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Rating Action:

Moody's upgrades Banco BPM's deposit ratings to Baa3 from Ba1

28 May 2019

Baseline Credit Assessment upgraded to ba3 from b1; Ba2 senior unsecured ratings affirmed

Paris, May 28, 2019 -- Moody's Investors Service today upgraded the long-term deposit ratings of Banco BPM S.p.A. to Baa3 from Ba1 and affirmed its long-term senior unsecured debt ratings at Ba2. Moody's also upgraded the bank's standalone baseline credit assessment (BCA) to ba3 from b1. The outlook on the long-term deposit ratings remains stable, and the outlook on the senior unsecured debt ratings remains negative.

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

RATINGS RATIONALE

BCA

The upgrade of Banco BPM's BCA primarily reflects the bank's improved asset quality following its significant recent de-risking actions. Banco BPM has implemented the disposal and securitisation of gross problem loans worth almost €13 billion in 2018. By doing so, Banco BPM's pro-forma problem loans ratio decreased to 9.9% as of end-March 2019, including the disposal of €650 million of leasing exposures to be finalized in the next few months, compared to 21% at end-2017. Despite this significant improvement, Banco BPM's problem loan ratio remains much higher than the European Union average (of just above 3.2%), according to the European Banking Authority's recently published data, and the bank is likely to take additional steps to further improve its asset risk.

The BCA of ba3 incorporates Moody's view that Banco BPM's capitalization remains moderate. While the bank reported a relatively strong phased-in CET1 ratio of 13.7% at end-March 2019, some 4.4 percentage points above its ECB requirement, the same ratio is a more modest at 11.8% if adjusted for future developments. This adjusted CET1 ratio reflects the full anticipated impact of IFRS 9; it also includes the benefit estimated by the bank at around 80 basis points from the reorganisation of its consumer credit business, which includes the transfer of the group's ProFamily captive business for €310 million to consumer finance company Agos Ducato, in which Banco BPM holds a 39% share.

The BCA also reflects Moody's view that Banco BPM's profitability is still weak. The bank reported a net loss of €59 million in 2018, primarily driven by over €700 million loan losses related to the disposal of large amount of bad loans. In the first quarter of 2019, Banco BPM posted a net profit of €150 million, but Moody's expects the bank's profitability to remain weak in the medium term as cost-cutting measures are offset to some degree by a continued weak operating environment.

At end-March 2019, Banco BPM had drawn over €21 billion of ECB TLTRO funding, equivalent to almost 13% of total assets, higher than that of most international and domestic peers. Although this borrowing benefits the income statement given its attractive terms, such extensive use also flags weaknesses in the bank's core profitability and funding profiles.

LONG-TERM SENIOR UNSECURED AND DEPOSIT RATINGS

The upgrade in Banco BPM's BCA drove the upgrades in the bank's long-term deposit ratings and counterparty risk ratings to Baa3 from Ba1, both of which the agency considers to face extremely low loss-given-failure given the substantial protection afforded to them by more junior liabilities. Meanwhile, the volume of long-term senior unsecured debt has declined sharply to a level consistent with moderate loss-given-failure, but the rating agency anticipates that renewed issuance of senior bonds in both the public and private markets will likely reverse this decline. For these reasons Moody's affirmed the senior unsecured debt rating of Ba2, one notch above the bank's BCA.

Notwithstanding the bank's position as the third largest lender in Italy, given its more modest market position compared to the country's two largest banks, Moody's assumes a low likelihood of government support for Banco BPM, resulting in no further uplift to the long-term unsecured debt and deposit ratings.

OUTLOOKS

The outlook on Banco BPM's long-term deposit ratings remains stable, reflecting Moody's expectation that the bank's financial profile of the bank will remain broadly unchanged in the next 12 to 18 months, with a more gradual reduction in problem loans, stable capital, and modest profitability.

The outlook on the senior unsecured rating is negative. As noted above, Moody's expects Banco BPM to be a net issuer of senior unsecured debt over the next year, which underpin the one notch uplift from the bank's BCA. Nevertheless, the bank's targets are subject to market conditions and the outlook reflects the possibility that they may not be met, leading to a more durable reduction in the stock of this debt which would thus bear higher risk.

WHAT COULD MOVE THE RATINGS UP/DOWN

The standalone BCA of Banco BPM could be upgraded if the group were to achieve a further material reduction in the stock of problem loans while improving profit generation capacity and capital. An upgrade of the BCA would likely result in upgrades of all ratings.

A downgrade of the BCA would prompt a downgrade of all ratings. This could be triggered by a sudden deterioration in the bank's asset risk or by material reported losses. Any deterioration in the bank's liquidity profile could also result in a downgrade of the BCA.

The senior unsecured/issuer rating would likely be downgraded if the bank failed to meet its target to be a net issuer over the next year.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

FULL LIST OF AFFECTED RATINGS

Issuer: Banco BPM S.p.A.

..Upgrades:

.... Adjusted Baseline Credit Assessment, Upgraded to ba3 from b1

.... Baseline Credit Assessment, Upgraded to ba3 from b1

.... Long-term Counterparty Risk Assessment, Upgraded to Baa3(cr) from Ba1(cr)

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

.... Long-term Counterparty Risk Rating , Upgraded to Baa3 from Ba1

.... Short-term Counterparty Risk Rating, Upgraded to P-3 from NP

.... Subordinate Medium-Term Note Program, Upgraded to (P)B1 from (P)B2

....Pref. Stock Non-cumulative, Upgraded to B3 (hyb) from Caa1 (hyb)

....Subordinate Regular Bond/Debenture, Upgraded to B1 from B2

.... Long-term Bank Deposits, Upgraded to Baa3 from Ba1, Outlook Remains Stable

.... Short-term Bank Deposits, Upgraded to P-3 from NP

..Affirmations:

.... Long-term Issuer Rating, Affirmed Ba2, Outlook Remains Negative

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba2

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba2, Outlook Remains Negative

..Outlook Action:

....Outlook Remains Stable(m)

Issuer: Banco Popolare Societa Cooperativa

..Upgrades:

....Pref. Stock Non-cumulative, Upgraded to B3 (hyb) from Caa1 (hyb)

....Subordinate Regular Bond/Debenture, Upgraded to B1 from B2

..Affirmations:

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba2, Outlook Remains Negative

..Outlook Action:

....No Outlook assigned

Issuer: Banca Popolare di Milano S.C. a r.l.

..Upgrades:

....Subordinate Regular Bond/Debenture, Upgraded to B1 from B2

..Outlook Action:

....No Outlook assigned

Issuer: Banca Italease S.p.A.

..Affirmations:

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba2, Outlook Remains Negative

..Outlook Action:

....No Outlook assigned

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.

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

Nicholas Hill
MD - Banking
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.
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