BCA and adjusted BCA on review for upgrade
London, 06 September 2016 -- Moody's Investors Service has today placed GE Capital Interbanca
S.p.A.'s (Interbanca) B2 long-term deposit
rating on review for downgrade, following the announcement that
its parent GE Capital International Holdings Limited (unrated),
a subsidiary of General Electric Company (GE, senior unsecured A1)
will sell its 99.99% share of Interbanca to Banca IFIS (unrated).
At the same time, the rating agency put Interbanca's standalone
caa1 baseline credit assessment (BCA) and adjusted BCA on review for upgrade,
while Interbanca's B1(cr) long-term Counterparty Risk Assessment
was put on review with direction uncertain.
A full list of affected ratings can be found at the end of this press
release.
Moody's said that the review for upgrade of the caa1 BCA and adjusted
BCA reflects the potential for improvements in the bank's fundamentals
following the transaction, as well as the possibility of extraordinary
support from its new owner. Nevertheless, the B2 long-term
deposit rating was placed on review for downgrade, because the funding
structure of the new banking group once Interbanca is consolidated into
Banca IFIS's accounts would likely result in a higher loss-given-failure
for junior depositors than currently. This is because GE currently
provides substantial funding to Interbanca through its subsidiaries;
this group funding is bail-in-able in resolution and would
therefore benefit wholesale depositors; however, the transaction
will see this replaced with more senior retail deposits and secured funding.
The deposit rating is on review for downgrade, as the negative impact
deriving from higher loss-given-failure is unlikely to be
offset by an upgrade of the adjusted BCA.
During the review period Moody's will further the potential for
the transaction to enhance the creditworthiness of Interbanca.
Moody's said that the review will likely conclude following regulatory
approval of the transaction, which Interbanca and Banca IFIS expect
by year-end.
RATINGS RATIONALE
--- EXPECTATIONS OF SUPPORT FROM BANCA IFIS DRIVES
REVIEW FOR UPGRADE ON BCA AND ADJUSTED BCA
Moody's said that the review for upgrade on Interbanca's caa1
BCA and adjusted BCA reflects potential benefits deriving from the acquisition
by Banca IFIS.
Banca IFIS has announced that it will substitute GE's long-term
funding, which was relatively costly, with a combination of
Banca IFIS's excess deposits and securitisations, which will
likely reduce the cost of funding; this would improve Interbanca's
profitability whilst maintaining a stable funding profile.
Moody's expects Banca IFIS to be committed to providing support
to Interbanca, as shown by Banca IFIS's plan to merge the
two legal entities by the end of 2018. Banca IFIS is significantly
smaller than GE, and its creditworthiness is likely to be weaker
than GE's (GE's senior unsecured rating is A1, whilst
the average Italian senior unsecured bank rating is Ba1). However,
Moody's had already eliminated potential extraordinary support from
GE as a source of ratings uplift for Interbanca, given GE's
intention to sell. Following the acquisition by Banca IFIS,
the likely increased probability of support from the new shareholder will
be credit positive for Interbanca; Moody's will assess during
the review period the possibility that this could result in some uplift
via affiliate support to the adjusted BCA and hence Interbanca's
ratings.
-- BANCA IFIS'S FUNDING PLAN FOR INTERBANCA INDICATES
HIGHER LOSS-GIVEN-FAILURE
Notwithstanding the potential for improvements to Interbanca's standalone
BCA and support from its new parent, the new group's funding
structure will likely result in high loss-given-failure
for wholesale depositors, which would more than offset the lower
probability of failure.
Currently Interbanca's deposit rating benefits from very low loss-given-failure,
which results in a two-notch uplift for the long-term deposit
rating. In resolution, corporate depositors would rank pari
passu with funding from the GE group, which stood at EUR2.4
billion as at December 2015; this compares with just EUR0.2
billion corporate deposits.
According to Banca IFIS's announcement, GE's funding
will be substituted by resources that will rank senior to corporate depositors
in resolution: excess liquidity at Banca IFIS, which is mostly
generated by interbank repos or retail deposits, additional retail
deposits, and asset-based funding. This would disadvantage
corporate depositors as they would no longer benefit from the loss absorption
offered by GE's funding, exposing them to greater loss-given-failure.
-- COUNTERPARTY RISK ASSESSMENT IS ON REVIEW WITH DIRECTION
UNCERTAIN
Moody's said it put Interbanca's B1(cr) Counterparty Risk
Assessment (CR Assessment) on review with direction uncertain.
The CR Assessment, which is not a rating, reflects an issuer's
probability of defaulting on certain bank operating liabilities,
such as covered bonds, derivatives, letters of credit and
other contractual commitments. In Moody's judgment,
the Interbanca's CR Assessment is likely to be less affected than
the bank's deposits by its changing liability structure, and
the potentially higher adjusted BCA may more than offset this, leading
to an upgrade of one notch. However, if the adjusted BCA
were not upgraded, then the CR Assessment would likely be downgraded.
Moody's considers that the probabilities that Interbanca's
CR Assessment is upgraded, confirmed, or downgrade,
are broadly equal.
FACTORS THAT COULD LEAD TO AN UPGRADE
Moody's said Interbanca's BCA could be upgraded following
a substantial reduction of the very high stock of problem loans and a
return to a sustainable level of profitability, if the bank's
capitalisation were broadly maintained.
The adjusted BCA could be upgraded following an upgrade of the BCA;
the adjusted BCA could also be upgraded if, following the acquisition
by Banca IFIS, our analysis shows that Banca IFIS has sufficient
capacity and willingness to provide additional support to Interbanca in
case of need.
An upgrade of the long-term deposit ratings is unlikely at the
moment, as indicated by the current review for downgrade.
FACTORS THAT COULD LEAD TO A DOWNGRADE
A downgrade of Interbanca's BCA and adjusted BCA is unlikely,
as indicated by the current review for upgrade.
Interbanca's long-term deposit rating could be downgraded
if the planned liability structure results in an increased loss-given-failure,
which is not offset by a higher standalone rating and the potential for
support from Banca IFIS.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
LIST OF AFFECTED RATINGS
Issuer: GE Capital Interbanca S.p.A
..Placed on Review for Downgrade:
....Long-term Deposit Ratings,
currently B2, outlook changed to Rating Under Review from Stable
..Placed on Review for Upgrade:
.... Adjusted Baseline Credit Assessment,
currently caa1
.... Baseline Credit Assessment, currently
caa1
..Placed on Review Direction Uncertain:
.... Long-term Counterparty Risk Assessment,
Placed on Review Direction Uncertain, currently B1(cr)
..Affirmations:
.... Short-term Counterparty Risk Assessment,
affirmed NP(cr)
.... Short-term Deposit Ratings,
affirmed NP
..Outlook Actions:
....Outlook changed to Rating Under Review
from Stable
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.
Edoardo Calandro
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
