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Rating Action:

Moody's takes rating actions on six EU banks post ECB Comprehensive Assessment

30 Oct 2014

Austria's VBAG downgraded by two notches and placed on review for downgrade, rating reviews initiated on four banks following stress test results, and ratings of one bank affirmed

Frankfurt am Main, October 30, 2014 -- Moody's Investors Service has today taken a number of rating actions on six euro area banking groups and their backed subsidiaries and issuing entities. The rating actions were prompted by the capital shortfalls identified during the European Central Bank's (ECB) Comprehensive Assessment of 130 euro area banks as announced on 26 October 2014. Moody's believes that those banks affected by today's rating action 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 [by own resources] within the six- to nine-month timeframe allowed by the ECB. Failure to remediate the shortfall could prompt supervisory intervention and bailing in of subordinated debt or even more radical restructuring measures, which could affect all creditors.

The following rating actions have been taken:

- Downgrade by two notches of Oesterreichische Volksbanken AG's (VBAG) senior unsecured debt, deposit and issuer ratings to B2 from Ba3 and of the senior subordinated ratings to Ca from Caa2; all of these ratings placed on review for further downgrade; the recently announced restructuring of VBAG was also a factor contributing to the rating downgrade

- Initiated review for downgrade of the long-term B3 deposit and the Caa1 senior unsecured debt and the (P)Ca senior subordinated ratings of Permanent tsb plc (PTSB)

- Initiated review for downgrade of all long-term B1 senior unsecured debt and deposit and (P)Caa3 senior subordinated ratings of Banco Comercial Portugues S.A. (BCP)

- Initiated review for downgrade of all B1 long-term senior unsecured debt and deposit and Ca (hyb) junior subordinated ratings of Banca Monte Dei Paschi di Siena S.p.A. (MPS); downgrade of senior subordinated ratings by one notch to Ca and placed them on review for further downgrade

- Initiated review for downgrade of all Caa1 long-term deposit and issuer ratings of Banca Carige S.p.A. (Carige)

- Affirmed all B1 senior unsecured debt and deposit, B3 senior subordinated, (P)Caa1 junior subordinated and Caa3 (hyb) preference stock ratings of Banca Popolare di Milano S.c.a.r.l (BPM)

During the rating review period for the five banks, Moody's expects to assess (1) the likelihood that their capital replenishment plans will be approved by the ECB (as the supervisor in charge from November 2014 onwards); and (2) the likelihood these entities will be successful in executing these plans and will be able to address their capital shortfalls within the permissible timeframe.

Within this rating action, Moody's focused on the banks that will face difficulties in filling the capital shortfall that the comprehensive assessment has highlighted. Of the 11 Moody's-rated banks that have capital shortfalls under the ECB's assessment, five were excluded from this action, including two Slovenian banks (both with caa2 BCAs) because their shortfalls (1) were relatively small -- at 3% and 6%, respectively, of their year-end 2013 reported Common Equity Tier 1 capital -- compared with an average of 63% for the other nine entities; and (2) are already covered by measures to strengthen their 2014 earnings. Two Greek banks (with caa3 and caa2 BCAs, respectively) were also excluded, because their actual capital shortfalls are minor in the context of their ongoing restructuring plans and other capital measures taken in recent months. Finally, one Cypriot bank (caa3 BCA) was excluded because (1) its recent conversion of capital securities has already partially offset its shortfall; and (2) the bank has a well-advanced plan to raise equity capital in excess of the total shortfall.

Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_176814 for the List of Affected Credit Ratings. This list is an integral part of this press release and identifies each affected issuer. These banks' other ratings are either affirmed or unaffected by today's action.

RATINGS RATIONALE

The banks affected by today's rating actions 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 the largest 130 euro area banks' balance sheets and their resilience to market shocks. Each of the banks subject to today's rating actions were found to have a considerable capital shortfall under the ECB's guidelines. Within the next two weeks, these institutions are required to submit plans to the ECB for closing the identified capital gaps, and must complete their recapitalisation within a six- to nine-month timeframe. The ECB is likely to apply stringent criteria in its assessment of each plan's sufficiency, thereby principally placing emphasis on the use of private sources for any new capital.

In Moody's opinion, inability to remedy the capital shortfall within the required timeframe would increase the likelihood of bail-in, particularly affecting holders of subordinated debt. 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.

Consequently, Moody's has either affirmed or downgraded and/or placed on review for downgrade the ratings of the following banks:

OESTERREICHISCHE VOLKSBANKEN (VBAG) -- TWO NOTCH DOWNGRADE AND PLACED ON REVIEW FOR FURTHER DOWNGRADE

The two notch downgrade and review for further downgrade on VBAG's ratings follows the announcement of a significant EUR865 million capital shortfall for the Austrian Volksbanken sector (unrated). The shortfall reflects the diminishing capital recognition under Basel III of major parts of VBAGs capital base. As a result, the lowering of VBAG's standalone baseline credit assessment (BCA) to caa3 from caa1 reflects the increased probability that outside support will be required to avoid a bank failure. In order to avoid default or regulatory intervention, VBAG recently announced its reorganisation and break up as the central institution of the Volksbanken sector. Under the proposal, which has yet to be submitted for regulatory approval, VBAG will leave the sector's joint liability scheme, return its banking license and become a non-regulated vehicle that continues to wind down the bank's non-core assets. During the review period, Moody's will examine the details of the restructuring plan as well as potential additional measures imposed by the ECB and their potential impact on all creditors of the bank.

PERMANENT tsb p.l.c. - RATINGS PLACED ON REVIEW FOR DOWNGRADE

The review on Permanent tsb's (PTSB) ratings was triggered by the bank's net shortfall of EUR855 million. The bank has reported that it has already covered over 80% of the shortfall through a combination of EUR400 million of convertible capital notes (held by the Irish government) as well as other management actions that provide a further EUR300 million. PTSB has stated that it expects to cover the remaining shortfall by raising capital from private investors. Moody's believes that these capital placements should be supported by the bank's improving metrics, the more favourable operating environment in Ireland and the relatively low adjustments recommended as a result of the AQR.

However, the bank has still not received approval from the European Commission regarding its restructuring plan, and any pending capital raising remains highly exposed to execution risk. Moody's notes that the Irish government, which is the majority owner, holding in excess of 99% of PTSB's issued capital, has publicly announced its support for the plan. Moody's will monitor and assess the feasibility and progress of these plans during the review period.

BANCO COMERCIAL PORTUGUES S.A. -- RATINGS PLACED ON REVIEW FOR DOWNGRADE

The review on Banco Comercial Portugues's (BCP) ratings reflects Moody's assessment of the risks associated with the bank's ability to cover the identified capital shortfall of EUR1.1 billion. As of today, BCP announced a set of measures that should offset the capital gap. Some of these measures will provide the release of capital resources such as the completed sale of its 49% stake in an insurance subsidiary and the anticipated sale of a securitisation programme, while 2014 retained earnings will likely increase the capital base. During the review period, Moody's will assess these plans, which are subject to the ECB's approval, for their feasibility and sufficiency relative to the shortfall.

BANCA MONTE DEI PASCHI DI SIENA S.p.A. -- RATINGS PLACED ON REVIEW FOR DOWNGRADE; SENIOR SUBORDINATD DEBT DOWNGRADED TO Ca, PLACED ON REVIEW FOR DOWNGRADE

The review on Banca Monte Dei Paschi di Siena's (MPS) ratings was triggered by the bank's net shortfall of EUR2.1 billion. Moody's believes that MPS will be challenged to cover the shortfall within the timeframe requested by the ECB without further government support. As of today, no details have been provided by the bank on the possible plan for corrective measures. The bank reported that it appointed UBS AG and Citigroup to explore all possible options.

In addition, MPS's senior subordinated ratings were downgraded and placed on review for further downgrade. This reflects an increased likelihood that the bank may require public support, in Moody's opinion, which would trigger state aid rules and bail-in of subordinated debt. Further, given the repeated instances of bail-outs using state aid over the past years, the rating agency does not rule out the imposition of more extensive restructuring measures for MPS which could affect all creditors of the bank.

BANCA CARIGE S.p.A. -- RATINGS PLACED ON REVIEW FOR DOWNGRADE

The review on Banca Carige's (Carige) ratings was triggered by the bank's net shortfall of EUR 0.8 billion. As of today, the bank announced a series of measures that together could largely address the shortfall. These measures include (1) a contemplated rights issue of at least EUR500 million (EUR 650 million pre-underwritten by Mediobanca (unrated; details of underwriting conditions not published); (2) the sale of Carige's private banking and consumer lending subsidiaries; and (3) the sale of its insurance subsidiaries for which an agreement was reached with Apollo Global Management LLC (unrated) for EUR310 million (which should reduce the shortfall by around EUR100 million according to Moody's estimates). The success of these measures still hinges on a number of factors -- including shareholders' approval of the diluting rights issue, closing of the transactions within the permissible timeframe and the ECB's approval -- therefore Moody's will monitor and assess the progress of any actions ultimately pursued during the review period.

BANCA POPOLARE DI MILANO S.C.a.r.l. -- RATINGS AFFIRMATION

The ratings affirmation reflects Moody's opinion that Banca Popolare Di Milano's (BPM) capital strengthening measures over the first six months of 2014 have effectively offset the EUR684 million identified capital shortfall which was based on a 7.3% CET1 ratio as of year-end 2013. However, by end-June 2014, BPM had strengthened its capital base by almost EUR1.4 billion, raising its CET1 ratio to 11.2%. Measures implemented comprise: (1) a EUR500 million rights issue; (2) removal of the risk-weighted assets add-on, which had been applied by the Bank of Italy since 2011 and had a positive impact on capital of EUR646 million; and (3) the sale of a stake in its asset management subsidiary Anima Holding S.p.A. (unrated), which was EUR233 million capital accretive. Overall, the combined actions exceed the identified capital shortfall and result in an incremental capital buffer of EUR713 million. BPM is therefore not required to undertake any additional action to reinforce its capital position at this stage.

WHAT COULD MOVE THE RATINGS UP/DOWN

For the four banks placed on review for downgrade - PTSB, BCP, MPS and Carige -- any inability 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. To the extent that any of these banks produces credible plans to address their respective capital shortfalls, Moody's may confirm ratings at the current level.

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 above the new minimum requirements as indicated by the results of the ECB's Comprehensive Assessment.

For VBAG, there is additional 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. For junior creditors, further downgrades may be additionally driven by the loss severity that the restructuring and breakup of VBAG may entail, driven by potential costs of the restructuring and unwinding. Upward pressure on VBAG's ratings would be subject to further material support for creditors.

Moody's notes that BPM has already addressed the (technical) capital shortfall identified by the ECB. However, any renewed pressure on the bank's loss absorption capacity as a result of greater-than-anticipated deterioration of its financial fundamentals and/or if the bank fails to effectively strengthen its corporate governance could have negative rating implications. This deterioration could be driven by macroeconomic pressures or by market stress. Upside for the ratings would depend on a further gradual improvement of the bank's financial fundamentals.

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 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 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 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 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.

The person who approved Permanent tsb p.l.c., Banco Comercial Portugues, S.A., BCP Finance Bank, Ltd., BCP Finance Company, Banco Comercial Portugues, SA, Macao Br, Banco Comercial Portugues, SA, Madeira, Banca Monte dei Paschi di Siena S.p.A., MPS Capital Services, Banca Monte dei Paschi di Siena, London, MPS Capital Trust I, Banca Popolare di Milano S.C.a r.l., BPM Capital Trust I and Banca Carige S.p.A. credit ratings is Johannes Felix Wassenberg, MD - Banking, Financial Institutions Group, JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS: 44 20 7772 5454

The person who approved Oesterreichische Volksbanken AG, Investkredit Funding Ltd and OEVAG Finance (Jersey) Limited credit ratings is Carola Schuler, MD - Banking, Financial Institutions Group, JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS: 44 20 7772 5454.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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.

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 takes rating actions on six EU banks post ECB Comprehensive Assessment
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