ROTHSCHILD & CO
Fitch Ratings has affirmed
A full list of rating actions is detailed below.
Fitch has withdrawn RMM's Support Rating of '5' and Support Rating Floor of 'No Floor' as they are no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on
Key Rating Drivers
IDRs AND VIABILITY RATING (VR)
RMM, which operates with a banking licence, and NMR are two of the main operating companies of
The ratings of RMM and NMR are supported by RCO's strong franchise in financial advisory services and the resilience of their business models. Our assessment also considers the increasing diversification of the group's business model, which we view as credit-positive. The group's risk profile is conservative and its asset quality is sound and recently improved. The ratings also factor in adequate, albeit potentially volatile, profitability, strong capitalisation and sound funding.
The group's business profile has a high influence on the ratings. RMM's and NMR's business profiles are primarily supported by the group's strong franchise in mergers and acquisitions (M&A), especially in
RCO's subsidiaries generate high returns on equity, with financial advisory traditionally constituting the bulk of profit before tax. The focus on a large number of transactions and the development of debt restructuring advisory generally reduces the volatility of financial advisory's revenue, which strongly benefitted from a record volume of M&A transactions in 2021. RMM's developing private banking business also contributes to improving earnings stability. We believe cost efficiency will continue to be challenged by high competition for talent in advisory and margin compression on private banking, but this should not affect our view on the group's profitability.
The Rothschild's family ownership contributes to a conservative risk profile. Nonetheless, we view this risk profile as moderately higher than at typical private banks. The impaired loans/gross loans ratio remains higher than generally seen at private banks but below that of most French banks at this point in the cycle. The ratio is gradually improving as RMM is running-down its corporate loan book and is growing its low-risk Lombard loans portfolio.
The group's capitalisation is sound and commensurate with the moderate risk profiles of RMM and NMR. It benefits from RCO's strong capitalisation (21.3% common equity Tier 1 (CET1) ratio at end-2021), and we would expect ordinary capital support to flow within the group as needed, subject to local regulatory requirements for each subsidiary being met.
NMR has a low funding requirement, while RMM is largely funded by a growing deposit base gathered through its private-banking activities, providing it with a fairly stable funding source. Liquidity management is prudent as RMM maintains a large buffer of liquid assets, mainly in the form of central bank deposits.
RMM's and NMR's Short-Term IDRs of 'F1' are the higher of the two possibilities for an 'A-' Long-Term IDR to reflect our 'a' score for the group's funding and liquidity.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
RMM's and NMR's IDRs could be downgraded if the group's reputation is tarnished or if its corporate governance framework weakens, as these could damage their franchise and business model. A pronounced and durable decline in revenue and profitability weakens the group's operating profit/risk-weighted assets close to 1.5% could also put pressure on RMM's and NMR's ratings, as this would also indicate a weakening of the group's business profile.
A decline in RCO's existing capital buffers leading to the group's CET1 ratio consistently and significantly below 15% with no clear path to restore it to current levels and unexpected deterioration in asset quality given RMM's risk profile would be negative for the ratings.
While not expected, a materially reduced level of integration within RCO for RMM and NMR coinciding with lower strategic importance would be ratings-negative.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The most likely trigger for an upgrade would be the development of RMM's and NMR's global franchise in M&A and greater diversification of the business model through a significant strengthening of RMM's private-banking franchise. A further decrease in the stock of impaired loans and a shrinking of RMM's corporate loan book could also be ratings-positive, but on its own not sufficient for an upgrade.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
GSR
RMM's GSR 'ns' reflect Fitch's view that any external support from the authorities, if needed, cannot be relied upon. Fitch views support from the French authorities as unlikely given resolution legislation and the bank's low systemic importance.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The 'BBB' rating of the perpetual notes issued by NMR's subsidiary
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The rating for the subordinated notes issued by RCF could be downgraded if NMR's Long-Term IDR is downgraded.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The rating for the subordinated notes issued by RCF could be upgraded if NMR's Long-Term IDR is upgraded.
An upward revision of RMM's GSR would be contingent on a positive change in the sovereign's propensity to support the bank and in the systemic importance of RMM. While not impossible, this is highly unlikely, in Fitch's view.
VR ADJUSTMENTS
RMM's VR is assigned at one notch below the 'a' implied VR, to factor in that the business profile has a strong impact on the assigned VR.
The business profile score of 'a-' has been assigned above the 'bbb' category implied score, due to the following adjustment reason: market position (positive).
The earnings & profitability score of 'a-' has been assigned below the 'aa' category implied score, due to the following adjustment reason: earnings stability (negative)
The funding & liquidity score of 'a' has been assigned below the 'aa' category implied score, due to the following adjustment reason: deposit structure (negative).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONS
Entity / Debt
Rating
Prior
LT IDR
A-
Affirmed
A-
ST IDR
F1
Affirmed
F1
LT IDR
A-
Affirmed
A-
ST IDR
F1
Affirmed
F1
Viability
a-
Affirmed
a-
Support
WD
Withdrawn
5
Support Floor
WD
Withdrawn
NF
Government Support
ns
New Rating
subordinated
LT
BBB
Affirmed
BBB
Page
of 1
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.
APPLICABLE CRITERIA
Bank Rating Criteria (pub.
Non-Bank Financial Institutions Rating Criteria (pub.
ADDITIONAL DISCLOSURES
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
ENDORSEMENT STATUS
Rothschild Martin Maurel S.C.S. EU Issued,UK Endorsed
N. M. Rothschild & Sons Limited UK Issued,EU Endorsed
Rothschild & Co Continuation Finance PLC UK Issued,EU Endorsed
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