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Fitch Affirms Lombard Odier at 'AA-'; Outlook Stable
December 17, 2014 / 4:07 PM / 3 years ago

Fitch Affirms Lombard Odier at 'AA-'; Outlook Stable

(The following statement was released by the rating agency) LONDON, December 17 (Fitch) Fitch Ratings has affirmed Compagnie Lombard, Odier SCA's (Lombard Odier) 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. Lombard Odier is the unlimited liability holding company that owns the main operating entities of the Lombard Odier Group. KEY RATING DRIVERS - VIABILITY RATING (VR) AND IDRs Lombard Odier's VR and IDRs reflect its well-established private banking franchise, not only in Switzerland but also worldwide, as well as its very low risk appetite. The ratings also factor in good structural profitability, solid capitalisation and highly liquid balance sheet. Fitch assumes that Lombard Odier will not build double leverage and that there will be no material constraints, other than minimum regulatory requirements, for the operating subsidiaries of Lombard Odier to upstream dividends or transfer liquidity among them. Also, the ratings consider Fitch's assumption that any potential litigation cost, including for example related to the ongoing U.S. Department of Justice's (DoJ) investigation into its U.S. off-shore client base, would not materially erode Lombard Odier's capitalisation. Lombard Odier is one of Switzerland's largest independent private banks. Its well-established private banking franchise places the group in a favourable position to withstand the increasing pressure over the wealth management sector relative to peers. At end-June 2014, the group had CHF156bn assets under management, of which CHF115bn related to private wealth management. Despite its sound private banking franchise it still faces the challenge of increasing the scale and profitability of its asset management business. Lombard Odier strives to minimise balance sheet risks and thus has a very low appetite for credit and market risks. It is more exposed to operational and reputation risks, but there are procedures and policies in place to reduce these, which are well managed in Fitch's view. Lombard Odier is well capitalised and has a comfortable liquidity position, due to the high quality and short term nature of its assets. At end-June 2014, the group reported a robust 23.8% common equity tier 1 ratio. Although the absolute size of equity is small for an 'AA-' rated bank, this is offset by the focus on wealth management and the very low risk profile of the bank. Management's strategic focus on growing organically the bank's franchise has been consistent over the years. 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 reflects Fitch's expectation that Lombard Odier will continue to generate stable and adequate profitability while avoiding significant operational or reputational losses. RATING SENSITIVITIES - VIABILITY RATING (VR) AND IDRs Lombard Odier's VR and IDRs are sensitive to any sizeable operational, reputational or litigation loss and to the emergence of any significant constraint to the ability of the different operating subsidiaries to upstream dividends to the parent. In addition, Lombard Odier SCA's ratings are sensitive to the build-up of double leverage at the holding company. In the short term, Lombard Odier's ratings are sensitive to a materially higher than expected impact of the outcome of the ongoing discussions with the U.S. DoJ. If the financial cost of a potential settlement results in a material weakening of the group's capitalisation or the U.S. authorities imposes actions that might damage Lombard Odier's franchise, the ratings could be downgraded. Negative rating pressure could arise were Lombard Odier unable to compensate pressure on off-shore private banking revenues with further development of its on-shore private banking and asset management businesses in the medium term. However, Fitch expects the bank to maintain its solid company profile. Given the already high ratings compared with peers and challenges facing the sector, ratings upside potential for Lombard Odier is limited. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR Lombard Odier's Support Rating and Support Rating Floor (SRF) reflect Fitch's view that sovereign support, while possible, cannot be relied upon. Lombard Odier 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 support-driven ratings. In addition, Lombard Odier might receive funding and capital support from its partners' private wealth. Again, this potential support has not been included in the ratings as is difficult to quantify. RATING SENSITVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR Given Lombard Odier's business model, any changes to its Support Rating and SRF are highly unlikely. Fitch's rating actions are as follows: Compagnie Lombard, Odier SCA (Lombard Odier) 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: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 31 January 2014 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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