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Announcement:

Moody's extends rating review of four EU banks that failed the ECB Comprehensive Assessment

12 Feb 2015

Frankfurt am Main, February 12, 2015 -- Moody's Investors Service said today that it is continuing its review for downgrade of the ratings of four euro area banking groups and their backed subsidiaries and issuing entities. The rating review was initiated on 30 October 2014, prompted by the capital shortfalls identified during the European Central Bank's (ECB) Comprehensive Assessment of 130 euro area banks that was concluded on 26 October 2014.

During the extended review period for the four banks, Moody's expects (1) to obtain greater clarity regarding the approval status of the banks' capital replenishment plans by the ECB (i.e., the supervisor in charge since November 2014); and (2) to assess the likelihood of these entities successfully executing the replenishment plans and addressing their capital shortfalls within the permitted timeframe. Moody's expects to conclude the reviews within the next three months.

Moody's believes that the four banks (listed below) -- whose ratings remain under review and which failed to comply with one or more parts of the ECB's review -- face challenges and varying degrees of uncertainty with regard to replenishing their capital within the 6-9 month timeframe permitted by the ECB. Failure to remediate the shortfall could prompt supervisory measures including the bailing-in of subordinated debt or other restructuring measures, which could affect all creditors. For further information, please refer to our press release "Moody's takes rating actions on six EU banks post ECB Comprehensive Assessment", published on 30 October 2014(https://www.moodys.com/research/--PR_311330).

The extended rating review affects the following banks:

- Oesterreichische Volksbanken AG (VBAG), with long-term senior ratings of B2 and subordinated ratings of Ca on review for downgrade

- Permanent tsb p.l.c. (PTSB), with long-term deposit ratings of B3, senior unsecured debt ratings of Caa1 and subordinated ratings provisional (P)Ca on review for downgrade

- Banca Monte dei Paschi di Siena S.p.A. (MPS), with long-term senior ratings of B1, and subordinated and junior subordinated ratings of Ca and Ca(hyb), respectively, on review for downgrade

- Banca Carige S.p.A. (Carige), with long-term ratings of Caa1 on review for downgrade

Moody's initial rating action on 30 October 2014 focused on the six banking groups that failed to comply with the ECB's assessment, with the rating agency's attention centred on the varying degrees of difficulties faced by these banks in filling the identified capital shortfalls. At that time, Moody's affirmed the ratings of one of the six banks -- Banca Popolare di Milano S.C.a r.l. (deposits B1 negative, BFSR E+ stable/BCA b2), while the review for downgrade of Banco Comercial Portugues S.A.'s ratings was concluded with an confirmation of the bank's ratings. For further information, please refer to the press release "Moody's confirms Banco Comercial Portugues' B1 senior unsecured debt and deposit ratings; outlook negative", published on 12 February 2015.

RATINGS RATIONALE

The four banks affected by today's extended rating review have failed to comply with capital thresholds under the Asset Quality Review "Base" and/or "Adverse" scenario stress tests that were part of the ECB's Comprehensive Assessment which comprised a review of (1) the balance sheets of the euro area's 130 largest banks; and (2) the resilience of these banks to market shocks. Each of these four banks were found to have a considerable capital shortfall under the ECB's guidelines and were required to submit plans to the ECB during November 2014 for closing the identified capital gaps. Further, Moody's understands that the four banks must complete their recapitalisation within a 6-9 month timeframe, i.e., by July 2015. The ECB is likely to apply stringent criteria in its assessment of the adequacy of each plan, thereby principally placing emphasis on the use of private sources for any new capital.

In Moody's opinion, the inability of these four banks to remedy the capital shortfall within the required timeframe would increase the likelihood of bail-in. In the event that a bank needed to resort to government support, the EU rules governing state aid would require debt to be bailed-in, particularly subordinated debt.

Given the magnitude of the capital shortfalls identified in a few cases, Moody's does not rule out the possibility of authorities resorting to even more extensive bank restructuring measures which could affect all creditors. These risks are reflected in the reviews for downgrades of the ratings of the four banks.

WHAT COULD MOVE THE RATINGS UP/DOWN

Evidence indicating the inability of any of the four banks to raise sufficient capital will likely trigger a lowering of the BCAs within the standalone E BFSR category, which, in turn, would negatively affect the ratings of senior and junior instruments. The review could be concluded with a confirmation of ratings at the current level for those banks producing credible plans to address their respective capital shortfalls.

Positive rating pressure would be subject to banks achieving capital metrics that are above expectations with regard to magnitude and timeliness, and such metrics would need to include a satisfactory buffer that exceeds the new minimum requirements as indicated by the results of the ECB's Comprehensive Assessment.

For VBAG, there is further potential for rating downgrades if the expected restructuring of the bank proves insufficient to indicate that senior creditors will be repaid in full and in a timely fashion. Further downgrades may be additionally driven by the loss severity for junior creditors that the restructuring and breakup of VBAG may entail, driven by potential costs of its planned restructuring and unwinding. Upward pressure on VBAG's ratings would be subject to further material support for creditors.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Banks published in July 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this 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.

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 Moody's Ratings Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the time horizon in which a credit rating action may be after a review or outlook action took place.

Please see the ratings tab on the issuer page on www.moodys.com for the last action and the history of the rating. 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/disclosures for further information.

Please see the ratings disclosure page on www.moodys.com/disclosures for disclosures on significant Moody's shareholders and on certain relationships between Moody's, its shareholders and/or rated issuers.

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.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Swen Metzler
Vice President - Senior Analyst
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's extends rating review of four EU banks that failed the ECB Comprehensive Assessment
No Related Data.
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