London, 06 October 2011 -- Moody's Investors Service has today taken multiple negative rating actions
on various covered bonds issued by Italian banks, prompted by the
downgrades of the banks supporting the covered bond programmes and the
downgrade of the Italian sovereign to A2:
- Mortgage covered bonds issued by Banca Carige: downgraded
to Aa1, previously Aaa on review for downgrade
- Mortgage covered bonds issued by Banca delle Marche: downgraded
to Aa1, previously Aaa
- Mortgage covered bonds issued by Banco Popolare Societa Cooperativa:
downgraded to Aa2, previously Aaa on review for downgrade
- Mortgage covered bonds issued by Intesa SanPaolo: downgraded
to Aa1, previously Aaa
- Mortgage covered bonds issued by Banca Monte dei Paschi di Siena:
downgraded to Aa1, previously Aaa on review for downgrade
- Public-sector covered bonds issued by Cassa di Depositi:
downgraded to Aa1 on review for downgrade, previously Aaa on review
for downgrade
- Public-sector covered bonds issued by Intesa SanPaolo:
downgraded to Aa1 on review for downgrade, previously Aaa on review
for downgrade
The following covered bonds are on review for downgrade:
- Mortgage covered bonds issued by Banca Popolare di Milano:
Aaa on review for downgrade, previously Aaa on review for downgrade
- Mortgage covered bonds issued by Credito Emiliano: Aaa
on review for downgrade, previously Aaa
- Mortgage covered bonds issued by Unione di Banche Italiane:
Aaa on review for downgrade, previously Aaa
- Mortgage covered bonds issued by UniCredit SpA: Aaa on
review for downgrade, previously Aaa
RATINGS RATIONALE
Today's rating actions on the covered bonds were prompted by the downgrades
of the issuing banks and the downgrade of the sovereign. These
downgrades have negatively affected the Italian covered bonds through
their impact on (i) the Timely Payment Indicator (TPI) analysis;
and (ii) the expected loss analysis.
Moody's downgrade of the respective issuer's senior unsecured ratings
were prompted by the downgrade of Italy's sovereign debt rating to A2
from Aa2. For further information on these rating actions taken
by Moody's Financial Institutions Group, please refer to "Moody's
takes rating actions on Italian banks following Italy's downgrade to A2"
published on 5th October 2011. For information on the rating action
taken by Moody's Sovereign Risk Group, please refer to "Moody's
downgrades Italy's government bond ratings to A2 with a negative outlook"
published on 4th October 2011.
TIMELY PAYMENT INDICATORS
The TPIs of public-sector covered bonds have been lowered to Improbable.
Public-sector cover pools are highly exposed to the worsening of
the sovereign's credit strength. Moody's believes that the
ability and willingness of the government and financial institutions in
Italy to support any covered bond following an issuer's default
weakens, as the credit strength of the sovereign declines.
Moody's also believes that refinancing public-sector cover
pools upon an issuer's default will be more difficult and that price
discounts would likely be significant.
The mortgage covered bonds' TPIs remain unchanged, reflecting
(i) the sustained low level of indebtedness of Italian households;
(ii) the lack of housing boom within Italy; and (iii) the stable
performance of the mortgage cover pools, despite the difficulties
that the sovereign faces. Italian mortgage covered bonds are mainly
backed by prime residential mortgage loans and benefit from a liquidity
buffer provided by 12-month extension maturities. Therefore,
Moody's believes that the downgrade of the sovereign to A2 does
not increase the probability of late payments, such that the current
TPIs of mortgage covered bonds would be negatively affected.
Following the lowering of the TPIs and the downgrade of the issuers'
ratings, the combination of these two factors now constrains the
covered bonds ratings of the following seven programmes to below Aaa:
- Banca Carige mortgage covered bonds capped at Aa1
- Banca delle Marche mortgage covered bonds capped at Aa1
- Banco Popolare Societa Cooperativa mortgage covered bonds capped
at Aa2
- Intesa SanPaolo mortgage covered bonds capped at Aa1
- Banca Monte dei Paschi di Siena mortgage covered bonds capped
at Aa1
- Cassa di Depositi public- sector covered bonds capped
at Aa1
- Intesa SanPaolo public-sector covered bonds capped at
Aa1
The rating of the covered bonds issued by Banca Popolare di Milano remains
on review for downgrade, because the issuer's long-term
senior unsecured ratings remains under review. Moody's notes that
if this rating is downgraded below A3, the TPI framework would constrain
the covered bond ratings below Aaa.
EXPECTED LOSS ANALYSIS
Moody's expected loss analysis has been negatively impacted by:
(i) The downgrade of the issuer's ratings. As the credit strength
of the issuer is incorporated into Moody's expected loss methodology,
any downgrade of the issuer's ratings will increase the expected loss
on the covered bonds.
(ii) The downgrade of the sovereign debt rating. The risk of sovereign
default is captured in Moody's analysis where the rating of the covered
bonds exceeds the sovereign debt rating by more than a set number of notches.
For the affected programmes, Moody's may assume higher stress scenarios
when modelling the collateral backing the covered bonds, to account
for losses in the event of a sovereign default. Moody's notes that
issuers may be able to offset any worsening in the expected loss analysis
by adding further collateral to or otherwise restructuring their programmes.
However, given the large amounts of additional "committed"
collateral that are consistent with current rating levels ,Moody's
has maintained the review for downgrade on the following covered bonds:
- Banca Popolare di Milano mortgage covered bonds, Aaa on
review for downgrade
- Credito Emiliano mortgage covered bonds, Aaa on review
for downgrade
- Unione di Banche Italiane mortgage covered bonds, Aaa on
review for downgrade
- UniCredit SpA mortgage covered bonds, Aaa on review for
downgrade
- Cassa di Depositi public sector covered bonds, Aa1 on review
for downgrade
- Intesa SanPaolo public sector covered bonds, Aa1 on review
for downgrade
During the review, Moody's will assess the willingness of the issuers
to further strengthen their programmes by adding more collateral to support
the rating assigned to the covered bonds.
RATING METHODOLOGY
Moody's rating for any covered bond is determined after applying a two-step
process:
(1) Moody's determines a rating based on the expected loss on the bond.
This is modelled as a function of the issuer's probability of default
and the stressed losses on the cover pool assets following issuer default;
and
(2) Moody's assigns a TPI, which indicates the likelihood that timely
payment will be made to covered bondholders following issuer default.
The effect of the TPI is to limit the covered bond rating to a certain
number of notches above the issuer's rating.
The methodologies used in this rating were Moody's Rating Approach to
Covered Bonds, published in March 2010, and Assessing Swaps
as Hedges in the Covered Bond Market, published in September 2008.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following :
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not an auditor
and cannot in every instance independently verify or validate information
received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the credit rating action. Please see the
special report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure page
on our website www.moodys.com for further information.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
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.
Elise Savoye
Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
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Juan Pablo Soriano
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
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Moody's downgrades multiple Italian covered bonds
