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Rating Action:

Moody's downgrades Monte dei Paschi's senior unsecured rating to Caa1

03 Dec 2018

Outlook negative on long-term senior unsecured debt and deposit ratings

Paris, December 03, 2018 -- Moody's Investors Service today downgraded the long-term senior unsecured debt ratings of Banca Monte dei Paschi di Siena S.p.A. (MPS) to Caa1 from B3, affirmed its long-term deposit rating of B1 and affirmed the standalone baseline credit assessment (BCA) of caa1.

The outlook on the long-term deposit ratings was changed to negative from stable and remains negative for the senior unsecured debt ratings, reflecting the decreasing stock of the bank's debt.

Moody's affirmed the BCA of MPS Capital Services S.p.A. (MPS Capital Services) at caa1, reflecting Moody's view that this entity is Highly Integrated and Harmonized (HIH) with MPS itself and that its standalone characteristics have limited credit significance. A large portion of MPS Capital Services's activities and revenues are linked to its parent with which MPS Capital Services shares most of its clients. Furthermore MPS Capital Services relies upon the management structure of MPS. As such, MPS Capital Services's BCA can no longer be reliably distinguished from that of MPS. Moody's has also changed the outlook on MPS Capital Services's long-term deposit rating to negative from stable, in line with the outlook on the parent bank.

A full list of rating actions can be found at the end of this press release.

RATINGS RATIONALE

BCA

The affirmation of MPS's BCA of caa1 reflects improving but still very high asset risk, pressures on capitalization, and weak profitability.

MPS's stock of problem loans materially decreased following the securitization of €24.1 billion of bad loans completed with the support of the government guarantee facility on senior tranches (the so-called "GACS" programme) in 2Q18. As of end-September 2018, 19.4% of the bank's gross loans were non-performing, a still very high level albeit considerably lower than the 37% at end-2017. We expect asset risk to continue to improve as MPS plans further disposals of problem loans in the next months.

In the meantime MPS's capitalization is under pressure because of the impact of the widening of spreads on Italian government bonds, which form a large share of the bank's liquidity portfolio. MPS reported a Common Equity Tier 1 ratio of 12.5% at end-September 2018, down from 14.8% at end-2017, which is nevertheless still well above the 2018 target of 9.44% set by the European Central Bank (ECB) as part of its Supervisory Review Evaluation Process (SREP).

MPS returned to profitability in the first three quarters of 2018 after many quarters of heavy losses. During 9M18, the bank reported a net profit of €379 million, which includes the cost incurred upon the disposal of its Belgian subsidiary (€61 million). Despite some improvement, Moody's believes that the bank has yet to demonstrate that it is able to sustain this profitability, given the large residual stock of problem loans, a high cost structure and its weak funding profile.

LONG-TERM SENIOR UNSECURED AND DEPOSIT RATINGS

The downgrade of the long-term senior unsecured rating to Caa1 reflects the moderate loss-given-failure for this debt class, which results in no uplift from the bank's adjusted BCA, from low loss-given-failure which gave one-notch uplift previously. This is due to the repayment of material amounts of senior debt in recent months which have not been refinanced with new issuances.

The B1 long-term deposit rating reflects extremely low loss-given-failure resulting in three notches of uplift from the bank's adjusted BCA.

Moody's assumes a low likelihood of government support for the bank, resulting in no further uplift to the long-term unsecured debt and deposit ratings.

OUTLOOKS

The outlook on MPS's long-term senior unsecured and deposit ratings is negative, reflecting Moody's expectation that the bank's stock of debt will continue to decrease in the next months, which could further increase the loss-given-failure and reduce the uplift from the adjusted BCA for these debt classes.

The negative outlook on MPS Capital Services's long-term deposit rating reflects the negative outlook on the parent bank.

WHAT COULD MOVE THE RATINGS UP/DOWN

An upgrade of MPS's long-term ratings is unlikely given the negative outlook. MPS's BCA could be upgraded following tangible and sustainable progress towards the targets in the bank's business plan, in particular (i) a return on assets above 0.4%; (ii) a problem loan ratio below 15% of loans; and (iii) increased deposit funding or demonstrated access to the senior and subordinated debt markets, without the benefit of a government guarantee.

Moody's could downgrade the senior unsecured debt and deposit ratings if the stock of senior debt continues to decrease leading to higher loss-given-failure. The BCA could be downgraded if (i) the bank failed to return to sustainable profit generation; (ii) capital ratios fell materially; (iii) the bank experienced material deposit outflows.

MPS Capital Services's ratings and assessments could be upgraded or downgraded following and upgrade or downgrade of MPS's ratings and assessments.

LIST OF AFFECTED RATINGS

Issuer: Banca Monte dei Paschi di Siena S.p.A.

..Affirmations:

....Long-term Counterparty Risk Ratings, affirmed B1

....Short-term Counterparty Risk Ratings, affirmed NP

....Long-term Bank Deposits, affirmed B1, outlook changed to Negative from Stable

....Short-term Bank Deposits, affirmed NP

....Long-term Counterparty Risk Assessment, affirmed B1(cr)

....Short-term Counterparty Risk Assessment, affirmed NP(cr)

....Baseline Credit Assessment, affirmed caa1

....Adjusted Baseline Credit Assessment, affirmed caa1

....Subordinate Regular Bond/Debenture, affirmed Caa2

....Subordinate Medium-Term Note Program, affirmed (P)Caa2

....Other Short Term, affirmed (P)NP

..Downgrades:

....Senior Unsecured Regular Bond/Debenture, downgraded to Caa1 from B3, outlook remains Negative

....Senior Unsecured Medium-Term Note Program, downgraded to (P)Caa1 from (P)B3

..Outlook Action:

....Outlook changed to Negative from Stable(m)

Issuer: Banca Monte dei Paschi di Siena, London

..Affirmations:

....Long-term Counterparty Risk Ratings, affirmed B1

....Short-term Counterparty Risk Ratings, affirmed NP

....Short-term Deposit Note/CD Program, affirmed NP

....Long-term Counterparty Risk Assessment, affirmed B1(cr)

....Short-term Counterparty Risk Assessment, affirmed NP(cr)

..No Outlook assigned

Issuer: MPS Capital Services S.p.A.

..Affirmations:

....Long-term Counterparty Risk Ratings, affirmed B1

....Short-term Counterparty Risk Ratings, affirmed NP

....Long-term Bank Deposits, affirmed B1, outlook changed to Negative from Stable

....Short-term Bank Deposits, affirmed NP

....Long-term Counterparty Risk Assessment, affirmed B1(cr)

....Short-term Counterparty Risk Assessment, affirmed NP(cr)

....Baseline Credit Assessment, affirmed caa1

....Adjusted Baseline Credit Assessment, affirmed caa1

..Outlook Action:

....Outlook changed to Negative from Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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

No Related Data.
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