(The following statement was released by the rating agency)
MILAN/LONDON, February 14 (Fitch) Fitch Ratings has affirmed
(Carige) and Banca Popolare di Milano's Long-term Issuer Default
at 'BB' and 'BB+', respectively, with Negative Outlooks. It has
Carige's and BPM's Viability Ratings (VR) on Rating Watch
Negative (RWN). A full
list of rating actions is at the end of this rating action
KEY RATING DRIVERS - IDRs, SUPPORT RATING, SUPPORT RATING FLOOR
AND SENIOR DEBT
Both banks' Long-term IDRs are at their Support Rating Floors
(SRF) and both
reflect potential support from the Italian authorities.
Carige's Support Rating (SR) and SRF reflect Fitch's view that
there is a
moderate probability that the authorities would provide support
to Carige if
required because of its franchise in its home region of Liguria
relatively large customer funding base.
Similarly, BPM's SR and SRF reflect Fitch's view that there is a
probability that the authorities would provide support to BPM if
because of BPM's strong franchise in its home region of Lombardy
relatively large customer funding base.
The Negative Outlooks on BPM's and Carige's Long-term IDRs are
in line with the
Outlook on Italy's 'BBB+' Long-term IDR.
RATING SENSITIVITIES - IDRs, SUPPORT RATING, SUPPORT RATING
FLOOR AND SENIOR
Carige's and BPM's Long-term IDR, SR, SRF and senior debt
ratings are sensitive
to a change in Fitch's assumptions about the propensity or
ability of the
Italian authorities to provide timely support to the banks.
The Italian state's ability to provide such support is dependent
creditworthiness, reflected in its Long-term IDR. A downgrade of
sovereign rating would reflect a weakened ability of the state
support and therefore likely result in the downward revision of
Carige's and BPM's SRs and SRFs are also sensitive to changes in
assumptions around the propensity of support, in light of the
legal, regulatory, political and economic dynamics about
sovereign support for senior creditors of banks across
indicated in "The Evolving Dynamics of Support for Banks" and
Likely Rating Paths", both dated 11 September 2013 at
Any downward revision of Carige's and BPM's SRF would lead to a
downgrade of the
banks' Long-term IDRs. In line with Fitch's criteria, the banks'
are the higher of their respective VR or SRF.
KEY RATING DRIVERS - VRs
Carige's 'b-' VR reflects its weak capitalisation combined with
deterioration in asset quality and operating performance. The VR
maintained on RWN because the EUR800m capital strengthening plan
early 2013 and originally planned to be completed by end-2013,
significant asset disposals, has been only partially implemented
In January 2014 Carige sold its asset management subsidiary for
EUR101m, with a
gain of EUR93m and a positive impact of about 40 bp on the
bank's core Tier 1
ratio, while the disposal of the two insurance subsidiaries,
which was key to
the execution of the capital strengthening plan, remains
undefined. As a result,
the bank will issue new shares to improve its capitalisation.
The new share
issue will likely be launched in 2Q14. Carige's Board of
Directors is authorised
to issue new shares equivalent to a maximum of EUR800m. The
shareholder, a banking foundation, has only limited financial
strength and its
share will likely be diluted.
Carige's Fitch core capital (FCC) ratio was a low 6.2% at
end-9M13 and likely
fell below 6% at end-2013 as Fitch expects Carige to report a
operating loss for 4Q13. The regulatory core Tier 1 ratio at
end-9M13 stood at
5.8%, well below the 8% Basel III CET1 ratio set by the European
Central Bank as
the minimum ratio for its asset quality review. Some benefit to
will come from the sale of its asset management subsidiary and
deductions from the conversion of deferred tax assets into tax
Capitalisation is weak relative to the bank's high level of
loans, which account for more than 200% of FCC.
Carige's asset quality has deteriorated sharply and is weak. The
impaired loans/total loans ratio reached 16.2% at end- 9M13, up
from 9.5% at
end-3M13, and coverage of impaired loans is low at 37%. Reported
and LICs likely rose further in 4Q13 and Fitch expects end-2013
ratios to have deteriorated further compared with 9M13.
Carige's profitability is structurally weak, burdened by loan
charges, the performance of the insurance subsidiaries and
BPM's VR reflects Fitch's opinion of the bank's weak corporate
a small group of active current and retired employee
shareholders with close
links to the unions have at times blocked strategic and
The process of strengthening the bank's corporate governance
with the recent appointment of new supervisory and management
over the bank's future corporate governance and its
effectiveness should allow
it to raise the necessary capital, estimated at EUR500m.
However, it is still
too early to assess if the proposed corporate governance reform
will be in the
Excluding higher risk weightings imposed by the regulator in
2011, BPM's Basel
2.5 Core Tier 1 ratio at end-9M13 stood at 8.9%, which compares
its direct domestic peers. However, the reported statutory ratio
was lower at
7.25%, below the 8% Basel III CET1 ratio set by the European
Central Bank as the
minimum ratio for its asset quality review.
BPM's VR reflect its deteriorating asset quality, its
above-average exposure to
the real estate and construction sectors and increasing impaired
efficiency has improved and funding and liquidity are
acceptable. Its impaired
loans ratios reached 11% at end-9M13, which is still lower than
most of its
peers and below the average for the sector. Coverage levels are
Fitch expects loan impairment charges to remain high.
RATING SENSITVITIES - VRs
The RWN on Carige's VR reflects Fitch's opinion that the
likelihood of the bank
failing to achieve the required capital strengthening by
end-1H14 remains high.
Additionally, the number of Italian banks going to the equity
markets to raise
fresh capital is increasing.
Fitch expects to resolve the RWN after the completion of the
which the bank expects to take place in June 2014. Should the
bank be unable to
raise the necessary capital in full or in part, the VR would
downgraded to reflect the risks to its standalone viability.
Any upgrade of Carige's VR would require evidence of the bank's
stronger capitalisation, and improving profitability and asset
disposal of the bank's two insurance subsidiaries would be an
indicator of the
bank's improved risk appetite.
The RWN on BPM's VR continues to reflect Fitch's view that
uncertainty over the
bank's future remains until shareholders reach a clear agreement
on how to
strengthen the bank's corporate governance effectively and
to reach a durable solution for the bank's corporate governance
and to increase
capital would result in a downgrade of its VR. The bank's VR
could be downgraded
by more than one notch, to reflect the increased risks to the
Fitch expects to resolve the RWN on BPM's VR once it can assess
changes to the bank's corporate governance. These changes will
disclosed ahead of the annual general meeting to approve BPM's
which is scheduled for 19 April 2014.
BPM's VR would also come under pressure if asset quality
materially worse than currently expected by Fitch, or if
liquidity and funding
Any upgrade of BPM's VR would require a credible strengthening
of its corporate
governance, higher capital levels (through the announced EUR500m
increase and the removal of the higher risk-weightings imposed
by the regulator)
and stabilising asset quality ratios. Should the changes in the
governance be merely cosmetic in Fitch's opinion, the sole
completion of the
capital increase would not be sufficient for the VR to be
KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND
The subordinated notes issued by Carige and BPM are notched down
respective VR in accordance with Fitch's assessment of each
respective non-performance and relative loss severity risk
rating is primarily sensitive to any change in the banks' VR but
also to any
change in Fitch's view of non-performance or loss severity risk
relative to the
The rating of BPM's preferred stock and hybrid capital
their non-performance in the form of non-payment of interest.
Their rating is
sensitive to changes in Fitch's view of their loss severity.
The rating actions are as follows:
Long-term IDR: affirmed at 'BB'; Negative Outlook
Short-term IDR: affirmed at 'B'
Viability Rating: 'b-'; maintained on RWN
Support Rating: affirmed at '3'
Support Rating Floor: affirmed at 'BB'
Senior unsecured notes: affirmed at 'BB'/'B'
Subordinated notes: 'CCC'; maintained on RWN
Banca Popolare di Milano
Long-term IDR: affirmed at 'BB+'; Outlook Negative
Short-term IDR: affirmed at 'B';
Viability Rating: 'bb-'; maintained on RWN
Support Rating: affirmed at '3'
Support Rating Floor: affirmed at 'BB+'
Senior unsecured notes and EMTN programme: affirmed at 'BB+'/'B'
Commercial Paper: affirmed at 'B'
Subordinated Lower Tier 2 debt: 'B+'; maintained on RWN
Preferred stock and hybrid capital instruments: affirmed at
+39 02 87 90 87 225
Fitch Italia S.p.A.
V.lo S. Maria alla Porta 1
Secondary Analyst (BPM)
+39 02 87 90 87 202
Secondary Analyst (Carige)
+44 20 3530 1232
Maria Jose Lockerbie
+44 20 3530 1083
Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153,
Additional information is available at www.fitchratings.com.
Applicable criteria, 'Global Financial Institutions Rating
Criteria', dated 31
January 2014; 'Evaluating Corporate Governance', dated 12
'Assessing and Rating Bank Subordinated and Hybrid Securities',
dated 31 January
2014, are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Evaluating Corporate Governance
Assessing and Rating Bank Subordinated and Hybrid Securities
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS
here. IN ADDITION,
ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS,
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE
FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES.
DETAILS OF THIS
SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH