December 17, 2014 / 4:41 PM / 3 years ago

Fitch Affirms Banque Pictet at 'AA-'; Outlook Stable

(The following statement was released by the rating agency) LONDON, December 17 (Fitch) Fitch Ratings has affirmed Banque Pictet & Cie SA's (Banque Pictet) Long-term Issuer Default Rating (IDR) at 'AA-' with a Stable Outlook. A full list of rating actions is at the end of this rating action commentary. Banque Pictet is the Geneva-based banking subsidiary and the main operating entity of the Pictet Group. KEY RATING DRIVERS - VIABILITY RATING (VR) AND IDRs Banque Pictet's VR and IDRs reflect the group's large and diversified wealth and asset management business, which supports its strong earnings generation capacity, as well as its very low risk appetite. The Pictet Group is one of the largest wealth managers in Switzerland and has a respectable franchise globally, which places it in a favourable position, relative to peers, to withstand the increasing pressure over the wealth management sector. At end-June 2014 the Pictet Group had CHF404bn assets under management and custody, of which CHF150bn were from its private wealth management business. Its risk appetite reflects its focus on private banking, a balance-sheet light business. However, exposure to operational and reputational risk is material but well managed and controlled, in Fitch's view. In 2013, the U.S. Department of Justice (DoJ) announced a programme for Swiss banks to cooperate in the investigation on the use of undeclared foreign banks accounts. As the Pictet Group was already under DoJ's investigation, Banque Pictet was included in the so-called 'Category 1'. The agency assumes that any potential litigation cost, including for example related to the ongoing U.S. DoJ investigation into Pictet's U.S. off-shore client base, will not materially erode Pictet Group's capitalisation. The group is well capitalised for its risk profile with a common equity tier 1 ratio of 21.8% at end-June 2014. In addition, a sizeable part of its balance sheet consists of liquid assets. Fitch assumes that a reasonable degree of fungibility of capital and liquidity will remain among the different entities of the Pictet Group. Although the absolute size of equity of the group is small for an 'AA-' rated financial institution, this is offset by management's consistent strategic focus on private banking and asset management over the years and the very low risk profile of the group. To improve transparency, the group's structure has been changed early 2014. However, in Fitch's view, public disclosure remains limited compared to that of similarly rated peers. The Stable Outlook on Banque Pictet's Long-term IDR reflects Fitch's expectation that the bank will continue to generate stable and adequate profitability while avoiding significant operational or reputational losses. RATING SENSITIVITIES - VIABILITY RATING (VR) AND IDRs Banque Pictet's VR and IDRs are sensitive to any sizeable operational, reputational or litigation loss and to any potential loosening of the integration among the different operating entities of the Pictet Group. The emergence of material constraints to the fungibility of capital or liquidity among Pictet Group's entities could result in the downgrade of Banque Pictet's ratings. In the short-term, the bank's ratings are sensitive to the outcome of the DoJ inquiry. Should the financial cost of a potential settlement or penalty exceed Fitch's expectation and have a material negative impact on the bank's or the group's capitalisation or should the U.S. authorities takes more drastic actions that might negatively affect the franchise and reputation of Pictet Group, the ratings could be downgraded. The inability to adjust its cost base to the currently difficult operating environment could also put the VR under pressure. Banque Pictet's ratings are high relative to peers and considering the challenges that the wealth management sector faces; thus upside rating potential is limited. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR (SRF) The bank's Support Rating and SRF reflect Fitch's view that sovereign support for Banque Pictet, while possible, cannot be relied upon. Banque Pictet caters for an affluent international client base and does not have a retail deposit franchise in Switzerland. In case of need, support from within the Swiss private banking sector and/or the Swiss banking industry in general might be possible but has not been factored into Fitch's ratings. In addition, Banque Pictet might receive funding and capital support from Pictet's partners' private wealth. Again, this potential support has not been included in the ratings as such support is difficult to quantify RATING SENSITVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR Given Banque Pictet's business model, any change in its Support Rating and SRF is highly unlikely. Fitch has taken the following rating actions: Banque Pictet & Cie SA Long-term IDR affirmed at 'AA-'; Outlook Stable Short-term IDR affirmed at 'F1+' Viability Rating affirmed at 'aa-' Support Rating affirmed at '5' Support Rating Floor affirmed at 'No Floor' Contact: Primary Analyst Josu Fabo Director +44 20 3530 1513 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Erwin van Lumich Managing Director +34 93 323 8403 Committee Chairperson Olivia Perney Guillot Senior Director +33 1 4429 91 74 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 31 January2014 is available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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