Outlook on deposit rating remains negative, outlook on senior unsecured debt remains stable
London, 16 February 2018 -- Moody's Investors Service ("Moody's") today affirmed
the baa3 baseline credit assessment (BCA) and all ratings and assessments
of Intesa Sanpaolo S.p.A. (Intesa Sanpaolo),
maintained a negative outlook on the bank's long-term deposit
ratings, and maintained a stable outlook on the senior unsecured
debt rating. A full list of affected ratings can be found at the
end of this press release.
The affirmation of Intesa Sanpaolo's BCA and the stable outlook
on the bank's senior unsecured debt rating balance, on the
one hand, the material negative impact of the first-time
adoption of IFRS 9 and the execution risk in achieving the bank's targets
while maintaining a very high dividend pay-out ratio; with
on the other hand, an accelerated reduction in problem loans,
sound capital headroom over prudential requirements, higher loan
loss reserves, and sufficient profitability to absorb most unexpected
losses.
The negative outlook on Intesa Sanpaolo's long-term deposit
rating reflects the constraint of Italy's Baa2 sovereign debt rating,
which also has a negative outlook.
RATINGS RATIONALE
-- BCA AFFIRMATION REFLECTS LARGE NEGATIVE IMPACT FROM IFRS
9 AND HIGHER PROVISIONING COVERAGE
On 6 February, Intesa Sanpaolo presented its 2017 year-end
results and a new 2018-2021 business plan. The bank will
book a very large €3 billion after-tax reduction in equity
due to the first-time adoption of IFRS 9, reducing its fully
loaded Common Equity Tier 1 (CET1) ratio by 100 basis points to 13%
taking full account of IFRS 9. At the same time, the additional
€3 billion charges, together with an increase in impairment
provisions in Q4 2017, led to a substantial improvement in the coverage
of problem loans to 57%, from 49.5% as of September
2017.
Intesa Sanpaolo's CET1 ratio of 13% remains sound,
and materially higher than the 8.15% minimum prudential
requirement imposed by the European Central Bank (ECB) on the bank for
2018; Intesa Sanpaolo's capital buffer remains one of the highest
amongst large European banks, and it is a key strength supporting
Intesa Sanpaolo's ratings. In its business plan, Intesa
Sanpaolo aims to maintain a CET1 ratio above 13%, which Moody's
considers to be feasible despite an uncertain and volatile operating environment,
the bank's ambitious plan to reduce problem loans, forthcoming
regulatory changes that will lower capital ratios, and a very high
planned dividend pay-out (85% in 2018, reducing by
five percentage points each year until 2021).
Problem loans remain high at Intesa Sanpaolo, representing 11.9%
of gross loans at end-2017. Although significantly lower
than the peak of 17% in September 2015, this is still far
higher than the EU average of 4.2%. In its new 2018-2021
business plan, Intesa Sanpaolo expects to halve its stock of problem
loans, to reach 6% of gross loans in 2021; Moody's
said that this would be credit positive for the bank, but could
be challenging given many other banks have similar programmes.
Intesa Sanpaolo's earning stability remains another key mitigating
factor to the bank's high asset risk. Amongst larger Italian
banks, Intesa Sanpaolo is the only one that has remained profitable
every year since 2007, with a return on tangible assets broadly
stable at around 40 basis points. While profitability may have
been in part supported by lower provisioning coverage, it also indicates
a more resilient business model in a difficult operating environment,
thanks to the bank's emphasis on fee-generating wealth management
business. Moody's expects Intesa Sanpaolo's profitability
to remain sound and less volatile than the average Italian bank.
-- STABLE OUTLOOK ON SENIOR DEBT RATING REFLECTS OPPOSING
TRENDS
The outlook on Intesa Sanpaolo's Baa1 long-term issuer and
senior unsecured debt ratings remains stable, reflecting several
risks and mitigating factors.
Moody's said that Intesa Sanpaolo's targets, if achieved,
will lead to a substantially lower stock of problem loans, with
ample capital buffers and recurring profitability to absorb most unexpected
losses. Furthermore, Intesa Sanpaolo has a good track record
in achieving its targets: in its previous business plan the bank
was able to reach a sound and stable level of profitability, sound
capital, while at the same time the bank distributed almost all
its profits as dividends in a weak operating environment.
At the same time, the rating agency considers Intesa Sanpaolo's
business plan to be challenging, and subject to high execution risk.
In particular, the bank targets to halve the stock of problem loans
without generating additional losses, while at the same time improving
profitability, distributing high dividends, investing in non-life
insurance business, absorbing forthcoming regulatory changes,
and maintaining a CET1 ratio above 13%.
-- NEGATIVE OUTLOOK ON DEPOSIT RATING IS IN LINE WITH ITALY'S
SOVEREIGN DEBT RATING
Moody's said the negative outlook on Intesa Sanpaolo's long-term
deposit rating mirrors the outlook on Italy's Baa2 sovereign debt
rating. In accordance with Moody's bank methodology,
bank ratings are typically not rated more than two notches above the sovereign
bond rating, reflecting the rating agency's view that the
expected loss of rated bank deposits and bonds is unlikely to be significantly
lower than that of the sovereign's own debt.
-- BANCA IMI'S RATINGS AND OUTLOOKS REMAIN IN LINE
WITH INTESA SANPAOLO'S
Moody's said that the ratings, assessments, and rating
outlooks of Banca IMI S.p.A. (Banca IMI), remain
in line with those of Intesa Sanpaolo, reflecting the considerable
interlinkages between the entities and the announcement on 6 February
that the two banks will be legally merged. As such, Moody's
expects the credit risk to depositors and senior bondholders of Banca
IMI to remain in line with the credit risk to depositors and senior bondholders
of Intesa Sanpaolo. All ratings and assessments of Banca IMI were
also affirmed, the outlook on Banca IMI's long-term
deposit rating remains negative, and the outlook on Banca IMI's
senior unsecured debt rating remains stable.
FACTORS THAT COULD LEAD TO AN UPGRADE
Intesa Sanpaolo's BCA of baa3 could be upgraded in the event of an improvement
in profitability and a significant reduction in the stock of problem loans,
assuming the bank's capital ratios were maintained.
An upgrade of the BCA would lead to an upgrade of the bank's Baa1 senior
unsecured debt rating, absent any reduction in the stock of bail-in-able
debt. Intesa Sanpaolo's senior unsecured debt ratings could also
be upgraded if the bank were to materially increase its stock of bail-in-able
subordinated debt. Intesa Sanpaolo's A3 deposit rating is instead
constrained by the rating on the Italian sovereign, which currently
has a negative outlook.
An upgrade of Intesa Sanpaolo's ratings would lead to an upgrade
of Banca IMI's ratings and assessments.
FACTORS THAT COULD LEAD TO A DOWNGRADE
All ratings of Intesa Sanpaolo could be downgraded if there were to be
a material deterioration of the Italian operating environment.
Intesa Sanpaolo's BCA of baa3 could be downgraded following an increase
in the stock of problem loans, or a material reduction in profits
or capital. A downgrade of Intesa Sanpaolo's BCA, or a reduction
in the stock of bail-in-able debt, would lead to a
downgrade of the bank's A3 deposit rating and Baa1 senior unsecured rating.
Deposit ratings could also be downgraded following a downgrade of Italy's
Baa2 sovereign ratings, on negative outlook since December 2016.
A downgrade of Intesa Sanpaolo's ratings would lead to a downgrade
of Banca IMI's ratings and assessments.
LIST OF AFFECTED RATINGS
Issuer: Intesa Sanpaolo S.p.A.
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed Baa1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Long-term Bank Deposits,
affirmed A3 Negative
....Short-term Bank Deposits,
affirmed P-2
....Long-term Issuer Rating,
affirmed Baa1 Stable
....Senior Unsecured Regular Bond/Debenture,
affirmed Baa1 Stable
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed Baa1 Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Baa1
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)Baa1
....Subordinate Regular Bond/Debenture,
affirmed Ba1
....Subordinate Medium-Term Note Program,
affirmed (P)Ba1
....Junior Subordinated Regular Bond/Debenture,
affirmed Ba2(hyb)
....Preferred Stock Non-cumulative,
affirmed Ba3(hyb)
....Preferred Stock Non-Cumulative
Medium-Term Note Program, affirmed (P)Ba3
....Other Short Term, affirmed (P)P-2
....Adjusted Baseline Credit Assessment,
affirmed baa3
....Baseline Credit Assessment, affirmed
baa3
..Outlook Action:
....Outlook remains Negative(m)
Issuer: Sanpaolo IMI S.p.A.
..Affirmations:
....Senior Unsecured Regular Bond/Debenture,
affirmed Baa1 Stable
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed Baa1 Stable
....Backed Subordinate Regular Bond/Debenture,
affirmed Ba1
..Outlook Action:
....Outlook remains Stable
Issuer: Intesa Sanpaolo S.p.A., New York
Branch
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed Baa1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Long-term Bank Deposit, affirmed
A3 Negative
....Short-term Bank Deposit,
affirmed P-2
....Long-term Certificate of Deposit,
affirmed Baa1 Stable
..Outlook Action:
....Outlook remains Negative(m)
Issuer: Intesa Sanpaolo S.p.A., London
Branch
..Affirmations:
....Long-term Counterparty Risk Assessment
, Affirmed Baa1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Short-term Bank Deposits,
affirmed P-2
....Commercial Paper, affirmed P-2
....No Outlook assigned
Issuer: Intesa Sanpaolo S.p.A., Hong
Kong Branch
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed Baa1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Long-term Deposit Note/CD Program,
affirmed (P)Baa1
....Short-term Deposit Note/CD Program,
affirmed (P)P-2
....No Outlook assigned
Issuer: Intesa Sanpaolo Bank Luxembourg S.A.
..Affirmations:
....Backed Short-term Deposit Note/CD
Program, affirmed P-2
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed Baa1 Stable
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)Baa1
....Backed Commercial Paper, affirmed
P-2
....Backed Other Short Term, affirmed
(P)P-2
..Outlook Action:
....Outlook remains Stable
Issuer: Intesa Sanpaolo Bank Ireland p.l.c.
..Affirmations:
....Backed Short-term Deposit Note/CD
Program, affirmed P-2
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed Baa1 Stable
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)Baa1
....Backed Commercial Paper, affirmed
P-2
....Backed Other Short Term, affirmed
(P)P-2
..Outlook Action:
....Outlook remains Stable
Issuer: Intesa Funding LLC
..Affirmation:
....Backed Commercial Paper, affirmed
P-2
....No Outlook assigned
Issuer: Intesa Bank Ireland p.l.c.
..Affirmations:
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed Baa1 Stable
..Outlook Action:
....Outlook remains Stable
Issuer: Banca IMI S.p.A.
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed Baa1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Long-term Bank Deposits,
affirmed A3 Negative
....Short-term Bank Deposits,
affirmed P-2
....Senior Unsecured Regular Bond/Debenture,
affirmed Baa1 Stable
....Adjusted Baseline Credit Assessment,
affirmed baa3
....Baseline Credit Assessment, affirmed
baa3
..Outlook Action:
....Outlook remains Negative(m)
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.
Edoardo Calandro
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
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 Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
