk. CDC's deposit base is steadily increasing, with deposits exceeding loans almost fourfold over recent years. In our opinion, CDC's capitalization is constrained by its large investments in equities, which can lead to large swings in net income. While CDC is not a bank, French regulator ACPR has been reviewing its capital adequacy over recent years, and we understand ACPR will be in charge of prudential controls over CDC, under the new PACTE law.
The stable outlook on CDC reflects our outlook on France. We believe that CDC will retain its critical role for and integral link with France, and therefore expect our ratings on CDC will move in line with those on France.
We would lower our ratings on CDC following a similar rating action on France, if we perceived a weakening of CDC's link with or role for the French government, or if we saw deterioration in CDC's financial profile that would cause us to review our assessment of the importance of CDC's financial standing to the government.
We would raise the long-term rating on CDC if France's credit quality were to improve and the likelihood of support for CDC remained almost certain.
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