Baseline Credit Assessment confirmed at b3
Paris, March 17, 2022 -- Moody's Investors Service ("Moody's") confirmed the long-term ratings and assessments of Banca Monte dei Paschi di Siena S.p.A. (MPS) and its fully-owned subsidiary MPS Capital Services S.p.A. (MPS Capital Services). Moody's confirmed MPS's long-term deposit and long-term senior unsecured ratings of B1 and Caa1 respectively, and the standalone Baseline Credit Assessment (BCA) of b3. The rating action concludes the review for upgrade on the long-term ratings and assessments of MPS and MPS Capital Services initiated on 21 July 2020 and extended twice since then (16 December 2020 and 7 December 2021). The outlook on the long-term deposit and senior unsecured debt ratings of MPS and the long-term deposit ratings of MPS Capital Services has been changed to stable from ratings under review.
A full list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE
MPS's BCA was confirmed at b3, reflecting the bank's still-weak franchise, capital position and profitability, despite improvements in the last twelve months.
In 2021 the bank returned to profitability with a net profit of €310 million with a return on assets of 0.2%, after reporting losses of over €1.6 billion in 2020 and around €1 billion in 2019. However, in Moody's view MPS's performance remains volatile and subject to capital-eroding losses. Furthermore, MPS's cost structure remains higher than peers with a cost/income ratio above 70%. MPS reported a gross non-performing loans (NPLs) ratio of 4.5% at end-2021, at the same level reported a year before, which is just above the Italian average and well above the European Union average, but strongly improving from the 12% as of end-2019.
MPS's fully-loaded Common Equity Tier 1 (CET1) ratio increased to 11% in December 2021 from 9.9% a year earlier as a result of the profit generated in the year and risk-weighted assets (RWA) decrease. The bank has announced a capital increase of around €2.5 billion with the participation of the Italian government to further support the turnaround of the bank. The capital increase was initially expected to be completed in 2021 but it was postponed following the end of negotiations with Unicredit S.p.A. for the acquisition of a defined perimeter of MPS, and the timeline about its completion remains uncertain.
In conclusion, both the financial soundness and franchise of MPS are not yet fully restored despite the numerous material improvements that have been achieved over the last few years.
The BCA of MPS Capital Services was confirmed at b3, in line with its parent MPS. Moody's considers this entity to be a Highly Integrated Entity (HIE) with MPS hence its standalone characteristics have limited credit significance.
OUTLOOK
The stable outlook on MPS's long-term deposit and senior unsecured debt ratings reflects Moody's view that MPS's credit profile will likely remain weak over the outlook horizon i.e. the next 12 to 18 months. While the planned €2.5 billion capital increase could strengthen the bank's credit profile, Moody's expects MPS to continue to have structurally weak profitability and funding profile on a stand-alone basis, unless the bank successfully delivers on its business plan targets.
In Moody's view, the prospect of a capital increase seems to be somehow contingent upon visibility about the future of MPS. Yet a transaction is not in sight a few months after the discussions with Unicredit S.p.A. about an acquisition failed. Subsequently, on 30 November 2021 MPS communicated that the Italian government restarted discussions with the European Union Directorate-General for Competition (DG Comp). As a reminder the Italian government is committed vis-a-vis the European Union to privatizing MPS as a follow up to the public support extended in 2017 in the form of a precautionary recapitalization as per the provisions of the Banking Recovery and Resolution Directive.
The outlook on MPS Capital Services' long-term deposit ratings is stable, in line with its parent MPS.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
MPS's ratings and assessments could be upgraded if the planned €2.5 billion capital increase were to be completed and if the bank was able to improve its structural profit-generation capacity, maintain a low stock of problem loans and feature low litigation risk. The ratings and assessments could also be upgraded if MPS was to be acquired by a higher rated bank. MPS's long-term deposit and senior unsecured debt ratings could also be upgraded if the bank displayed higher volumes of bail-in-able debt relative to the bank's total banking assets.
MPS's long-term ratings and assessments could be downgraded if the bank failed to complete its announced capital plan and was at greater risk of breaching regulatory capital requirements. The bank's long-term ratings and assessments could also be downgraded if, despite a capital injection, MPS was unable to restore its long-term viability.
MPS Capital Services S.p.A.'s ratings and assessments could be upgraded or downgraded - where applicable - following an upgrade or downgrade of MPS's ratings and assessments.
LIST OF AFFECTED RATINGS
Issuer: Banca Monte dei Paschi di Siena S.p.A.
..Confirmations:
....Long-term Counterparty Risk Ratings, confirmed at Ba3
....Long-term Bank Deposits, confirmed at B1, outlook changed to Stable from Ratings under Review
....Long-term Counterparty Risk Assessment, confirmed at Ba3(cr)
....Baseline Credit Assessment, confirmed at b3
....Adjusted Baseline Credit Assessment, confirmed at b3
....Senior Unsecured Regular Bond/Debenture, confirmed at Caa1, outlook changed to Stable from Ratings under Review
....Senior Unsecured Medium-Term Note Program, confirmed at (P)Caa1
....Junior Senior Unsecured Medium-Term Note Program, confirmed at (P)Caa1
....Subordinate Regular Bond/Debenture, confirmed at Caa1
....Subordinate Medium-Term Note Program, confirmed at (P)Caa1
..Affirmations:
....Short-term Counterparty Risk Ratings, affirmed NP
....Short-term Bank Deposits, affirmed NP
....Short-term Counterparty Risk Assessment, affirmed NP(cr)
....Other Short Term, affirmed (P)NP
..Outlook Action:
....Outlook changed to Stable from Ratings under Review
Issuer: MPS Capital Services S.p.A.
..Confirmations:
....Long-term Counterparty Risk Ratings, confirmed at Ba3
....Long-term Bank Deposits, confirmed at B1, outlook changed to Stable from Ratings under Review
....Long-term Counterparty Risk Assessment, confirmed at Ba3(cr)
....Baseline Credit Assessment, confirmed at b3
....Adjusted Baseline Credit Assessment, confirmed at b3
..Affirmations:
....Short-term Counterparty Risk Ratings, affirmed NP
....Short-term Bank Deposits, affirmed NP
....Short-term Counterparty Risk Assessment, affirmed NP(cr)
..Outlook Action:
....Outlook changed to Stable from Ratings under Review
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. 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 ratings 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
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
Alain Laurin
Associate Managing Director
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
