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14 Aug 2007
Moody's downgrades Banca Italease to Ba1/NP/D-; stable outlook on all ratings
London, 14 August 2007 -- Moody's Investors Service has today downgraded the long-
and short-term deposit ratings as well as the bank financial strength
(BFSR) rating of Banca Italease ("Italease") to Ba1/Not- Prime/D-
from Baa3/Prime-3/D+ respectively. All ratings now
have a stable outlook. These rating actions conclude the review
for possible downgrade initiated by Moody's on 6 July 2007 in response
to the uncertainty regarding (1) the definite levels of exposure and expected
losses for Italease, (2) the possibility that such losses could
result in a need for a recapitalisation, and (3) concerns relating
to the quality of risk controls and liquidity management.
Moody's says that the D- BFSR now reflects a Baseline Credit
Assessment of Ba3, while the bank's long-term deposit
and senior debt ratings benefit from a two-notch uplift,
reflecting a moderate expectation of systemic support. In line
with Moody's notching practices, the bank's preferred
stock is three notches below senior debt.
The rating actions were Moody's response to several announcements
by Italease. The first one was the bank's declared loss of
EUR388 million, mainly resulting from losses on derivative contracts
for EUR686 million, but also from increased credit provisions.
Additionally, the rating agency said that the findings of an audit
of Italease conducted by the Bank of Italy confirmed its concerns regarding
the robustness of the bank's risk management and control structure
and the credit profile of its portfolio. Specifically, the
audit of the Bank of Italy (1) determined the bank to be inadequately
organised, particularly with reference to risk management and controls;
(2) found Italease to have deficient controls given its significant derivatives
activity and large broker distribution network; and (3) pointed out
portfolio concentration and other credit issues, resulting in a
need for restructuring, the replacement of Italease's board
of directors, recapitalisation and the prohibition of certain activities.
Lastly, Moody's said that its rating actions were also in
response to the impact of the losses on the level of capital of the institution
and the resulting need for the subsequent approval by Italease's
board of directors of a share capital increase up to EUR700 million,
with the underwriting agreement by Mediobanca SpA, and Italease's
stability pact commitment to provide the bank with any necessary financial
support and with a capital injection as a percentage of the shares held.
Moody's explains that the BFSR downgrade reflects the confirmation
of the need for a recapitalisation, a reinforcement of the bank's
organisation, a renewal of the management structure, and a
material enhancement of its risk management and controls. The downgrade
is also justified by the bank's substantial concentration issues
and challenges relating to its recurring earning power going forward.
As regards the latter point, Moody's believes that Italease's
profitability is likely to suffer not only from a lack of commissions
from the sale of structured derivatives, and regulatory restrictions
on growth and competition, but also from the impact of reputational
damage, particularly on its funding -- which is highly market-sensitive
-- and on its business. In this respect,. the
rating agency views positively the bank's good growth as reported
at the end of June 2007, and its continued position as the domestic
market leader in leasing, with a number one position in real estate
and equipment leasing. However, it acknowledges that the
impact of the recent loss events on the business is more likely to be
felt in the quarters to come.
Moody's says that the stable outlooks on all of Italease's
ratings reflect the quantification of the potential losses resulting from
the bank's derivative activity, the rating agency's
favourable view of the level of derivative counterparty credit write-offs
made, as well as the fact that Italease's new management has
already started implementing the necessary corrective actions.
Moody's expects any possible further liabilities that may surface
as a result of the ongoing investigations to be marginal. Moreover,
the rating agency's concerns about Italease's open market
risk position are mitigated by the relatively high probability of client
derivative positions closures over a reasonable period of time,
but will monitor this closely.
Looking ahead, Moody's says that Italease's BFSR,
debt and deposit ratings could come under upward pressure in the event
of (1) a material improvement in the bank's financials, particularly
its core earnings generation and cost efficiency; accompanied by
(2) a sustainable improvement in its risk profile, principally a
reduction of credit portfolio concentrations; as well as (3) a material
reinforcement of the bank's risk management and internal controls,
which are expected following the Central Bank's specific request.
Conversely, the bank's ratings could come under negative pressure
in the event of (1) a failure to implement the necessary corrective actions,
(2) material losses of market shares and (3) especially the need for further
external support actions, although this is not expected at present.
The following ratings have been downgraded:
Banca Italease SpA:
- Bank Financial Strength to D- from D+
- Long-term deposits and senior debt to Ba1 from Baa3
- Subordinated debt to Ba2 from Ba1
- Short-term debt rating to Not Prime from Prime-3
Banca Italease Capital Trust backed preferred shares to B1 from Ba3
Banca Italease SpA. is based in Milan, Italy, and had
total assets of EUR24 billion as at 31st December 2006.
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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