Intesa Sanpaolo's subsidiaries also affirmed
London, 24 July 2013 -- Moody's Investors Service has today affirmed Intesa Sanpaolo's
Baa2 long-term debt and deposit ratings and its Prime-2
short term ratings. At the same time, Moody's lowered
Intesa's baseline credit assessment (BCA) to baa3 from baa2,
which prompted the downgrade of the banks subordinated debt rating to
Ba1 from Baa3.
The affirmation of the senior debt and deposit ratings reflects Moody's
incorporation of one notch of systemic support into the Baa2 long-term
ratings from the standalone BCA of baa3. However, the lowering
of the BCA reflects Intesa's deteriorating asset quality and weak
profitability, affected by the ongoing recession in Italy where
the bank is concentrated and where it is expected to remain under pressure
throughout 2013 and into 2014.
The ratings of the bank's subordinated debt instruments and programmes
and the ratings of Banca IMI and Banca CR Firenze (see below) are affected
by this action. This press release does not cover any of the other
rated subsidiaries of Intesa. The outlook on all the bank's
ratings is negative.
RATINGS RATIONALE
--- DEPOSIT RATING
Moody's affirmation of Intesa's Baa2 deposit rating incorporates
one notch of uplift for the deposit ratings from the bank's standalone
BCA, reflecting the continued likelihood of systemic support from
the Italian government (Baa2 negative) being forthcoming in the event
of need. The uplift is constrained by the ratings of the Italian
government at Baa2; therefore, at the previous BCA level of
baa2 the available systemic support did not result in any ratings uplift.
The outlook for Intesa's deposit ratings is negative. This
reflects ongoing pressure on the bank's BCA, in line with
other Italian banks, and the negative outlook on the Italian sovereign
rating.
--- LOWERING OF THE BCA
FIRST DRIVER --- DETERIORATING ASSET QUALITY
In Moody's opinion, Intesa lacks diversification from its
weak domestic market, unlike some of its main domestic and international
peers, and cannot insulate itself from the deteriorating asset-quality
trends in Italy. The stabilisation of Intesa's asset quality
beyond 2014 will depend on the strength of the recovery of the Italian
economy.
Intesa's gross problem loans -- as adjusted by Moody's
-- of 9.9% in 2012 (8.5% in
2011) were only marginally better than the 10.6% Italian
average. Problem loans grew more than equity in 2008-12,
reaching 53% of equity and loan-loss reserves in 2012,
compared with 28% in 2008.
Moody's believes that the bank's problem loans --
particularly non-performing loans -- will continue
to deteriorate until well into 2014, considering (1) the recessionary
operating environment in Italy; (2) the still high gross inflows
to problem loans of EUR3.5 billion in Q1 2013, in line with
Q1 2012; and (3) the long work-out times in Italy as well
as the time lag of asset impairments. Moody's has revised
its forecasts for GDP growth significantly downwards since the last rating
action on Intesa's BCA in May 2012 to around -2% in
2013 (from around zero growth) and around zero growth in 2014, with
significant downside risks to these forecasts.
SECOND DRIVER --- ONGOING PRESSURE ON PROFITABILITY
The bank's profitability is below those of its similarly rated European
peers. Moody's expects profitability to remain under pressure
throughout the remainder of 2013 and in 2014 given (1) the bank's
concentration in the weak Italian market; (2) the low interest-rate
environment and high cost of funding, which depress net interest
margins; (3) a likely need for ongoing high loan loss provisions;
(4) likely further losses in Hungary and Ukraine and (5) challenges to
strengthen profitability, beyond cost-cutting.
Intesa reported an EUR1.3 billion net profit -- according
to Moody's adjustments -- in 2012, equivalent
to 0.4% of risk-weighted assets, which is below
European peers, owing to Intesa's lower net interest margin
and efficiency levels (the cost to income ratio was 58%).
International operations generated net losses of EUR190 million rather
than providing earnings diversification. The EUR393 million adjusted
net profit in Q1 2013 was well below the EUR859 million adjusted net profit
in Q1 2012, despite EUR455 million trading gains (EUR716 million
in the same period in 2012).
However, Moody's acknowledges Intesa's strengthened
capital adequacy and sound liquidity which, according to Moody's,
should provide the bank with some flexibility to manage the effects of
the adverse economic environment, until the Italian economy eventually
recovers, provided that the deterioration of the economy and hence
asset quality and earnings is not accelerating significantly.
Intesa has strengthened its capital adequacy since 2007, with a
leverage ratio (total IFRS assets/tangible common equity) of 18x --
which is notably stronger than the average for large European banks --
and a 10.7% Core Tier 1 ratio, which provides a degree
of resilience in Moody's highly adverse scenario.
The bank's considerable retail funding underpins liquidity.
In particular, the group has EUR88 billion of unencumbered assets,
significantly in excess of one year wholesale maturities.
RATIONALE FOR THE NEGATIVE OUTLOOKS
The outlook of Intesa's ratings is negative, in line with
the Italian sovereign and the Italian banking system, reflecting
the challenging operating environment.
WHAT COULD CHANGE THE RATING -- UP/DOWN
There is no upwards pressure on the ratings given the lowering of the
BCA and as long as the overall challenges persist in the current operating
environment in Italy, reflected in the negative outlook.
Over time, upwards pressure could develop on the BCA in the event
of an improvement in profitability against the triple pressures stemming
from asset-quality deterioration, potentially decreasing
business volumes and margin compression; such an improvement would
demonstrate the flexibility of Intesa's cost base. The deposit
rating could be upgraded if the BCA is raised and the sovereign creditworthiness
of Italy improves.
Conversely, the ratings could be downgraded if the pressures were
to intensify from an ongoing recessionary environment with negative or
very low growth. A continuing weak economy could lead to further
pressure on the bank's profitability and asset quality. Market
access becoming restricted for a long period combined with an increasing
dependence on central bank funding may indicate challenges to deleverage
or increase Intesa's retail funding base. A lowering of the
BCA could prompt a downgrade of the long-term deposit and debt
ratings. This would depend on how the prospects for systemic support
evolve in Italy and the EU, in light of developments with regard
to resolution mechanisms and burden sharing for European banks.
A downgrade of the Italian government bond rating would also lead to a
downgrade of the bank's deposit ratings.
RATIONALE FOR INTESA'S SUBSIDIARIES
--- BANCA IMI
Moody's affirmation of Banca IMI's Baa2 long-term deposit
rating incorporates one-notch of parental support uplift from the
bank's standalone BCA of baa3. This is based on Moody's assessment
of a very high probability of support from Intesa, given the latter's
full control of Banca IMI and its strategic position within the group.
The lowering of the BCA reflects the alignment with the parent.
Moody's does not differentiate between Banca IMI's and Intesa's
BCA, given that the former generated 47% of reported group's
profit in Q1 2013 and is fully integrated in Intesa's corporate
and investment banking division.
A raising of the BCA could be triggered by an upgrade of Intesa's
BCA coupled with (1) implementation of a sound strategy and business model
for the bank, provided this is accompanied by satisfactory capital
ratios and strong risk controls and/or (2) the successful development
of stronger and more diversified revenues, and greater penetration
of the customer base of the Intesa group.
Conversely, a lowering of the BCA could be triggered by a downgrade
of Intesa's BCA or evidence that the bank is not managing to develop
business with and create value for the Intesa group, or by evidence
that the bank's risk profile is increasing, also in current more
difficult market conditions. Furthermore, any signs that
the bank would be managed at greater arms' length would most likely
weaken its standalone profile, as it is unlikely to benefit from
the same scale and scope that Intesa benefits from. A downgrade
of the deposit rating could be triggered by a negative change in Banca
IMI's BCA or a downgrade of the deposit rating of Intesa.
--- BANCA CR FIRENZE
Moody's affirmation of Banca CR Firenze's Baa2 long-term
deposit rating incorporates one-notch of parental support uplift
from the bank's standalone BCA of baa3. This is based on
Moody's assessment of a very high probability of support from Intesa,
given the latter's control of Banca CR Firenze and its strategic position
as the group's sub-holding in central Italy.
The lowering of the BCA to baa3 reflects the alignment with the parent.
Moody's does not differentiate between Banca CR Firenze's
and Intesa's BCA, given that the former is the group's
sub-holding in central Italy and is fully integrated in Intesa's
commercial banking division.
A raising of the BCA could be triggered by an upgrade of the parent's
BCA, together with improved profitability, asset quality and
capital adequacy.
A lowering of Intesa's BCA or evidence that the bank is losing market
share in its key markets and declining pre-provision profitability
could exert downward pressure on the BCA. Furthermore, any
signs that the bank would be managed at greater arms' length would
most likely weaken its standalone profile, as it is unlikely to
benefit from the same scale and scope that Intesa benefits from.
A lower BCA could lead to a lower deposit rating. A downgrade of
Intesa's deposit rating could also lead to a downgrade of Banca
CR Firenze's deposit rating.
LIST OF AFFECTED RATINGS
The following ratings were affirmed
Intesa Sanpaolo and its backed vehicles
- Senior unsecured debt and bank deposits: Baa2 negative
outlook; EMTN: (P)Baa2
- Short-term bank deposits: Prime-2
Banca IMI and Banca CR Firenze:
- Senior unsecured debt and bank deposits: Baa2 negative
outlook
- Short-term bank deposits: Prime-2
The following ratings were downgraded
Intesa Sanpaolo and its backed vehicles
- Subordinate debt: Ba1 with negative outlook; EMTN:
(P)Ba1
- Tier III debt EMTN: (P)Ba1
- Junior subordinate: Ba2 (hyb) with negative outlook;
EMTN (P)Ba2
- Pref. Stock: Ba3(hyb) with negative outlook
- BFSR/BCA: D+ with negative outlook/baa3
Banca IMI
- BFSR/BCA: D+ with negative outlook/baa3
Banca CR Firenze
- Junior subordinate: Ba2 (hyb) with negative outlook
- BFSR/BCA: D+ with negative outlook/baa3
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Moody's Global Banks
Rating Methodology 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 ratings; lowers BCA to baa3
