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Rating Action:

Moody's downgrades Cassa Centrale Banca's issuer rating to Ba1 from Baa3; deposit ratings on review for upgrade

09 Oct 2019

Baseline Credit Assessment downgraded to ba1

Paris, October 09, 2019 -- Moody's Investors Service ("Moody's") today downgraded the issuer rating of Cassa Centrale Banca S.p.A. (CCB) to Ba1/NP from Baa3/P-3, concluding its review. The outlook on the long-term issuer rating was changed to stable from rating under review.

The bank's Baseline Credit Assessment (BCA) and Adjusted BCA were downgraded to ba1 from baa3, concluding the reviews.

CCB's CR Assessment of Baa3(cr)/P-3(cr), CRR and deposit ratings of Baa3/P-3 remain on review, but the agency has changed the direction to review for upgrade from review for downgrade.

The full list of affected ratings is at the end of the press release.

RATINGS RATIONALE

Moody's took several rating actions following CCB's organizational transformation and the creation of a fully-fledged banking group ("Gruppo Cassa Centrale" or the group), underpinned by mutual support arrangements between members. The bank's reorganization was prompted by the need for the group to comply with the Italian cooperative banking reform effective from 1 January 2019.

Baseline Credit Assessment

CCB's solvency suffers from high levels of problem loans (12% of gross loans) as well as weak recurring profitability, partly offset by a high tangible common equity (TCE) to risk-weighted assets ratio of 32% as of December 2018.

CCB, as the central body of the new Gruppo Cassa Centrale, has a good liquidity profile, albeit highly dependent on deposits from its affiliated members. Together, these factors drive a financial profile of baa3.

However, CCB's BCA is now constrained by the creditworthiness of the newly formed Gruppo Cassa Centrale, driving the downgrade of CCB's BCA to ba1 from baa3. This is because the new mutual support arrangements between members of the group mean that CCB's own creditworthiness is now inseparable from that of the broader group. Indeed, based on their aggregated financial data, Gruppo Cassa Centrale's local banks have higher problem loans, weaker capitalization, and lower liquidity than CCB itself. The Adjusted BCA of ba1 is aligned with the BCA.

Ratings

The downgrade of CCB's issuer ratings to Ba1/NP from Baa3/P-3 is driven by the downgrade of CCB's Adjusted BCA. The liability structure of the combined group is likely to lead moderate loss-given-failure for senior unsecured debt, hence CCB's issuer rating is in line with its Adjusted BCA.

However, Moody's placed the deposit ratings and CRRs of Baa3/P-3 and CR Assessment of Baa3(cr)/P-3(cr) on review for upgrade as Moody's believes that Gruppo Cassa Centrale as a whole may have sufficient debt and deposits to reduce loss-given-failure for these instruments. This should be confirmed with the disclosure of consolidated financial statements.

On 20 September 2019, a shareholders' meeting of Banca Carige S.p.A. (Carige, Caa1/Caa3 ratings under review, ca review for upgrade) voted for a rescue plan including an equity investment by CCB of €63 million, which may increase over time via a call option. However, this has no bearing on today's rating action as the potential acquisition of Carige will likely take time to conclude, during which the creditworthiness of Carige is likely to change significantly.

RATING OUTLOOK

The outlook on CCB's long-term issuer rating of Ba1 is now stable, indicating the rating agency's expectation that the bank's credit profile and degree of protection for its senior creditors from the stock of bail-in-able liabilities will not materially change over the next 12-18 months.

The CR Assessment, CRRs and deposits ratings remain on review, but now for upgrade, rather than for downgrade. This reflects potential lower loss-given-failure thanks to the likely larger base of junior deposits collected by the group's local banks. This review will be concluded once the new group has filed audited consolidated accounts.

FACTORS THAT COULD LEAD TO AN UPGRADE

The ratings of CCB could be upgraded following an upgrade of the Adjusted BCA, driven by better than expected asset quality, capital and profitability. The issuer ratings could be upgraded following an increase in bail-in-able debt.

The deposit ratings, CR Assessment, and CRRs, which are currently on review for upgrade, would be upgraded should the consolidated financial accounts of the Gruppo Cassa Centrale confirm a reduction in loss-given-failure, other things being equal.

FACTORS THAT COULD LEAD TO A DOWNGRADE

The ratings of CCB could be downgraded following a downgrade of the Adjusted BCA driven by higher asset risk, lower capital and profitability, as well as lower liquidity.

The ratings of CCB could also be downgraded following a material reduction of the group's deposits which would increase the losses for junior depositors in case of failure.

LIST OF AFFECTED RATINGS

Issuer: Cassa Centrale Banca S.p.A.

..Downgrades:

....Long-term Issuer Ratings, downgraded to Ba1 from Baa3, outlook changed to Stable from Rating under Review

....Short-term Issuer Ratings, downgraded to NP from P-3

....Baseline Credit Assessment, downgraded to ba1 from baa3

....Adjusted Baseline Credit Assessment, downgraded to ba1 from baa3

..Placed on review for upgrade from previously review for downgrade:

....Long-term Counterparty Risk Ratings, currently Baa3

....Short-term Counterparty Risk Ratings, currently P-3

....Long-term Bank Deposits, currently Baa3, outlook remains Rating under Review

....Short-term Bank Deposits, currently P-3

....Long-term Counterparty Risk Assessment, currently Baa3(cr)

....Short-term Counterparty Risk Assessment, currently P-3(cr)

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Guy Combot
VP-Senior Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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