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Rating Action:

Moody's upgrades BFF Bank's deposit ratings to Baa2 from Baa3 and downgrades senior unsecured debt rating to Ba2 from Ba1

21 Apr 2021

Outlook changed to stable from positive for deposit ratings and from developing for senior unsecured debt rating

Paris, April 21, 2021 -- Moody's Investors Service ("Moody's") today upgraded the long-term deposit ratings of BFF Bank S.p.A. (BFF) to Baa2 from Baa3 and downgraded the senior unsecured debt and issuer ratings to Ba2 from Ba1. Moody's also upgraded the bank's Baseline Credit Assessment (BCA) to ba2 from ba3. The outlook on BFF's long-term ratings was changed to stable from positive, for deposit ratings, and from developing, for senior unsecured debt and issuer rating.

The rating actions follow BFF's acquisition and subsequent merger of Italian depositary bank DEPObank S.p.A. (DEPObank), which was finalised in March 2021.

A list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

The upgrade BFF's BCA and Adjusted BCA to ba2 from ba3 reflects Moody's view that following the acquisition of DEPObank, BFF will continue to generate solid returns while maintaining low asset risk despite higher sensitivity to market risk given the importance of its investment portfolio. Moody's sees some benefits to BFF's funding and liquidity profile with the acquisition of DEPObank, as the bank has gained access to an ample deposit base and a large stock of liquid assets, even though the deposits are essentially wholesale in nature and hence likely to be more confidence-sensitive and of lower quality than retail deposits.

BFF disclosed a pro-forma Common Equity Tier 1 (CET1) ratio of above 16% post-merger for the combined entities. However, Moody's-calculated Tangible Common Equity (TCE)/ Risk-Weighted-Assets (RWA) ratio will decline markedly to below 9% because the large amount of Italian government bonds held by DEPObank, are risk- weighted at 50% under the rating agency's methodology based on the Baa3 sovereign rating.

The downgrade of BFF's senior unsecured debt rating to Ba2 from Ba1 is driven by the higher expected loss for these liabilities in a resolution scenario, because the merger with DEPObank entails a much lower share of consolidated senior debt relative to total banking assets. The transaction prompts a significant expansion of the balance sheet in the form of substantial exposures (mostly government securities) that were almost entirely deposit funded. Therefore, in Moody's Advanced Loss Given Failure (LGF) analysis, BFF's senior unsecured debt rating moved to no uplift from the BCA, from two notches of uplift previously.

The upgrade of the junior deposit ratings to Baa2 from Baa3 follows the upgrade of the BCA, as the LGF analysis for these liabilities still leads to three notches of uplift from the Adjusted BCA.

OUTLOOKS

The outlooks on BFF's long-term deposit, senior unsecured debt and issuer ratings is stable, reflecting the agency's view that BFF will maintain strong asset quality, good profit generation and solid funding profile over the next 12-18 months. Moody's also considers BFF to be less exposed than other commercial Italian banks to the downside risks from the coronavirus pandemic due to its business model, which focuses primarily on public administration receivables, with limited exposures to corporate and small and medium-sized enterprises (SMEs).

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

BFF's long-term deposit and senior unsecured debt ratings could be upgraded or downgraded following an upgrade or downgrade of the bank's BCA. The senior unsecured debt rating could also be upgraded or downgraded following a material issuance or reduction in the stock of bail-in-able debt, respectively. The deposit rating could also be downgraded following a material reduction in the bank's stock of bail-in-able debt.

BFF's BCA could be upgraded if the bank strengthened its capitalization, while maintaining sound profit generation and low asset risk. BFF's BCA could be downgraded if the bank reported material capital-eroding losses, experienced a material deterioration in asset quality, or a material outflow in deposits.

LIST OF AFFECTED RATINGS

..Issuer: BFF Bank S.p.A.

Downgrades:

....Long-term Issuer Rating, Downgraded to Ba2 from Ba1, Outlook Changed To Stable From Developing

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2 from Ba1, Outlook Changed To Stable From Developing

Upgrades:

....Adjusted Baseline Credit Assessment, Upgraded to ba2 from ba3

....Baseline Credit Assessment, Upgraded to ba2 from ba3

....Short-term Counterparty Risk Assessment, Upgraded to P-2(cr) from P-3(cr)

....Long-term Counterparty Risk Assessment, Upgraded to Baa2(cr) from Baa3(cr)

....Short-term Counterparty Risk Ratings, Upgraded to P-2 from P-3

....Long-term Counterparty Risk Ratings, Upgraded to Baa2 from Baa3

....Short-term Bank Deposit Ratings, Upgraded to P-2 from P-3

....Long-term Bank Deposit Ratings, Upgraded to Baa2 from Baa3, Outlook Changed To Stable From Positive

Outlook Action:

....Outlook, Changed To Stable From Positive(m)

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Fabio Ianno
VP - Senior Credit Officer
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Alain Laurin
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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