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Rating Action:

Moody's affirms Intesa Sanpaolo's Baa2/P-2 debt and deposit ratings; stable outlook

08 Apr 2014

Outlook on the standalone BFSR changed to stable

London, 08 April 2014 -- Moody's Investors Service has today affirmed Intesa Sanpaolo Spa's Baa2 long-term senior debt and deposit ratings, its Prime-2 short-term ratings and its D+ standalone bank financial strength rating (BFSR), equivalent to a baseline credit assessment (BCA) of baa3. Moody's has also changed to stable from negative the outlook on the bank's BFSR.

The affirmation of the standalone BFSR reflects the rating agency's view that Intesa's financial fundamentals remain compatible with the current rating level, with capital adequacy continuing to provide a considerable buffer to offset the bank's mounting profitability and asset quality pressures. Furthermore, Moody's change of outlook to stable on the BFSR reflects Moody's expectations of a gradual recovery in Intesa's profitability from the low point in 2013 and a stabilisation of asset quality from 2015. The affirmation of Intesa's Baa2 senior debt and deposit ratings reflects the unchanged incorporation of one notch of uplift from government (systemic) support, from the bank's baa3 unsupported credit assessment.

The outlook on all the bank's long-term ratings and BFSR is now stable. A full list of rating actions -- including Intesa's subsidiaries -- follows at the end of this release.

RATINGS RATIONALE

--- DEPOSIT RATINGS

Moody's affirmation of Intesa's Baa2 deposit rating reflects the continuing incorporation of one notch of uplift for the debt ratings from the bank's unsupported credit assessment of baa3, based on the rating agency's very high expectation of systemic support from the Italian government (rated Baa2 stable -- i.e., one notch higher than the bank's BCA) in the event of need. This uplift, which is constrained by the Italian government bond rating, reflects Intesa's position as one of the leading Italian banks, with a market share of loans of around 15%, and a domestic systemically important financial institution (SIFI).

The outlook for Intesa's deposit ratings is stable, reflecting the stable outlooks on the bank's standalone rating and on the Italian sovereign rating.

--- CAPITAL ADEQUACY REMAINS SUFFICIENT RELATIVE TO PROFITABILITY AND ASSET QUALITY PRESSURES

In Moody's opinion, Intesa will maintain a sufficient capital buffer, relative to the bank's current baa3 unsupported credit assessment considering the mounting profitability and asset quality pressures it is facing, and also in light of the ECB's forthcoming comprehensive assessment.

Intesa's Basel III fully phased Common Equity Tier 1 ratio was 12.3% at December 2013, a level above those of many European peers. Moody's notes that this ratio includes 86 bp from the revaluation of Intesa's stake in the Bank of Italy, which the ECB will likely not recognise in its asset quality review. Intesa's problem loans however -- as adjusted by Moody's -- as a proportion of equity and loan loss reserves grew to 60% in 2013 (2012: 53%), which exceeds that of the bank's European peers.

--- PROFITABILITY NEGATIVELY IMPACTED BY ASSET-QUALITY CHALLENGES

Intesa's profitability is weak, and under mounting pressure. This is mainly attributable to high loan loss provisions, as evidenced by the bank's recently published 2013 results, which were significantly above the level reported in 2012.

Intesa's EUR4.6 billion net loss in 2013 was primarily driven by (1) EUR5.8 billion goodwill and other intangible impairments, which does not affect regulatory capital and is excluded by Moody's from its historical profitability assessment; and (2) EUR7.1 billion loan loss provisions (up by 51% on 2012). The loan loss provisions were driven both by a deterioration of Intesa's loan book, and by the bank's decision to strengthen its reserve coverage, which improved to 65% according to Moody's adjustments (from 60% in 2012), which is higher than the Italian average.

Moody's expects the bank to report persistently modest earnings for 2014, as a result of continuing pressure on revenues and a still-elevated loan loss provisions. In this respect, problem loans (defined by Moody's as non-performing loans-sofferenze; 30% of watchlist-incagli; restructured and past due loans) grew to 12.1% of loans in 2013 (2012: 9.9%). Moody's expects asset quality to deteriorate further during 2014, albeit at a slower rate, against the background of the moderate economic recovery in Italy. Moody's anticipates recovery in Intesa's profitability only from 2015, and the rating agency believes that the bank will be challenged to achieve the EUR4.5 billion net profit target in 2017, as this objective reflects significantly reduced cost-of-credit assumptions of 80 bp (from 207 bp in 2013).

WHAT COULD MOVE THE RATING UP/DOWN

Moody's could change the outlook to positive in the event of an improvement in net profitability, broadly in line with business plan targets, and an easing of problem loans as a proportion of equity and loan loss reserves. Moody's could upgrade the deposit rating if the bank's unsupported credit assessment is raised or if Italy's sovereign creditworthiness improves.

Conversely, Moody's could lower Intesa's unsupported credit assessment if (1) the bank is unable to return to net profit generation in 2014; and (2) there is significant further deterioration of the ratio of problem loans to equity and loan loss reserves. Moody's could downgrade Intesa's long-term deposit and debt ratings as a result of a downgrade of the Italian government bond rating.

LIST OF AFFECTED RATINGS

Issuer: Intesa Sanpaolo Spa

..Affirmations:

.... Adjusted Baseline Credit Assessment, Maintained baa3

.... Baseline Credit Assessment, Maintained baa3

.... Bank Financial Strength Rating, Affirmed D+ STA

.... Issuer Rating, Affirmed Baa2 STA

.....Long-term Deposit Ratings, Affirmed Baa2 STA

.... Short-term Deposit Ratings, Affirmed P-2

....Junior Subordinated Regular Bond/Debenture, Affirmed Ba2 (hyb) STA

....Junior Subordinated Medium-Term Note Program, Affirmed (P)Ba2

....Subordinate Medium-Term Note Program, Affirmed (P)Ba1

....Tier III Debt Medium-Term Note Program, Affirmed (P)Ba1

....Short-term Medium-Term Note Program, Affirmed (P)P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa2

....Pref. Stock Preferred Stock, Affirmed Ba3 (hyb) STA

....Pref. Stock Non-cumulative Preferred Stock, Affirmed Ba3 (hyb) STA

....Subordinate Regular Bond/Debenture, Affirmed Ba1 STA

....Senior Unsecured Deposit Program, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2 STA

....Outlook, Stable

Issuer: Banca Commerciale Italiana S.p.A.

..Affirmations:

....Subordinate Regular Bond/Debenture, Affirmed Ba1 STA

....Outlook, STA

Issuer: Intesa Bank Ireland p.l.c.

..Affirmations:

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2 STA

....Outlook, Stable

Issuer: Intesa Funding LLC

....Senior Unsecured Commercial Paper, Affirmed P-2

Issuer: Intesa Sanpaolo Bank Ireland plc

..Affirmations:

....Subordinate Medium-Term Note Program, Affirmed (P)Ba1

....Short-term Medium-Term Note Program, Affirmed (P)P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa2

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Commercial Paper, Affirmed Baa2

....Senior Unsecured Regular Bond/Debenture, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2 STA

....Outlook, Stable

Issuer: Intesa Sanpaolo SpA Hong Kong Branch

..Affirmations:

....Senior Unsecured Deposit Program, Affirmed (P)P-2

....Senior Unsecured Deposit Program, Affirmed (P)Baa2

....Outlook, Stable

Issuer: Intesa Sanpaolo Spa, NY Branch

..Affirmations:

....Long-term Deposit Rating, Affirmed Baa2 STA

....Short-Term Deposit Rating, Affirmed P-2

....Senior Unsecured Deposit Note/Takedown, Affirmed Baa2 STA

....Outlook, Stable

Issuer: Sanpaolo IMI S.p.A.

..Affirmations:

....Subordinate Regular Bond/Debenture, Affirmed Ba1 STA

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2 STA

....Outlook, Stable

Issuer: Societe Europeenne de Banque SA

..Affirmations:

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa2

....Short-term Medium-Term Note Program, Affirmed (P)P-2

....Senior Unsecured Deposit Program, Affirmed P-2

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2 STA

....Outlook, Stable

Issuer: Banca CR Firenze S.p.A.

..Affirmations:

.... Adjusted Baseline Credit Assessment, Maintained baa3

.... Baseline Credit Assessment, Maintained baa3

.... Bank Financial Strength Rating, Affirmed D+ STA

.... Issuer Rating, Affirmed Baa2 STA

....Long-term Deposit Rating, Affirmed Baa2 STA

.... Short-term Deposit Ratings, Affirmed P-2

....Outlook, Stable

Issuer: Banca IMI Spa

..Affirmations:

.... Adjusted Baseline Credit Assessment, Maintained baa3

.... Baseline Credit Assessment, Maintained baa3

.... Bank Financial Strength Rating, Affirmed D+ STA

....Long-term Deposit Ratings, Affirmed Baa2 STA

....Short-term Deposit Rating, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2 STA

....Outlook, Stable

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Global Banks published in May 2013. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Carlo Gori
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Johannes Felix Wassenberg
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms Intesa Sanpaolo's Baa2/P-2 debt and deposit ratings; stable outlook
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