Outlook on deposit rating remains positive
Paris, June 12, 2020 -- Moody's Investors Service, ("Moody's") today changed the outlook
on the Ba1 long-term issuer rating of Banca Farmafactoring S.p.A.
(BFF) to developing from positive and affirmed all the bank's ratings
and assessments. The outlook on BFF's Baa3 long-term
deposit rating remains positive.
The rating actions follow BFF's announcement of 13 May 2020 that
it reached an agreement for the acquisition of Italian depositary bank
DepoBank, which the bank expects to finalise by the end of 2020,
subject to regulatory approvals.
A list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE
The affirmation of the ba3 Baseline Credit Assessment (BCA) is driven
by the agency's view that, based on the information available
to date regarding the acquisition of DepoBank, the combined entity
will likely display credit fundamentals consistent with BFF's BCA,
despite DepoBank having a materially different business model.
BFF's venture into depositary banking, in which it has no
real experience, marks a material departure from the bank's
core business focused on factoring receivables from public administration
bodies. DepoBank is also a larger entity than BFF with total assets
of over €9 billion at end-2019 against around €5.5
billion for BFF, although DepoBank's assets are mostly composed
of Italian government bonds. While Moody's understands the
transaction will lead to higher regulatory capitalisation, other
capital metrics notably nominal leverage and the agency's Tangible
Common Equity (TCE)/ Risk-Weighted-Assets (RWA) ratio will
decline markedly. In Moody's preferred TCE metric,
Italian government bonds are weighted at 50% given their Baa3 rating.
Similarly, return on assets would decline, albeit benefiting
from greater diversification. On the other hand, Moody's
sees some benefits to BFF's funding and liquidity profile as the
bank will gain access to an ample deposit base and a large stock of liquid
assets, even though the deposits are essentially wholesale in nature,
deriving from DepoBank's core businesses of depositary bank and
payment services, and hence likely to be more credit-sensitive
than retail deposits.
The affirmations of the ratings and Counterparty Risk (CR) Assessment
are driven by the likelihood that the transaction will not be completed
until late 2020 or early 2021 and in the meantime, the agency's
Loss Given Failure analysis remains unchanged.
OUTLOOKS
However, the developing outlook on BFF's long-term
issuer rating reflects Moody's view that there could be positive
or negative pressure on the rating depending on the successful execution
of the acquisition of DepoBank.
If the acquisition is finalised, Moody's sees a downgrade
of BFF's issuer rating as likely because the amount of senior debt
relative to total banking assets would materially reduce, leading
to higher loss-given-failure for these creditors,
who are subordinated to depositors in Italy. This is because DepoBank
would bring substantial assets to BFF but is almost entirely deposit funded,
with little senior debt. BFF's Ba1 issuer rating currently
benefits from two notches of uplift from the bank's ba3 BCA,
but with the acquisition of DepoBank, the loss-given-failure
for this debt class would likely increase, reducing the uplift from
the BCA.
If the acquisition is not finalised, BFF's issuer rating could
benefit from pre-existing positive trends in the bank's standalone
BCA, should BFF sustain its fundamentals at the current levels,
including maintaining strong asset quality and good capitalisation.
This also drives the unchanged positive outlook on the deposit ratings.
Moody's considers BFF to be less exposed than other commercial Italian
banks to the downside risks from the coronavirus pandemic due to its business
model, which focuses primarily on public administration receivables,
with limited exposures to corporate and small and medium-sized
enterprises (SMEs).
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
BFF's long-term deposit and issuer ratings could be upgraded
following an upgrade of the bank's BCA .
BFF's BCA could be upgraded following sustained evidence of sound
profit generation while maintaining sound asset risk and capital ratios
at or above the current levels. The BCA would also benefit from
a funding profile that is less reliant on wholesale funding and stronger
liquidity. The issuer rating could also be upgraded following a
material issuance of bail-in-able debt.
BFF's issuer rating could be downgraded by up to two notches if
the acquisition of DepoBank is finalised and results in a material diminution
of senior debt loss-absorbing capacity relative to its expanded
balance sheet. A downgrade of BFF's BCA could also lead to
a downgrade of the senior unsecured and deposit ratings, which is
unlikely given the positive outlook upon the latter.
LIST OF AFFECTED RATINGS
Issuer: Banca Farmafactoring S.p.A.
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Baa3
....Short-term Counterparty Risk Ratings,
affirmed P-3
....Long-term Bank Deposits,
affirmed Baa3, outlook remains Positive
....Short-term Bank Deposits,
affirmed P-3
....Long-term Counterparty Risk Assessment,
affirmed Baa3(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-3(cr)
....Long-term Issuer Rating,
affirmed Ba1, outlook changed to Developing from Positive
....Baseline Credit Assessment, affirmed
ba3
....Adjusted Baseline Credit Assessment,
affirmed ba3
....Senior Unsecured Regular Bond/Debenture,
affirmed Ba1, outlook changed to Developing from Positive
..Outlook Action:
....Outlook changed to Positive(m) from Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 rating have been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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.
Fabio Ianno
VP - Senior Credit Officer
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
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 France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
