The credit bureau warned in a report issued on Monday that “over 95%” of the western European banks whose ratings it has reviewed in recent weeks could potentially be downgraded in the coming months.

Altogether, since 20 March Fitch has downgraded 10 banking groups, placed another 38 on “ratings watch negative” and “revised the outlooks of 57 banking groups to negative.”

Western European banks have been impacted by the “shock” of virus-related lockdowns. Fitch forecast that eurozone GDP would shrink by 4.2% this year and the bloc’s economy would only recover to pre-outbreak levels at the end of 2021.

Downgrades

Fitch downgraded the long-term credit rating for Quintet Private Bank from BBB+ (the 8th highest out of its 20 scores) to BBB (the 9th highest out of 20) on 4 April. Fitch said Quintet’s profitability, already weak, would come under further pressure.

Quintet noted that BBB is still investment grade and Fitch’s outlook for the bank is stable. Nicholas Nesson, group head of communications, told Delano on Monday:

“Quintet’s liquidity and capital positions remain very strong, well above regulatory thresholds. All our banks are fully operational, with the necessary measures in place to protect the health of our clients and staff, while ensuring that we continue to manage the wealth of the individuals and families we serve – with no disruption.

 

“Quintet is making very significant investments in the future, including in great people, product development and geographic expansion to support the firm’s long-term growth and ability to serve its clients even better. It is important to note that those investments are fully funded by the significant capital that has been injected by our shareholders, including €110 million of fresh capital over the last six months as part of a fully funded long-term growth strategy.”

Ratings watch

Fitch placed BGL BNP Paribas on its “ratings watch negative” list on 2 April. According to the research firm, “rating watches indicate that there is a heightened probability of a rating change and the likely direction of such a change.”

While the bank has a “sound financial position,” Fitch stated, “the operating environment [in Luxembourg] will likely deteriorate significantly in 2020”. The bank is still rated A+ (the 7th highest out of 20 possible credit scores).

Delano asked BGL BNP Paribas for comment.

Negative outlook

Fitch put DZ Privatbank and put Nord/LB Luxembourg Covered Bond Bank on its “negative outlook” list on 27 March and 6 April, respectively. “Outlooks indicate the direction a rating is likely to move over a one- to two-year period,” per Fitch.

Both financial institutions are owned by (different) German cooperative banking confederations. Fitch pointed to weakness at DZ Privatbank’s parent organisation. DZ Privatbank is rated AA- (the 4th highest out of 20 possible ratings).

Nord/LB Luxembourg’s owners could become distracted by domestic concerns, Fitch reckoned. Nord/LB Luxembourg is rated A- (7th highest).

Delano asked DZ Privatbank and Nord/LB Luxembourg for comment.

Generally speaking, a higher credit rating makes it cheaper to borrow on global capital markets and many institutional investors can only hold debt issued by financial institutions with a certain minimum rating.

Fitch published its report, “Coronavirus Rating Impact: Western European Banks”, on 20 April.