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Announcement:

Moody's places the ratings of five Italian covered bonds programmes on review for downgrade

24 Jun 2011

Paris, June 24, 2011 -- Moody's Investors Service has today placed on review for possible downgrade the covered bonds issued by five Italian programmes:

Mortgaged backed covered bonds programmes:

- Banca Carige S.p.A. Covered Bonds Programme

- Banca Monte dei Paschi di Siena S.p.A. Covered Bonds (MPS Covered Bond SRL)

- Banco Popolare-Italian Covered Bonds Programme

Public-sector backed covered bonds programmes:

- Cassa depositi e prestiti S.p.A. Covered Bond Programme Public Sector

- Intesa Sanpaolo - Public Sector Covered Bonds

Today's rating actions follow the negative rating actions taken on 23 June by Moody's on the banks supporting these covered bonds and the review for downgrade of the Italian Republic's Aa2 long-term rating, implemented on 17 June.

Please see ratings tab on the issuers/entities page on Moodys.com for the last rating actions and the ratings history.

RATINGS RATIONALE

The senior unsecured long-term and short-term ratings of the issuers of all the above mentioned mortgage backed deals were placed on review for possible downgrade on 23 June 2011. As a result, the covered bonds supported by these entities are also placed on review for downgrade.

Moody's notes that if the issuers' long-term senior unsecured ratings are downgraded below A3, the Timely Payment Indicator (TPI) framework could constrain the corresponding covered bond ratings below Aaa.

The rating actions on public-sector backed deals follow both the reviews of the issuers supporting these programmes and the review of the Italian sovereign bond rating. The assets in the cover pools backing these programmes consist of Italian public-sector loans; the credit quality of these public sector loans are expected to be adversely affected by any negative rating action on the sovereign.

For further information on the rating actions taken by Moody's Financial Institutions Group, please refer to " Moody's reassesses Italian banks' support framework following Italy sovereign review " published on 23 June 2011, and on the rating action taken by Moody's Sovereign & Supranational, please refer to "Announcement: Moody's places Italy's Aa2 ratings on review for possible downgrade" published on 17 June 2011.

A downgrade of the issuers' and the governments' ratings may affect the ratings of the covered bonds, in terms of either the expected loss or the timely payment indicator (TPI).

(1) EXPECTED LOSS

The issuer's credit strength is incorporated into Moody's expected loss methodology. On an expected loss basis (all else being equal) a downgrade in the issuer's rating will lead to an increase in the expected loss of the covered bonds and potentially to a downgrade of the covered bond ratings. Moody's notes that issuers may be able to offset any deterioration in the expected loss analysis by adding further collateral to their programmes.

The over-collateralisation level on a nominal basis differs to what is considered "committed" by Moody's. However, Moody's considers the remaining over-collateralisation over and above this level as voluntary over-collateralisation. In particular, for Italian issuers rated below A2, Moody's limits the value it gives to voluntary over-collateralisation in its expected loss analysis.

In addition, during the review period, Moody's will analyse the current refinancing margins across the Italian market.

For public-sector backed deals, Moody's will review whether it should apply specific stresses where the rating of the covered bonds backed by public-sector assets exceed the sovereign rating by more than a threshold level. If so, Moody's may materially increase modelled cover pool losses. Where Moody's decides not to apply these stresses imposed for exceeding sovereign debt rating levels, any sovereign downgrade is expected to lower the credit assessment of the public-sector obligations backing the public-sector covered bonds, thus increasing their collateral scores.

(2) TPI

The TPI framework will cap the covered bond ratings if any of the senior unsecured ratings of the issuers are downgraded below certain level.

Mortgage backed deals: The TPI analysis is the primary reason that these mortgage backed deals have been placed on review. Under Moody's methodology, a TPI of "Probable", combined with an issuer long-term debt rating below A3, would constrain the rating of the covered bonds to Aa1 or below. For all the programmes placed under review, the prime-1 rating of banks supporting the covered bonds have been placed under review.

Public-sector deals: The TPIs assigned to the public-sector deals will be reviewed if the sovereign rating is downgraded. Whilst current issuer ratings are Aa2 and Aa3, the TPI cap (the maximum rating achievable under the TPI framework) would remain at Aaa even if the TPI is lowered to very improbable. However, Moody's also notes that these issuer ratings are also both on review, and a change in both the TPIs and issuers' ratings could affect the TPI cap.

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.

TPIs: TPIs range from "Very High" to "Very Improbable". Higher TPI levels indicate legal, structural, regulatory/systemic or collateral features of a programme which benefit timely payments. Lower TPIs indicate uncertainties regarding timely payment, such as the existence of refinancing risk.

The rating action affecting the existing Covered Bonds is expected to affect all subsequent Covered Bonds issued by the Issuer under this programme and any future rating actions are expected to affect all such Covered Bonds. If there are any exceptions to this, Moody's will in each case publish details in a separate press release.

The principal methodology used in rating the transaction was Moody's Approach to Rating Covered Bonds, published in March 2010.

Other methodologies and factors that may have been considered in the process of rating this issue can also be found on Moody's website. For regulatory disclosures, please refer to the last rating actions for the above mentioned covered bonds.

The rating assigned by Moody's addresses the expected loss posed to investors. Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield and to investors.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

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Moody's places the ratings of five Italian covered bonds programmes on review for downgrade
No Related Data.
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CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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