The London-based ratings agency IBCA has downgraded its long-term credit rating for Banque Indosuez. The move comes at the end of a difficult summer for the bank after speculation that it was to be sold as part of a recovery strategy for its troubled parent, Compagnie de Suez. However, the ownership question has been resolved since Compagnie de Suez reaffirmed its commitment to the bank, giving Indosuez the chance to develop a new strategy that will boost profitability (MEED 30:6:95).
The bank has several Arab shareholders, including Lebanon’s Prime Minister Rafiq Hariri and the Kuwait Investment Authority. Indosuez owns stakes in several Middle East institutions and is one of the most active international banks in the region.
IBCA has reduced the bank’s long-term rating to A from A+, although its short-term rating is unchanged. The agency said a sharp drop in operating income for the first half of 1995, mainly due to lower returns from market activities, was behind the downgrade. ‘Although income has been steadily recovering in recent months and the second half of the year promises to be better than the first half, IBCA believes that Banque Indosuez’s core profitability will remain under pressure,’ an IBCA statement issued on 26 October said.
IBCA said the decision by Compagnie de Suez to take over the real estate risk of Banque Indosuez was positive, and will allow the bank to focus on key strategic growth areas. The bank is now reviewing all its operations, although IBCA said any initiatives will take some time before restoring profitability.
Compagnie de Suez announced losses of FF 4,700 million ($960 million) for 1994 and the sale of Banque Indosuez was mooted as part of a restructuring plan. This was successfully opposed by the Arab shareholders of the group, and the new management at Compagnie de Suez says it is now firmly behind the bank.