Fitch Ratings has affirmed Amundi's Long-Term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook and Short-Term IDR at 'F1'.
Amundi's IDRs are based on Fitch's standalone assessment of Amundi as well as the institutional support of its majority owner, Credit Agricole (CA, A+/Stable).
The rating actions are part of Fitch's global peer review of traditional investment managers.
Fitch has withdrawn Amundi's Support Rating of '1' as it is no longer relevant to the agency's coverage following the publication of its updated 'Non-Bank Financial Institutions Rating Criteria' dated 31 January 2022. In line with the updated criteria, we have assigned Amundi a Shareholder Support Rating (SSR) of 'a+'.
Key Rating Drivers
On a standalone basis, Amundi's IDRs reflect the company's large and geographically diversified franchise, sound risk management and solid financial profile. The ratings also recognise the company's considerable (albeit reducing in relative terms) assets under management (AuM) exposure to low-yielding investment mandates with affiliate French insurance groups (24% of AuM in 2021) as well as its susceptibility to market volatility inherent to its business model.
Amundi is listed on the Paris Stock Exchange and is one of Europe's largest investment managers (AuM as at year-end 2021 of EUR 2,064 billion), leveraging well-established distribution capabilities and a broad product set. Product distribution centres around long-standing distribution agreements with well-established banking partners (in its domestic French market most notably via its 69.5% majority shareholder, CA as well as Societe Generale) and also direct corporate relations. In Asia (notably India and China), business is conducted mainly via joint ventures. Business growth in recent years has been supported by strategic acquisitions, including Pioneer in Italy in 2017 (EUR243 billion in AuM), Sabadell Asset Management in Spain in 2020 (EUR22 billion in AuM) and most recently Lyxor in France in 2021 (EUR148 billion in AuM), with the latter transaction having notably enhanced Amundi's exchange traded funds offering.
Amundi's asset performance has been sound in recent years, with AuM advancing at a compound annual rate of 12% since 2012 (19% growth in 2021 or 11% excluding Lyxor). For 2021, the AuM base (excluding Lyxor) was buoyed by positive market valuation effects (EUR127 billion) and sound net inflows (EUR60 billion), with the latter driven in particular by strong results in Amundi's retail business. Geographically, France remains the single largest market for Amundi (50% of AuM in 2021), albeit recently reduced as the company has expanded globally, notably Asia (19% of AuM) and Europe (15% of AuM).
Profitability has been robust, with the four-year historical fee-earning EBITDA/net recurring fee revenue margin equating to 46.2% (FY21: 43.6%). Earnings generation remains supported by a high level of recurring management fees and a continued emphasis on cost efficiencies (with Amundi reporting a competitive cost-to-income ratio excluding performance fees of 50.6% in 2021). Reliance on performance fees (which Fitch excludes from its EBITDA calculation) is typically limited to below 10% of fee revenues, but somewhat increased in 2021, at 13%, due to favourable asset valuations dynamics.
Our leverage assessment adjusts for structured product instruments (EUR9.7 billion in 2021), which Amundi issues and on-lends to CA with matching terms. On this basis, Amundi's gross debt was EUR2.1 billion at end 2021 (2020: EUR3.2 billion), which corresponds to a gross debt/FEBITDA ratio of 1.6x in 2021. This ratio reduces further to a low 0.1x (2020: 0.7x; four-year average: 0.3x) net of cash balances placed with CA. As a regulated bank, Amundi is also required to comply with prudential capital requirements. At end-2021, Amundi reported a common equity Tier 1 (CET1) ratio of 16.1% (end-2020: 20%), with the YoY reduction resulting from the Lyxor acquisition and associated goodwill creation. However, against a regulatory minimum of 7%, the CET1 capital buffers remain comfortable, particularly given Amundi's cash-generative business model and moderate dividend policy (65% of net income).
Funding for Amundi's business model is derived primarily via its own equity base (EUR3.5 billion tangible equity at year-end 2021) and funding lines provided by CA (in particular to cover liquidity needs arising from guaranteed products and structured products issuance activities). Amundi has no upcoming external debt maturities and its interest coverage remains robust (four-year average in excess of 40x) and commensurate with the rating.
SSR
Amundi's SSR of 'a+' reflects our view that it is a core subsidiary of CA and that support is extremely likely, if ever required. Our institutional support assessment recognises Amundi's role as CA's primary asset management business, which complements other group activities. In addition, Amundi's balance sheet-light business model (and limited arising capital and liquidity commitments) as well as its reliable earnings contributions make the business an attractive long-term asset for CA.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A notable weakening in asset performance, in particular arising from a sustained marked deterioration in net new money flows, negatively affecting AuM and ultimately profitability;
A sustained increase in cash flow leverage (adjusted for matched exposures with CA) or a notable weakening in key regulatory capitalisation metrics.
A downgrade of CA's rating would not automatically trigger a downgrade of Amundi's ratings. However, we note that Amundi relies on CA's distribution network for business generation (notably in France) and is integrated with CA in terms of risk and liquidity management, which results in our view of a correlation between Amundi's and CA's risk profiles.
SSR
The SSR is sensitive to any change in the assumptions around the propensity or ability of CA to provide timely support for Amundi. This may arise, for instance, from a reduced importance of savings products in CA's overall strategy, a material reduction of CA's stake in Amundi or a downgrade of CA's Long-Term IDR by two or more notches, which Fitch currently views as unlikely.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
As Amundi's Long-Term IDR is at the upper end typically assigned by Fitch to traditional investment managers, rating upside is limited. An upgrade remains subject to Amundi improving franchise strength by further enhancing its international presence while also maintaining sound asset performance and sustaining conservative leverage discipline.
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 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
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
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