Standalone BCAs of Banco Popolare and BPM withdrawn
Madrid, January 03, 2017 -- Moody's Investors Service has today assigned the following ratings
to Banco BPM SpA (Banco BPM): (1) deposit ratings of Ba1/Not Prime;
(2) a long-term issuer rating of Ba2;(3) a standalone baseline
credit assessment (BCA) and adjusted BCA of b1; and (4) Counterparty
Risk Assessments (CR Assessment) of Ba1(cr)/Not Prime(cr). The
outlook on the bank's long-term deposit rating is stable,
and negative on the issuer rating.
At the same time, Moody's has withdrawn the following ratings
of Banco Popolare Societa Cooperativa (Banco Popolare) and Banca Popolare
di Milano S.C. a r.l. (BPM) which ceased to
exist on 31 December 2016: (1) BCAs and adjusted BCAs of b1;
(2) deposit ratings of Ba1/Not Prime; (3) issuer ratings of Ba2;
(4) MTN ratings of (P)Ba2/(P)B2; and (5) CR Assessments of Ba1(cr)/Not
Prime(cr). The ratings on debt instruments originally issued by
Banco Popolare and BPM, which have all been assumed by Banco BPM,
were affirmed.
The rating action reflects the completion of the merger between Banco
Popolare and BPM, which was approved on 15 October 2016 by the banks'
shareholders. The merger became effective on 1 January 2017,
after Banco Popolare and BPM transferred all of their assets and liabilities
to the newly-created bank Banco BPM. Prior to this action,
the ratings on Banco Popolare and BPM were aligned, already reflecting
Moody's assessment of the credit profile of a combined Banco BPM
(please see "Moody's upgrades long-term ratings of Banco Popolare
and Banca Popolare di Milano following merger approval" published on 20
October 2016).
A list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE
--RATIONALE FOR BANCO BPM's STANDALONE BCA
The b1 standalone BCA assigned to Banco BPM reflects Moody's view
that the group's credit profile is constrained by the large stock
of problem loans and weak profitability. The b1 BCA also reflects
Banco BPM's relatively sound capital and liquidity position.
Banco BPM displays very weak asset risk in view of its large stock of
problem loans representing around 22% of gross loans at end-September
2016 (based on aggregated financials for Banco Popolare and BPM).
This compares unfavourably with the most recently available Italian and
European Union (EU) averages of 17.7% and 5.4%
as at end-June 2016 respectively. Banco BPM is planning
on reducing its stock of problem loans to 18% of nominal loans
by 2019 through a combination of disposals and enhanced management of
problematic exposures. Moody's also considers the group's
asset risk to be constrained by the lower-than-average coverage
of problem loans, which the rating agency estimated at 36%
(excluding write-offs) at end-September 2016, significantly
lower than the 46% system average as of end-June 2016.
As Banco Popolare is expected to book high loan loss charges in Q4 2016,
Moody's expects Banco BPM's coverage ratio to rise to around
40% (excluding write-offs) as of December 2016.
In assigning a b1 BCA, Moody's has taken into consideration
Banco BPM's weak profitability. Following EUR1.1 billion
additional provisions aimed at increasing coverage of problem loans for
Banco Popolare, the combined Banco BPM would lost about EUR1 billion
before tax in Q3 2016. As part of its integration plan, Banco
BPM expects to reach a EUR1.1 billion net profit in 2019,
which, in the rating agency's view, will be challenging
given the very modest macro-economic prospects in Italy,
whose GDP Moody's forecasts to grow by 0.8% in 2017
and 1% in 2018.
Capitalization is good, and in Moody's view a relative strength
for the bank, albeit increased provisions at Banco Popolare in Q4
2016 are likely to result in a loss for the combined Banco Popolare and
BPM at year-end 2016, which will have a negative impact on
capital. Banco Popolare and BPM reported a pro forma combined 12.3%
Common Equity Tier 1 (CET1) as at December 2015; Banco BPM is targeting
only a small improvement in capital with a 12.9% fully loaded
CET1 ratio in 2019. In line with the targets of the integration
plan, Moody's does not anticipate a significant improvement
in Banco BPM's capital ratio.
Funding and liquidity are also a relative strength for Banco BPM.
Moody's believes that both Banco Popolare and BPM had a balanced
funding profile focused on retail clients, as well as a sound stock
of liquid assets, which will be maintained by Banco BPM.
-- RATIONALE FOR BANCO BPM's DEPOSIT AND ISSUER RATINGS
Moody's has assigned Ba1/Not Prime deposit ratings and Ba2 issuer
ratings to Banco BPM, in line with the deposit ratings of both Banco
Popolare and BPM. The rating agency also affirmed the debt instruments
originally issued by Banco Popolare, Banca Italease S.p.A.
(former subsidiary of Banco Popolare), and BPM, which have
been assumed by Banco BPM.
Moody's said it believes that Banco BPM's deposits would likely
face extremely low loss-given-failure, due to the
loss absorption provided by the residual equity that it expects in resolution,
subordinated debt and senior unsecured debt, as well as the volume
of deposits themselves. This results in an uplift of three notches
from the bank's b1 BCA. Furthermore, the rating agency believes
that Banco BPM's senior unsecured debt (including those instruments originally
issued by Banco Popolare, Banca Italease, and BPM and now
assumed by Banco BPM would likely face very low loss-given-failure.
This is due to the loss absorption provided by the residual equity that
it expects in resolution, subordinated debt, as well as the
volume of senior unsecured debt itself. This results in an uplift
of two notches from the bank's BCA.
-- LOW PROBABILITY OF GOVERNMENT SUPPORT
Moody's assumes a low probability of government support for Banco
BPM. With total assets of around EUR170 billion, Banco BPM
is the third largest bank in Italy; however, being significantly
smaller than the largest two banks in Italy (UniCredit SpA (Baa1/Baa1
Stable, ba1) and Intesa Sanpaolo Spa (A3 Negative/Baa1 Stable,
baa3)), Moody's said it believes that there is only a low
probability that Banco BPM will receive government support in case of
need. As a result there is no further uplift to the deposit and
issuer ratings of Banco BPM.
-- STABLE OUTLOOK ON DEPOSIT RATING, NEGATIVE ON ISSUER
RATING
Moody's assigned a stable outlook to Banco BPM's long-term
deposit rating, reflecting the rating agency's expectation
that the credit profile of the new group will remain unchanged over the
next 12-18 months. Despite the near-term challenges
stemming from the integration of Banco Popolare and BPM, Moody's
considers that the new group's solvency and liquidity will support
its creditworthiness, mitigating pressures on both asset risk and
profitability.
The outlook on the issuer rating of Banco BPM is negative because the
stock of bail-in-able senior debt is likely to reduce over
the next 12-18 months, given the bank's funding plans
and the maturities of retail bonds in particular. This would result
in a higher loss-given-failure for this class of debt.
-- RATIONALE FOR THE CR ASSESMMENT
As part of today's rating action Moody's has also assigned
a Ba1(cr)/Not Prime(cr) CR Assessment to Banco BPM, three notches
above the bank's b1 BCA, reflecting substantial bail-in-able
debt and deposits, which would likely support operating obligations
in resolution. The low probability of government support means
that there is no further uplift.
-- WITHDRAWAL OF RATINGS AND ASSESSMENTS OF BANCO POPOLARE
AND BPM
Moody's has withdrawn the b1 BCAs, the Ba1/Not Prime deposit
ratings, the Ba2 issuer ratings, and the Ba1(cr)/Not Prime(cr)
CR Assessments of Banco Popolare and BPM, following the transfer
of all assets and liabilities of the two banks to Banco BPM.
FACTORS THAT COULD LEAD TO AN UPGRADE
The standalone BCA of Banco BPM could be upgraded if the group were to
meet the financial targets set out in its integration plan, which
assumes an improving trend in asset risk metrics (mostly through problem
loan disposals) while preserving profit generation capacity and capital.
An upgrade in the BCA would likely result in upgrades of all ratings.
FACTORS THAT COULD LEAD TO A DOWNGRADE
A downgrade in the BCA would drive a downgrade in all ratings.
This could be triggered by the group's failure to meet the group's targeted
cost savings and synergies, or if there were a deterioration in
the asset risk or capital.
The issuer rating would likely be downgraded following a reduction in
the volume of senior debt outstanding.
LIST OF AFFECTED RATINGS
Issuer: Banco BPM SpA
..Assignments:
....Long-term Counterparty Risk Assessment,
assigned Ba1(cr)
....Short-term Counterparty Risk Assessment,
assigned NP(cr)
....Long-term Deposit Ratings,
assigned Ba1 Stable
....Short-term Deposit Ratings,
assigned NP
....Long-term Issuer Rating,
assigned Ba2 Negative
....Adjusted Baseline Credit Assessment,
assigned b1
....Baseline Credit Assessment, assigned
b1
..Outlook Action:
....Outlook assigned Stable(m)
Issuer: Banco Popolare Societa Cooperativa
..Affirmations:
....Senior Unsecured Regular Bond/Debenture,
affirmed Ba2 Negative
....Subordinate Regular Bond/Debenture,
affirmed B2
....Pref. Stock Non-cumulative,
affirmed Caa1(hyb)
..Withdrawals:
....Long-term Counterparty Risk Assessment,
previously rated Ba1(cr)
....Short-term Counterparty Risk Assessment,
previously rated NP(cr)
....Long-term Deposit Ratings,
previously rated Ba1, outlook changed to Ratings Withdrawn from
Stable
....Short-term Deposit Ratings,
previously rated NP
....Long-term Issuer Rating,
previously rated Ba2, outlook changed to Ratings Withdrawn from
Negative
....Senior Unsecured Medium-Term Note
Program, previously rated (P)Ba2
....Subordinate Medium-Term Note Program,
previously rated (P)B2
....Adjusted Baseline Credit Assessment,
previously rated b1
....Baseline Credit Assessment, previously
rated b1
..Outlook Action:
....Outlook changed to No Outlook from Stable(m)
Issuer: Banca Italease S.p.A.
..Affirmations:
....Senior Unsecured Regular Bond/Debenture,
affirmed Ba2 Negative
..Outlook Action:
....Outlook changed to No Outlook from Negative
Issuer: Banca Popolare di Milano S.C. a r.l.
..Affirmations:
....Senior Unsecured Regular Bond/Debenture,
affirmed Ba2 Negative
....Subordinate Regular Bond/Debenture,
affirmed B2
....Pref. Stock Non-cumulative,
affirmed Caa1(hyb)
..Withdrawals:
....Long-term Counterparty Risk Assessment,
previously rated Ba1(cr)
....Short-term Counterparty Risk Assessment,
previously rated NP(cr)
....Long-term Deposit Ratings,
previously rated Ba1, outlook changed to Ratings Withdrawn from
Stable
....Short-term Deposit Ratings,
previously rated NP
....Long-term Issuer Rating,
previously rated Ba2, outlook changed to Ratings Withdrawn from
Negative
....Senior Unsecured Medium-Term Note
Program, previously rated (P)Ba2
....Subordinate Medium-Term Note Program,
previously rated (P)B2
....Other Short Term, previously rated
(P)NP
....Adjusted Baseline Credit Assessment,
previously rated b1
....Baseline Credit Assessment, previously
rated b1
..Outlook Action:
....Outlook changed to No Outlook from Stable(m)
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. 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.
The relevant office for each credit rating is identified in "Debt/deal
box" on the Ratings tab in the Debt/Deal List section of each issuer/entity
page of the Website.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
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
SUBSCRIBERS: 44 20 7772 5454
Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454
