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Fitch Rates Swisscard 'A-'/'F1'; Outlook Stable
October 2, 2017 / 2:20 PM / 2 months ago

Fitch Rates Swisscard 'A-'/'F1'; Outlook Stable

(The following statement was released by the rating agency) LONDON, October 02 (Fitch) Fitch Ratings has assigned Swisscard AECS GmbH (SC) a Long-Term Issuer Default Rating (IDR) of 'A-' and a Short-Term IDR of 'F1'. The Rating Outlook is Stable. The IDRs are driven by the standalone credit risk profile of SC, but are also underpinned by the likelihood of institutional support from its 50% owner Credit Suisse (Schweiz) AG (CS Schweiz, rated A/Stable/a). KEY RATING DRIVERS The standalone credit risk profile reflects SC's risk-averse business model with tight control of credit risk, strong profitability and moderate leverage. SC also benefits from its strategic relationships with Credit Suisse AG (CS; rated A/Stable/a-) and American Express Company (Amex, rated A/Stable/a), SC's 50-50 joint owners (CS, via CS Schweiz), which support its market leadership in the issuance of credit cards in Switzerland. The ratings are constrained by the company's monoline and geographically concentrated business model and reliance on wholesale funding with high encumbrance of assets. SC benefits from a stable operating environment as it operates almost exclusively in the highly developed Swiss market. The company has a strong market position with a leading, albeit slowly declining, market share in the growing Swiss credit card segment. Its business model is focused solely on Switzerland, but is well-tested and allows the company to tightly control credit and interest rate risks, while avoiding foreign exchange risk. SC is only active in the credit card segment, but business concentration risk is somewhat mitigated by diversification of revenue by several types of fee income as well as interest income (13% of total revenue in 2016). SC does not publicly disclose financial statements. Its corporate governance is in line with its status as an unlisted company. SC has historically exhibited solid asset quality metrics, with charge-off rates at less than 1% of total receivables through the cycle (0.7% in 2016). This compares well with both local and international peers and is a function of generally better payment discipline of consumers in Switzerland, as well as prudent underwriting and rigorous control of credit risk by SC. SC's strong profitability benefits from stable revenue generation from several types of credit card and processing fees. The company has demonstrated an ability to adapt to regulatory changes (interchange caps, interest limitation) and generate predictable cash flows. SC is not subject to direct regulation, but is supervised by Swiss regulator FINMA through CS. SC management targets an equity/assets ratio of 20% to 25% which supports strong capitalisation levels. Leverage calculated as debt-to-tangible equity was 2.4x at end-2016, which Fitch views as strong relative to the quality of SC's assets and is supportive of the ratings. SC plans modest asset growth (about 3% annually) in the next four years, but this will likely be accompanied by full profit payout and therefore lead to a gradual increase in leverage. However, leverage is expected to remain commensurate with SC's ratings. SC is wholesale-funded, predominantly by secured funding (ABS amounted to CHF600 million at end-2016), which Fitch views as a rating constraint. SC's well-balanced maturity profile reduces refinancing risk. This risk is further mitigated by committed unused credit lines from three Swiss banks, including CS, which covered a large proportion of wholesale funding maturities as of end-2016. CS also provides an additional uncommitted line that could be available in a stress scenario. SC's Long-Term IDR also reflects our view that SC is strategically important to CS Schweiz and thus CS. This corresponds to an institutional-support driven IDR that is one notch lower than CS Schweiz's Viability Rating of 'a'. The assessment of institutional support from CS takes into account the shared jurisdiction, the manageable cost of potential institutional support relative to CS's available resources, synergies between CS and SC given that SC is the sole issuer of CS's credit cards in Switzerland and reputational risks for CS. Factors limiting credit for potential institutional support primarily include the partially different branding and the joint venture nature of SC's ownership structure. While Fitch acknowledges the strategic nature of SC's relationship with Amex, the agency does not ascribe any institutional support uplift to SC's ratings from Amex given the different branding, the joint venture nature of the ownership structure and the limited impact of SC's activities on Amex's overall business. SC's Short-Term IDR of 'F1' corresponds to the higher of the two possible ratings for a 'A-' Long-Term IDR, as Fitch generally views institutional support from CS as more certain in the near term. RATING SENSITIVITIES SC's ratings are sensitive to a combination of the company's standalone credit risk profile, Fitch's assessment of SC's strategic importance to CS and the ratings of CS. For example, the ratings could be upgraded in case of an upgrade of the VR of CS Schweiz, a more formal commitment of support from CS Schweiz to SC or an improvement in SC's standalone credit risk profile as a result of improved business diversification, earnings stability, funding diversity or unencumbered assets. Conversely, ratings could be downgraded as a result of a combination of a downgrade of CS Schweiz's VR and Fitch's assessment of deterioration in SC's credit risk profile as a result of a material increase of risk appetite (or risk tolerance), a weakened competitive position in the Swiss credit card market, a sustained increase in leverage, or weaker funding flexibility, for example as a result of a decrease in available committed funding lines from highly rated counterparties. SC's ratings are also sensitive to changes in Fitch's assessment of SC's strategic importance to CS. For example if Fitch believes that SC is no longer strategically important to CS, SC's ratings would be more sensitive (on the downside) to changes in SC's standalone credit risk profile and less sensitive (on the upside) to changes in CS Schweiz's VR. Contact: Primary Analyst Christian Kuendig Senior Director +44 20 3530 1399 Fitch Ratings Limited 30 North Colonnade London Secondary Analyst Aslan Tavitov Director +44 20 3530 1788 Committee Chairperson Nathan Flanders Managing Director +1 212 908 0827 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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