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10 May 2011
All ratings placed on review for downgrade
Milan, May 10, 2011 -- Moody's Investors Service has today downgraded Dexia Crediop's standalone
bank financial strength rating (BFSR) to D+ (mapping to Ba1 on the
long-term scale) from C- (mapping to Baa1 on the long-term
scale), its long-term deposit and senior debt ratings to
Baa2 from A2 and its short-term deposit rating to Prime-2
from Prime-1. Furthermore, all ratings have been placed
on review for downgrade.
The following ratings were downgraded:
Dexia Crediop S.p.A.: BFSR to D+ from
C-, long-term deposit and senior unsecured debt ratings
to Baa2 from A2, short-term deposit rating to Prime-2
from Prime-1, short-term debt rating to Prime-2
from Prime-1, senior unsecured MTN rating to (P)Baa2 from
(P)A2, and subordinated MTN rating to (P)Baa3 from (P)A3.
Crediop Overseas Bank Limited: backed long-term senior unsecured
rating downgraded to Baa2 from A2, backed ? senior unsecured
MTN rating to (P)Baa2 from (P)A2, backed subordinated MTN rating
downgraded to (P)Baa3 from (P)A3, and backed short-term debt
rating to (P)Prime-2 from (P)Prime-1.
Moody's said that its decision to lower Dexia Crediop's standalone
ratings was driven by a combination of factors that have significantly
weakened the bank's standalone credit profile. The shrinking
volumes and declining market share of Dexia Crediop in its traditional
business franchise with Italian regional and local governments indicate
that its franchise is under severe pressure.
The rating agency believes that this is caused partly by the bank's
impaired capacity to secure medium-to-longer term funding
and that it is exacerbated by the more limited business opportunities
and the presence of some stronger domestic competitors with greater funding
and scale synergies. These challenges are compounded by the bank's
rapidly decreasing profitability which is also affected by the higher
cost of funding. The rating agency said that the combination of
these pressures, and the likelihood that they will persist,
challenge the core of Dexia Crediop's franchise, and underpin
the three-notch downgrade of its standalone ratings.
The downgrade of the bank's standalone rating has in turn led to
a respective three-notch downgrade of the long-term deposit
and senior debt ratings to Baa2 from A2. At this level, the
supported rating continues to benefit from two notches of uplift from
a combination of high parental and moderate systemic support. Parental
support comes from Dexia Credit Local (DCL, rated A1; C-/Baa2;
on review for downgrade).
Moody's said that Dexia Crediop benefits from its close ties with
its parent, DCL, both in its standalone financial strength
and also through the likelihood of parental support, in the case
of need. For example, DCL still controls Dexia Crediop's
strategy and activities and has provided ongoing funding to its subsidiary
as Dexia Crediop was facing greater challenges itself obtaining cost-effective
However, the review for downgrade of the bank's standalone
and deposit and debt ratings expresses Moody's concerns that this
current benefit to Dexia Crediop's standalone and supported ratings
may come under pressure: firstly, from a potential weakening
of DCL itself -- its standalone and debt ratings are under review
for downgrade as well; and secondly, from the imposed divestment
of Dexia Crediop by the end of next year, thereby eliminating Dexia
Crediop's role within the group and sharply reducing the likelihood
of any parental support beyond 2012.
LONG-TERM FRANCHISE AND TRADITIONAL BUSINESS MODEL HAVE WEAKENED
SIGNIFICANTLY AND REMAIN UNDER PRESSURE
Moody's notes that Dexia Crediop's traditional core activity
of lending and debt management to regional and local governments is under
severe pressure, with market shares decreasing significantly.
The reason for this is threefold: (i) the tight regulations imposed
by the central government on lending margins, use of debt management
products and new borrowings in the sector; (ii) the significantly
higher cost of funding for the bank; and (iii) the competition in
the sector from other Italian lenders, especially from the government's
lending arm Cassa Depositi e Prestiti. Dexia Crediop has only partly
been able to compensate for this by focusing on short-term lending
to the wider public-sector entities and by taking a more selective
stance in transactions related to medium to longer-term business
mainly with companies owned or controlled by the public sector that offer
higher returns and less restrictive regulatory constraints.
IMPAIRED CAPACITY TO SECURE MEDIUM TO LONGER-TERM FUNDING HAS REQUIRED
PARENTAL LIQUIDITY SUPPORT
Moody's notes that funding has been a major constraint for Dexia
Crediop since Q4 2008, when its capacity to collect funds on a long-term
basis was impaired by the financial crisis. Traditionally,
its main source of long-term funding was via bonds sold to retail
clients through the branches of the major Italian commercial banks.
In 2009, given higher spreads, and the need for the Italian
banks to prioritise distribution of their own retail bonds, the
amount of bonds distributed to retail clients dropped by 81% when
compared to 2008 and represented only 27% of the bank's total
flow of long-term funding in 2010. The bank is currently
trying to sell its bonds through alternative channels at higher spreads.
However, Moody's notes that in 2010, Dexia Crediop had
to rely on its parent for medium-term funding.
Moody's notes that the bank has had to implement a degree of deleveraging
to be able to reduce its liquidity gap, and that the bank's
liquidity imbalances remain significant, as does its reliance on
the European Central Bank (ECB) as the main source of short-term
PROFITABILITY UNDER PRESSURE, WITH ONE-OFF ITEMS CAUSING
A LOSS IN 2010
Moody's notes that the significantly higher cost of funding and
reducing business volumes have affected the bank's profitability.
In 2010, Dexia Crediop reported a loss of EUR34 million, mainly
due to the sale of its Irish subsidiary's securities portfolio and
the early repayment of some of its assets in order to reduce the bank's
liquidity gap. Excluding these extraordinary items --
and the revenue related to the sold assets -- the bank remains
profitable, but at significantly lower levels than previously,
with an adjusted risk-weighted pre-provision income below
Moody's expects the bank's profitability to remain under significant
pressure in the medium term given its funding constraints and its weakening
franchise in the Italian market.
PREVIOUS RATING ACTIONS AND METHODOLOGIES
The last rating action on Dexia Crediop was on March 2009, when
the bank's long-term deposit and senior debt ratings were
downgraded to A2 from A1, the BFSR to C- from C, and
the subordinated MTN rating to (P)A3 from (P)A2.
The last rating action on Crediop Overseas Bank Limited was on March 2009,
when its backed long-term senior unsecured rating was downgraded
to A2 from A1, and the backed subordinated MTN rating to (P)A3 from
The principal methodologies used in this rating 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 Bank Hybrid Securities and Subordinated Debt published in November
Headquartered in Rome, Italy, Dexia Crediop had total assets
EUR44.2 billion as at year-end 2010.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, and 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.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
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Moody's adopts all necessary measures so that the information it uses
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Please see ratings tab on the issuer/entity page on Moodys.com
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The date on which some Credit Ratings were first released goes back to
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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.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Italia S.r.l
Moody's downgrades Dexia Crediop to Baa2/D+ from A2/C- (Italy)
Corso di Porta Romana 68
No Related Data.
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