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Fitch: No Immediate Rating Impact on Desjardins from Finalized Bail-In Rules

Published 2019-03-22, 02:15 p/m
Updated 2019-03-22, 02:20 p/m
© Reuters.  Fitch: No Immediate Rating Impact on Desjardins from Finalized Bail-In Rules

© Reuters. Fitch: No Immediate Rating Impact on Desjardins from Finalized Bail-In Rules

Fitch Ratings-Chicago-March 22: The finalization of bail-in rules released by the Autorite des marches financiers (AMF) has no immediate impact on the ratings of Federation des Caisses Desjardins du Quebec (FCDQ) or Desjardins Group (DESJ), according to Fitch Ratings.

This cooperative group is a domestically systemically important financial institution (D-SIFI) and is chartered in Quebec. FCDQ is the legal entity and key organization that supports the caisses within the Desjardins Group. On March 20, 2019, the AMF published its finalized bail-in rules in Quebec's Official Gazette which are applicable to Desdardins Group.

Under the bail-in regime, AMF can impose losses on unsecured creditors in the hypothetical event of FCDQ's failure, while its legacy senior debt (issued before March 31, 2019), covered bonds, deposits and derivatives are exempt from bail-in.

Fitch views the bail-in regime applicable to FCDQ to be in line with that applied to Canadian D-SIBs regulated by the Office of the Superintendent of Financial Institutions (OSFI). Fitch removed its assumption of sovereign or providential support from DESJ's ratings on Feb. 1, 2019 in anticipation that the final bail-in rules would be consistent with OSFI's. The action reflected Fitch's view that, notwithstanding their systemic importance, the government's capacity to support the banking system or the authorities' retained flexibility to resolve insolvent banks, the likelihood of government support would no longer be certain and therefore cannot be relied upon. The bail-in regime applicable to DESJ takes effect on March 31, 2019 and provides until April 2022 for DESJ to build up required total loss absorbing capital, as prescribed by the AMF. Fitch expects that DESJ will comply with these requirements.

Moreover, as previously communicated, Fitch would expect to upgrade FCDQ's Derivative Counterparty Rating (DCR), its deposit rating as well as legacy senior debt (issued before March 31, 2019) by one notch above its respective Long-Term and Short-Term Issuer Default Ratings as the level of bail-in eligible debt nears its mandatory minimums under the finalized rulemaking.

For additional information on Fitch's view of Canada's bail-in regimes please see the following press releases: "Fitch Rtgs: Canadian Bank Bail-in Leads to Lower Support Ratings, Floors" (January 2019) "Fitch Removes Support for Canadian Banks; No Impact on IDRs or Debt Ratings" (February 2019) "Fitch Removes Support for Desjardins Group; No Impact on IDRs or Debt Ratings" (February 2019) Contact: Bain K. Rumohr, CFA Senior Director, Financial Institutions +1-312-368-3153 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Christopher Wolfe Managing Director, Financial Institutions +1-212-908-0771 Mark Narron Director, Financial Intuitions +1-212-612-7898 Media Relations: Hannah James, New York, Tel: +1 646 582 4947, Email: hannah.james@thefitchgroup.com.

Additional information is available on www.fitchratings.com

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