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Major Italian banks put on review for 'possible downgrades'

Publication Date: 30 May 2018 - By Gaurav Sharma (Associate Editor ReachX) By Gaurav S.

Equity Fundamental Macro Multi Asset FX Fixed Income/Credit EU Financial Services


Rating actions have been initiated against 12 Italian banking groups, Moody’s said in a statement on Wednesday (30 May).  

The ratings agency placed on review for downgrade the long-term deposit ratings of six banks and the issuer and/or senior unsecured debt ratings of four banks, as well as the counterparty risk assessment (CRA) of nine institutions. 

The review for possible downgrade was prompted by the corresponding action on Italy's Baa2 government bond rating, with the country engulfed in a full blown political crisis.

The following banks are affected by Wednesday's rating actions: UniCredit, Intesa Sanpaolo, Banca IMI, Cassa Depositi e Prestiti, Mediobanca, FCA Bank, Banca Nazionale Del Lavoro, Credito Emiliano, Credit Agricole Cariparma, Cassa Centrale Raiffeisen, Invitalia and Banca del Mezzogiorno.

On those on review for downgrade of their long-term deposit ratings are Intesa Sanpaolo, Banca IMI, Mediobanca, Credit Agricole Cariparma, FCA Bank, and Cassa Centrale Raiffeisen were prompted by the review for downgrade of the Italian government's Baa2 bond rating.

In accordance with Moody's Banks methodology, deposit ratings are typically constrained to two notches above the sovereign bond rating, reflecting the agency's view that the expected loss of rated bank instruments is unlikely to be significantly below that of the sovereign's own debt. 

“This means that, in the event of a downgrade of the rating of the Italian government, Italian bank deposit ratings currently positioned at A3 would also likely be downgraded, and the review for downgrade on the deposit ratings is therefore aligned with that on Italian government bond rating,” Moody's said.

The agency's reviews for downgrade of the Baa2 long-term issuer and senior debt ratings of Cassa Depositi e Prestiti and Invitalia were driven by the review for downgrade of Italy's Baa2 government bond rating. At the same time, the rating agency also placed on review for downgrade the Prime-2 short-term ratings of Cassa Depositi e Prestiti.

Moody's has placed on review for downgrade the long-term Baa3 issuer rating of Banca del Mezzogiorno. The bank's long-term issuer rating of Baa3 reflects: (1) the bank's baseline credit assessment (BCA) of ba3; (2) a two-notch rating uplift from Moody's Advanced Loss Given Failure (LGF) analysis; and (3) Moody's assumption of a moderate probability of government support from its parent, Invitalia (Baa2 review for downgrade), which results in a one-notch uplift for the issuer rating. 

Moody's has also placed on review for possible downgrade the Baa2 issuer rating of Cassa Centrale Raiffeisen. In addition to the above review on its long-term deposit rating resulting from the review for downgrade of the Italian government's Baa2 bond rating, the rating action also reflects the potential for higher loss-given-failure on senior debt after the forthcoming consolidation with the network of mutual banks in Raiffeisen's region, the autonomous province of Bolzano. 

During the review period, Moody's will seek more clarity on the group's consolidated assets, its future liability structure, and funding plans.


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