Affirms baseline credit assessment at b1; maintains stable outlook on deposit ratings, negative outlook on issuer rating
Madrid, October 05, 2017 -- Moody's Investors Service has today affirmed all the ratings and assessments
of Banco BPM S.p.A. (Banco BPM). In particular,
the rating agency has affirmed the bank's (1) baseline credit assessment
(BCA) and adjusted BCA of b1; (2) long-term deposit ratings
of Ba1; (3) long-term issuer rating and senior unsecured program
ratings of Ba2 and (P)Ba2, respectively; (4) subordinated debt
ratings of B2 and (5) long-term Counterparty Risk Assessment (CR
Assessment) of Ba1(cr). The outlook remains stable on the bank's
long-term deposit ratings and negative on its long-term
issuer rating.
Moody's affirmation of Banco BPM's ratings reflects its gradual
delivery of targets in its 2016-19 strategic plan, despite
ongoing challenges to its credit profile from persistently high levels
of non-performing loans.
The stable outlook on the bank's deposit ratings reflects the resilience
of its credit profile despite ongoing solvency challenges as a result
of very weak asset risk. The negative outlook on the issuer rating
anticipates the expected reduction in the stock of bail-in-able
debt over the outlook horizon.
The short-term deposit ratings of Not Prime and short-term
CR Assessment of Not Prime(cr) are unaffected by today's rating
action.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
--RATIONALE FOR THE AFFIRMATION OF BANCO BPM's RATINGS
The affirmation of Banco BPM's BCA of b1 reflects Moody's view that,
as anticipated, the bank is gradually delivering on the targets
of its 2016-19 strategic plan, with relevant milestones of
the integration plan being accomplished (e.g. the IT integration
of the former BPM into the group's systems was completed in July
2017). Today's rating action also reflects Moody's
view that Banco BPM's solvency remains constrained by the bank's
improving but still very weak asset risk.
At end-June 2017, Banco BPM reported a stock of problem loans
equivalent to 22.6% of the bank's loan book, which
compares unfavourably with the Italian banking system average of 17.3%
at end-December 2016 (latest data available). Between the
creation of the bank on 1 January 2017 until 30 June 2017, the stock
of problem loans declined (as a result of disposals) by EUR3.1
billion and Banco BPM plans to further reduce it so that problem loans
will represent 18% of nominal loans by 2019.
Despite this improving trend, the bank's planned disposals
and need to continue reducing its large stock of problem loans beyond
the 2019 target could lead to further losses and affect the bank's
solvency. Moody's acknowledges Banco BPM's effort to
increase provisioning coverage, which stood at 49% as of
end-June 2017, but also believes that the bank's problem
loan reduction could lead to increased mark-downs.
In affirming the bank's BCA, Moody's has also taken
a forward-looking view on Banco BPM's capital to include
the positive impact stemming from the rationalization of the group's
asset management business, that the bank has estimated at 91 basis
points on its fully-loaded Common Equity Tier 1 (CET1) ratio before
year-end 2017. The bank's fully-loaded CET
1 ratio stood at 10.4% at end-June 2017, while
Moody's key capital metric, Tangible Common Equity to Risk
Weighted Assets, was 10.2% as of the same date.
Banco BPM's b1 BCA also reflects its (1) modest profitability indicators
(net income represented only 0.1% of tangible assets at
end-June 2017), which should show some improvement as the
integration plan unfolds; and (2) sound liquidity assessment that
is underpinned by a large stock of unencumbered liquid assets.
The affirmation of Banco BPM's Ba1 long-term deposit ratings reflects:
(1) the affirmation of the bank's BCA and adjusted BCA of b1; (2)
three notches of uplift from Moody's Advanced Loss Given Failure (LGF)
analysis; and (3) the rating agency's assessment of a low probability
of government support for Banco BPM that results in no uplift for the
deposit ratings.
The affirmation of Banco BPM's Ba2 long-term issuer rating and
(P)Ba2 long-term senior unsecured program ratings reflects:
(1) the affirmation of the bank's BCA and adjusted BCA of b1; (2)
two notches of uplift from Moody's Advanced LGF analysis; and (3)
the rating agency's assessment of a low probability of government support
for Banco BPM that results in no uplift for these ratings.
--RATIONALE FOR MAINTAINING STABLE OUTLOOK ON DEPOSIT RATINGS
AND NEGATIVE ON ISSUER RATING
The outlook on the deposit ratings remains stable, anticipating
that the bank's credit profile proves resilient despite ongoing
challenges to its solvency stemming from its very weak asset risk.
The outlook on the issuer rating of Banco BPM remains negative reflecting
Moody's expectation of a reduction in the stock of bail-in-able
senior debt over the next 12-18 months due to the large amount
of retail and wholesale bonds maturing during this period. This
will result in a higher loss-given-failure for this class
of debt, absent more favourable changes to the liability structure.
Over the outlook horizon Moody's will assess the liability profile
of the bank along with its near-term funding plan.
--RATIONALE FOR AFFIRMING THE CR ASSESSMENT
As part of today's rating action, Moody's has also affirmed the
long-term CR Assessment of Banco BPM at Ba1(cr), three notches
above the adjusted BCA of b1 and reflecting the cushion provided by the
volume of bail-in-able debt and deposits (27.5%
of tangible banking assets at end-June 2017), which would
likely support operating obligations in the event of a resolution.
WHAT COULD CHANGE THE RATINGS UP/DOWN
The standalone BCA of Banco BPM could be upgraded if the group were to
meet the targets of its strategic plan, which assumes a substantial
reduction in the stock of problem loans while preserving profit generation
capacity and capital. An upgrade of the BCA would likely result
in upgrades of all ratings.
A downgrade of the BCA would drive a downgrade in all ratings.
This could be triggered by the group's failure to meet its targeted improvement
on its key financial fundamentals or a deterioration from current levels.
Any deterioration on the bank's liquidity profile could also put
negative pressure on the BCA.
The senior unsecured/issuer rating would likely be downgraded following
a reduction in the volume of senior debt outstanding.
LIST OF AFFECTED RATINGS
Issuer: Banco BPM S.p.A.
..Affirmations:
....Long-term Bank Deposits,
affirmed Ba1 Stable
....Long-term Counterparty Risk Assessment,
affirmed Ba1(cr)
....Long-term Issuer Rating,
affirmed Ba2 Negative
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Ba2
....Subordinate Regular Bond/Debenture,
affirmed B2
....Subordinate Medium-Term Note Program,
affirmed (P)B2
....Adjusted Baseline Credit Assessment,
affirmed b1
....Baseline Credit Assessment, affirmed
b1
..Outlook Action:
....Outlook remains Stable(m)
Issuer: Banca Popolare di Milano S.C. a r.l.
(assumed by Banco BPM S.p.A.)
..Affirmations:
....Senior Unsecured Regular Bond/Debenture,
affirmed Ba2 Negative
....Subordinate Regular Bond/Debenture,
affirmed B2
....Preferred Stock Non-cumulative,
affirmed Caa1(hyb)
..No Outlook assigned
Issuer: Banco Popolare Societa Cooperativa (assumed by Banco BPM
S.p.A.)
..Affirmations:
....Senior Unsecured Regular Bond/Debenture,
affirmed Ba2 Negative
....Subordinate Regular Bond/Debenture,
affirmed B2
....Preferred Stock Non-cumulative,
affirmed Caa1(hyb)
..No Outlook assigned
Issuer: Banca Italease S.p.A. (assumed by Banco
BPM S.p.A.)
..Affirmations:
....Senior Unsecured Regular Bond/Debenture,
affirmed Ba2 Negative
..No Outlook assigned
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
September 2017. 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 or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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.
Maria Jose Mori
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
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 Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
