Banca Italease also on review
Milan, November 27, 2012 -- Moody's Investors Service has today placed on review for downgrade
the Baa3/Prime-3 long and short-term debt and deposit ratings
of Banco Popolare Società Cooperativa (BP) and the D+ standalone
bank financial strength rating (BFSR), equivalent to a standalone
credit assessment of ba1.
The review for downgrade has been caused by Moody's concern about
(i) the deteriorating trend of BP's already weak asset quality,
and (ii) the bank's low internal capital generation, against
the background of the current recession in Italy. The review will
focus on BP's ability to stabilise its asset quality and to ensure
sufficiently high capital levels above regulatory requirements via internal
capital generation in the case of a further decline in asset quality.
At the same time, Moody's also placed on review for downgrade
the Ba1/Not-Prime long- and short-term debt and deposit
ratings and the standalone BFSR of E+/b1 of BP's subsidiary
Banca Italease.
RATINGS RATIONALE
BP's asset quality is weak and likely to deteriorate well into 2013,
given that the Italian economy is likely to remain in recession through
much of 2013. In September 2012, the bank reported very high
gross problem loans of 16% of total loans (i.e. significantly
above the banking system's average), amounting to 113%
of equity and loan-loss reserves, with a low reported coverage
of loan-loss reserves (around 27%), compared with
14% and 102% respectively at 2011 year-end (1).
Moody's concern around this asset quality is exacerbated by significant
concentrations to the real-estate sector. During the review,
Moody's will focus on the expected trends in asset quality as well
as any steps the bank is taking to address this development.
Moody's notes that BP's European Banking Authority (EBA)-compliant
Core Tier 1 ratio (9.8%) is significantly above the minimum
ratio imposed by the supervisors (BP was included in the sample of European
banks that were subject to the 9% Core Tier 1 capital requirement
imposed by the EBA). Nonetheless it is worth noting that BP's
risk weighted assets (RWAs) have decreased significantly to around EUR58
billion (Q3- 2012; EBA-compliant Core Tier 1 ratio
at 9.8%) from EUR90 billion (end 2011; with a Core
Tier 1 ratio of 7.1%) mainly as a result of the adoption
of the internal risk-based approach (IRB) for the computation of
exposures. During the review Moody's will analyse the individual
components of this regulatory capital evolution to fully assess the bank's
loss absorption capacity.
With regards to profitability and the bank's ability to generate
capital internally, Moody's notes the lacklustre performance
of the bank between 2011 and September 2012, even when excluding
the considerable goodwill impairment of EUR2.8 billion from the
bank's 2011 net result: the bank's net loss amounted
to EUR54 million in the nine months to September 2012 (as reported by
the bank) against a net profit of EUR356 million in December 2011 (as
adjusted by Moody's excluding goodwill impairment and other extraordinary
items). Furthermore, the combination of BP's weak internal
capital generation and poor asset quality has raised the barriers for
BP to access the capital markets, increasing BP's dependence
on the European Central Bank for funding (at EUR13.5 billion as
of November or 9.9% of assets as of September 2012,
which is significant). As part of its review, Moody's
will also focus on the bank's plans and ability to improve profitability,
as well as on the bank's funding flexibility outside of central
bank funding.
WHAT COULD MOVE THE RATING -- UP/DOWN
At present, there is no upwards pressure on the ratings given the
review for downgrade. However, Moody's might confirm
the ratings if BP improves its standalone financial profile, including
(1) a demonstrable and credible ability by the bank to materially improve
its internal capital generation on a sustainable basis; (2) a short-term
ability to reduce problem loans to levels that do not exceed the Italian
average; and (3) a reduction of reliance on central bank funding
without significantly compromising the bank's funding and liquidity
situation.
Conversely, should the bank not be able to stabilise and reverse
the deteriorating trends in asset quality and profitability, this
could prompt a downgrade.
BANCA ITALEASE
The review of Banca Italease follows the review of its parent, BP,
as well as the bank's need for parental support, given that
Italease -- which is in run-off --
is structurally unprofitable and has poor asset quality.
An upgrade is unlikely in the near term given the review for downgrade
however the ratings could be confirmed if improvements to its financial
profile are achieved, including an improvement in the bank's
recurring profitability and asset quality. The deposit ratings
could be confirmed if the parent's deposit ratings -- which
are on review for downgrade - are confirmed.
A downgrade of the ratings could be prompted by any of the following:
(i) evidence that group support is diminishing, which Moody's
however considers unlikely at present, (ii) rising pressure on the
bank's real estate portfolio, (iii) a downgrade of the parent.
(1) Unless otherwise noted, data in this report are from Company
data or Moody's Financial Metrics.
LIST OF AFFECTED RATINGS
BANCO POPOLARE
- Senior unsecured debt and EMTN, and bank deposits:
Baa3; (P)Baa3 / RuR down
- Short-term debt and deposit: P-3 / RuR down
- Subordinate debt and EMTN: Ba2; (P)Ba2 / RuR down
- Tier III EMTN: (P)Ba2 / RuR down
- Junior subordinate EMTN: (P)Ba3 / RuR down
- Preferred stock: B1 (hyb) / RuR down
- Bank Financial Strength Rating: D+ / RuR down
BANCA ITALEASE
- Senior unsecured debt and bank deposits: Ba1 / RuR down
- Short-term debt and deposit: Not - Prime
- Subordinate debt: Ba3 / RuR down
- Backed Preferred stock: Caa3 (hyb) / RuR down
- Bank Financial Strength Rating: E+ / RuR down
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Moody's Consolidated
Global Bank Rating published in June 2012. Please see the Credit
Policy 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 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, parties not 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
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the lead rating analyst and to the Moody's legal entity that has
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Carlo Gori
Vice President - Senior Analyst
Financial Institutions Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100
Johannes Wassenberg
MD - Banking
Financial Institutions Group
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Releasing Office:
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Telephone:+39-02-9148-1100
Moody's reviews Banco Popolare's Baa3/P-3 ratings for downgrade
