(The following statement was released by the rating agency)
MILAN/LONDON, June 20 (Fitch) Fitch Ratings has affirmed Banca
Monte dei Paschi
di Siena's (MPS) Long-term Issuer Default Rating (IDR) at 'BBB',
at 'F3', Support Rating (SR) at '2' and Support Rating Floor
(SRF) at 'BBB'. The
Outlook is Negative. At the same time Fitch maintained MPS's
(VR) at 'b' on Rating Watch Negative (RWN). A full list of
rating actions is at
the end of this rating action commentary.
KEY RATING DRIVERS - IDRS, SR, SRF AND SENIOR DEBT
MPS's Long-term IDR is at its SRF and therefore based on support
Italian authorities. The affirmations of the IDRs, SR and SRF
unchanged view that there is a high probability that MPS would
receive support from the Italian government given its systemic
domestically. MPS received EUR2.2bn new capital from the
government in the form
of hybrid instruments issued by the bank in Q113 in addition to
capital received from the government in 2009.
The terms of the government hybrid instruments issued in Q113
include an option
for the bank to convert the instruments into common shares.
This, and the
possibility that coupon payments for these new hybrid
instruments under certain
circumstances can be paid in the form of MPS's shares, means
that the state
could become a shareholder of the bank in the future, which
view of a high probability of continued support for senior
The Negative Outlook on MPS's Long-term IDR mirrors the Negative
Italy's 'BBB+' Long-term IDR and reflects Fitch's view that
MPS's SRF would most
likely be revised downward if the Italian sovereign was
downgraded. A downward
revision of the SRF would result in a downgrade of the bank's
RATING SENSITIVITIES - IDRS, SR, SRF AND SENIOR DEBT
MPS's IDRs, SR, SRF and senior debt ratings are sensitive to a
change in Fitch's
assumptions about the availability of sovereign support for the
downgrade of Italy's sovereign rating would likely result in a
of the SRF, and therefore a downgrade of the Long-term IDR, as
it would indicate
a reduction in the authorities' ability to provide support.
The SRF and SR would also come under pressure if Fitch
considered that the
propensity of the authorities to provide support to all senior
changed, which is not currently factored into the agency's
particular, Fitch's view on support is sensitive to developments
regulatory and legal framework, particularly emanating from the
Commission with regard to bail-ins, centralised regulatory
adjustments to deposit insurance schemes.
Fitch currently expects that the Italian authorities will be
able to provide
support to MPS, but the European Commission has not yet granted
approval for the provision of state aid, which the bank has
MPS's SR and SRF would come under pressure if changes or
limitations in the
provision of state aid to MPS increased the risk of reduced
to all senior creditors, which Fitch currently does not factor
into MPS's SR and
Any downward revision of MPS's SRF would lead to a downgrade of
the bank's IDRs.
In line with Fitch's criteria, the bank's Long-term IDR is the
higher of the VR
and the SRF.
KEY RATING DRIVERS - VR
MPS's VR reflects the agency's opinion that although the
prospects for MPS's
ongoing viability remain weak in a difficult operating
injection of hybrid capital from the government has provided an
buffer to absorb potential future losses. The RWN on the VR
reflects the fact
that the state aid provided to MPS has not yet been approved by
Commission, thus creating some uncertainty.
MPS's VR reflects Fitch's expectation that the bank's operating
remain weak and that asset quality is likely to deteriorate
further as the
Italian economy remains in recession. The VR also reflects the
credit and market
risk the bank is exposed to through its securities portfolio,
which at end-2012
included EUR25.8bn Italian government bonds.
In Fitch's opinion, MPS faces challenges in implementing its
business plan, and
a revised restructuring plan has been submitted following the
receipt of state
aid for approval to the European Commission. MPS's
capitalisation relies on
government hybrid capital, the cost of which is high, which will
capital generation difficult.
MPS reported a EUR3.2bn net loss for 2012, which included the
EUR1.65bn goodwill impairment and EUR3bn loan impairment
charges. For Q113, the
bank made a EUR101m net loss as loan impairment charges remained
high, and Fitch
expects a weak operating performance for 2013. Asset quality
further in Q113, and gross impaired loans at end-March 2013 were
equal to a high
18.8% of gross loans. The bank has worked on improving cost
efficiency, and 2012
and Q113 results confirmed that cost reduction efforts were
ahead of plan.
MPS's end-2012 Fitch Core Capital (FCC)/weighted risks ratio,
EUR4.1bn government hybrid capital, was weak at 4.7%. The
capital, injected in part in 2009 and in part in Q113, is
included in Fitch
eligible capital (FEC). The increase in government hybrid
capital in Q113
strengthens the bank's FEC/weighted risks ratio to an estimated
9.3% based on
end-2012 risk-weighted assets on a pro-forma basis. In Fitch's
opinion, this is
still low given the high volume of unreserved impaired loans,
which at end-2012
were equal to 194% of the bank's equity.
RATING SENSITIVITIES - VR
The bank's VR factors in weak operating profitability and is
based on Fitch's
expectation that pressure on profitability and asset quality
will persist, but
that any operating loss that could arise from continued asset
deterioration or from the bank's securities portfolio would be
MPS's current capitalisation. Losses that would require an
injection of fresh
capital to ensure the bank's viability would result in a
downgrade of the VR. An
upgrade of the VR would require a stabilisation of the bank's
signs that the bank can generate adequate operating profit and
quality, which Fitch believes will prove challenging.
Fitch will review the RWN once the final decision of the
final decision regarding the state aid is reached. An approval
of state aid
based on the bank's restructuring plan, which Fitch believes is
the most likely
outcome, would likely result in an affirmation of the VR and a
removal of the
RWN. If the state aid is not approved or material changes to the
restructuring plan are required, Fitch will review the potential
impact of the
additional European Commission requirements on the bank's
KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID
Subordinated debt and other hybrid capital issued by MPS are all
from MPS's VR in accordance with Fitch's assessment of each
respective non-performance and relative loss severity risk
profiles, which vary
The ratings of the bank's Upper Tier 2 and Tier 1 instruments
securities reflects Fitch's opinion that these notes'
non-performance risk in
the form of non-payment of coupon is high in the coming years.
The receipt of
state aid means that in case of reporting a net loss MPS will be
obliged not to
make coupon payments where the terms of the instruments allow
The Upper Tier 2 notes are rated one notch above the Tier 1
reflect the cumulative coupon on these instruments, whereas
coupon payments on
Tier 1 instruments is non-cumulative.
RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID
The ratings of subordinated debt and other hybrid capital issued
by MPS are
sensitive to any change in MPS's VR and to changes in Fitch's
assumptions on the
probability and severity of non-performance of these notes. The
RWN on the
bank's Lower Tier 2 debt rating reflects the RWN on MPS's VR.
The rating actions are as follows:
Long-term IDR: affirmed at 'BBB'; Outlook Negative
Short-term IDR: affirmed at 'F3'
VR: 'b'; RWN maintained
Support Rating: affirmed at '2'
Support Rating Floor: affirmed at 'BBB'
Debt issuance programme (senior debt): affirmed at 'BBB'
Senior unsecured debt, including guaranteed notes: affirmed at
Lower Tier 2 subordinated debt: 'B-'; RWN maintained
Upper Tier 2 subordinated debt: affirmed at 'CCC'
Preferred stock and Tier 1 notes: affirmed at 'CC'
+39 02 87 90 87 212
Fitch Italia S.p.A.
V.lo Santa Maria alla Porta, 1
+39 02 87 90 87 202
+39 02 87 90 87 225
+44 20 3530 1464
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
firstname.lastname@example.org; Hannah Huntly, London, Tel: +44
20 3530 1153,
Additional information is available on www.fitchratings.com.
Applicable criteria, 'Global Financial Institutions Ratings
Criteria', dated 15
August 2012, 'Evaluating Corporate Governance', dated 12
December 2012 and
'Assessing and Rating Bank Subordinated and Hybrid Securities',
dated 5 December
2012 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