MPS Capital Services downgraded to A3
Milan, October 20, 2010 -- Moody's Investors Services has today downgraded the long-term deposit
rating of Banca Monte dei Paschi di Siena (MPS) to A2 from A1 and its
bank financial strength rating (BFSR) to D+ from C- (equivalent
to a Baa3 on the long-term rating scale, down from Baa2).
The Prime-1 short-term deposit rating has been affirmed.
All ratings now carry a stable outlook.
The following ratings were downgraded:
Banca Monte Dei Paschi Di Siena
- Long-term debt and deposit ratings to A2 from A1
- Bank financial strength rating to D+ from C-
-Subordinated debt to A3 from A2
- Tier III medium-term notes to P(Baa1) from P(A3)
- Junior subordinated debt to Ba1 from Baa3
- Preferred stock to Ba3 from Ba2
MPS Capital Services had the following changes:
- Long-term deposit ratings downgraded to A3 from A2
- Short-term deposit rating downgraded to Prime-2
- Bank financial strength rating lowered within the D+ category,
now translating to a Ba1 from previously Baa3 on the long-term
Moody's said that the downgrade of MPS's ratings reflects the sizeable
challenges for the bank stemming in particular from (i) its deteriorating
asset quality; combined with (ii) its relatively modest capitalisation
which is affected by (iii) very low internal capital generation and (iv)
Moody's opinion of challenges in raising capital externally.
The rating agency recognises the progress made in integrating Antonveneta
since its acquisition in 2008, but actual results -- both in
terms of asset quality and profitability - remain modest and below
those of its C- rated peers. Problem loans, as adjusted
by Moody's, increased to 9.4% in June 2010,
well above the Italian peer average, and are likely to further increase
in coming quarters. Moreover, underlying profitability,
excluding non-operating items, has been poor over the last
two years (net income was just 0.1% of risk-weighted
assets in 2009) and, despite some evidence of improvement so far
in 2010, is unlikely in Moody's opinion to reach acceptable
levels before 2012 given the fragile economic recovery that we expect
in Italy. The bank's efficiency also compares unfavourably
to most peers, with a cost to income ratio of 73% in 2009
(68% in June 2010), although the now well advanced integration
of Antonveneta should provide scope for further increased cost-efficiency.
The bank's Tier 1 ratio of 7.8% (expected 8.2%
in September 2010) and its Core Tier 1 ratio of 7.3% in
June 2010 were modest in light of the amount of problem loans.
The bank is taking measures to strengthen its capital adequacy through
asset disposals, and these measures could result in a Tier 1 ratio
during 2011 significantly above current levels. However there is
also the possibility that next year the bank may wish to repay the costly
government hybrid -- Tremonti Bonds -- which were taken out
in 2009, a move which would reduce the Tier 1 ratio by about 160
bp. Moody's said that the evolution of capital adequacy is
a key driver for MPS's rating, even more so given the constraints
on internal and external capital generation.
The downgrade of MPS's deposit ratings by one notch incorporates the continuing
significant uplift due to systemic support that is incorporated in the
bank's ratings: four notches from the Baa3 standalone rating,
the highest in Italy with Banco Popolare.
The key factors supporting the current ratings and its stable outlook
remain (i) the bank's sound franchise as the third largest Italian bank,
with a market share in deposits and loans of about 8%; (ii)
a sound liquidity and retail banking profile, in line with the Italian
banking system and (iii) Moody's expectations of improvement in
the bank's financial profile over a medium-term time horizon.
MPS's BFSR could be upgraded if the bank demonstrates that it can achieve
a further significant strengthening in its financial profile, including
(i) a Core Tier 1 ratio notably and sustainably above 7.5%,
excluding the government hybrid; (ii) a cost-to-income
ratio below 65%; (iii) net income above 1% of risk-weighted
assets and (iv) problem loans below 6.5% of loans.
The BFSR is however unlikely to improve to such an extent to cause a corresponding
upgrade of the long-term debt and deposit ratings, but would
rather need to strengthen by more than one notch to have some impact on
the debt/deposit ratings.
MPS's BFSR could become more weakly positioned in the D+ category
if improvements are lower than anticipated by Moody's, with
in particular a Core Tier 1, excluding the government hybrid,
below 7%. Should the earnings continue to trend downwards
throughout 2011 this would also add some concern. This, or
a lower expectation of systemic support, could result in a downgrade
of the deposit ratings.
The key factual elements underpinning the rating action are the bank's
Tier 1, problem loans and net income as stated in its audited financial
statements as at December 2009 and June 2010.
MPS Capital Services
Moody's has also downgraded the long-term deposit rating
of MPS Capital Services to A3 from A2 and its short-term deposit
rating to Prime-2 from Prime-1. The BFSR has been
affirmed at D+ but lowered within the D+ category to Ba1 from
MPS Capital Services is the group's capital markets and corporate
banking arm. The rating action primarily reflects the bank's
deteriorating asset quality, with adjusted problem loans of 15%
of loans in 2009.
The key factors supporting the current rating are the bank's very
close integration as a division of the Montepaschi Group, resulting
in significant support from the parent.
The BFSR could become more strongly positioned in the D+ category
in the event that MPS Capital Services significantly reduces its key bad
loans to loans ratio below 6.5%. Given the current
four-notch uplift from support, an upgrade of the deposit
rating is unlikely at present, unless the parent is upgraded.
Evidence of the bank losing ground in medium-term lending while
exhibiting an increased risk profile from its capital markets activities
could exert downward pressure on the BFSR. The long-term
deposit rating could be downgraded in the event of a downgrade of the
long-term deposit rating of MPS.
The principal methodologies used in rating Banca Monte dei Paschi di Siena
were Bank Financial Strength Ratings: Global Methodology published
in February 2007, Incorporation of Joint-Default Analysis
into Moody's Bank Ratings: A Refined Methodology published in March
2007, and Moody's Guidelines for Rating Insurance Hybrid Securities
and Subordinated Debt published in January 2010. Other methodologies
and factors that may have been considered in the process of rating this
issuer can also be found on Moody's website.
The last rating action on Banca Monte dei Paschi di Siena was implemented
on 5 March 2010, when a bank's junior subordinated security was
corrected to Baa3 from A2.
Banca Monte dei Paschi di Siena is headquartered in Siena, Italy.
At 30 June 2010 it had total assets of EUR 248 billion.
Information sources used to prepare the credit rating iare the following:
parties involved in the ratings, public information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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and issued with no amendment resulting from that disclosure.
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Vice President - Senior Analyst
Financial Institutions Group
Moody's Italia S.r.l
MD - Banking
Financial Institutions Group
Moody's Investors Service Ltd.
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Moody's Italia S.r.l
Moody's downgrades Banca Monte dei Paschi di Siena to A2/D+; outlook stable
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