(The following statement was released by the rating agency)
LONDON, November 18 (Fitch) Fitch Ratings has downgraded Banca
Milano's (BPM) Long-term Issuer Default Rating (IDR) to 'BB+'
from 'BBB-' and
removed it from Rating Watch Negative (RWN). The Long-term IDR
is now at the
bank's 'BB+' Support Rating Floor (SRF), which has been
affirmed. The Outlook on
the Long-term IDR is Negative. At the same time Fitch has
Viability Rating (VR) to 'bb-' from 'bbb-'. BPM's VR remains on
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
BPM's Long-term IDR is at the bank's 'BB+' Support Rating Floor
reflects potential support from the Italian authorities.
Fitch has affirmed BPM's Support Rating (SR) and SRF, which
reflect Fitch's view
that there is a moderate probability that the authorities would
to BPM if required because of BPM's strong franchise in its home
Lombardy and its relatively large customer funding base.
The Negative Outlook on BPM's Long-term IDR is in line with the
Italy's 'BBB+' Long-term IDR.
RATING SENSITIVITIES - IDRs, SUPPORT RATING, SUPPORT RATING
FLOOR AND SENIOR
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
authorities to provide timely support to the bank.
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
BPM's SR and SRF are also sensitive to changes in the agency's
around the propensity of support, in light of the weakening of
regulatory, political and economic dynamics about potential
support for senior creditors of banks across jurisdictions, as
indicated in "The
Evolving Dynamics of Support for Banks" and "Bank Support:
Likely Rating Paths",
both dated 11 September 2013 at www.fitchratings.com.
Any downward revision of BPM's SRF would lead to a downgrade of
Long-term IDR. 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
The downgrade of BPM's VR reflects Fitch's view that uncertainty
over the bank's
future strategy and its ability to strengthen capitalisation has
following the delay in the bank's shareholders reaching an
agreement on how to
strengthen the bank's corporate governance. This has also led to
a delay in the
planned EUR500m capital increase.
At BPM, a small group of active current and retired employee
close links to the unions have at times blocked strategic and
proposals. The process of strengthening BPM's corporate
governance has come to a
standstill as shareholders could not reach an agreement on how
to improve the
bank's corporate governance. The bank's CEO, who had contributed
to the bank's
progress in improving cost efficiency, resigned in late October
2013, and an
Ordinary Shareholders' Meeting has been called in December 2013
to appoint a new
supervisory board, which in turn will have to nominate a new
The uncertainty over the future composition of the bank's key
bodies means that uncertainty over the bank's future governance
and strategy has
increased materially at a time when BPM needs to strengthen its
further by the announced EUR500m.
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 performance, with the exception of asset quality, has
improved, and the
bank reported a EUR139m net profit for 9M13. BPM's VR continues
to reflect its
deteriorating asset quality, its above-average exposure to the
real estate and
construction sectors and increasing impaired loans. BPM's
improved and funding and liquidity are acceptable. Its impaired
reached 11% at end-9M13, which is however still lower than at
most of its peers
and below the average for the sector. Coverage levels are
acceptable, but Fitch
expects loan impairment charges to remain high.
RATING SENSITVITIES - VR
The RWN on BPM's VR reflects Fitch's view that failure to reach
solution for the bank's future corporate governance, which would
successful capital increase more uncertain, would result in a
downgrade of its
VR. Doubts over the bank's ability to raise capital would likely
result in a
downgrade of its VR by more than one notch, most likely to the
'b' range, to
reflect the increased risks to the bank's viability.
BPM's VR would also come under pressure if asset quality
materially worse than currently expected by the agency, or if
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 improving asset quality ratios.
KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND
The subordinated notes issued by BPM are notched down from its
VR in accordance
with Fitch's assessment of each instrument's respective
relative loss severity risk profiles. Their rating is primarily
sensitive to any
change in the bank' VR but also to any change in Fitch's view of
or loss severity risk relative to the bank's viability.
The rating of the preferred stock and hybrid capital instruments
non-performance in the form of non-payment of interest. Their
sensitive to changes in Fitch's view of their loss severity.
Banca Popolare di Milano
Long-term IDR: downgraded to 'BB+' from 'BBB-'; RWN removed;
Short-term IDR: downgraded to 'B' from 'F3'; RWN removed
Viability Rating: downgraded to 'bb-' from 'bbb-'; RWN
Support Rating: affirmed at '3'
Support Rating Floor: affirmed at 'BB+'
Senior unsecured notes and EMTN programme: downgraded to
'BBB-'/'F3'; RWN removed
Subordinated Lower Tier 2 debt: downgraded to 'B+' from 'BB+';
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
+39 02 87 90 87 202
+39 02 87 90 87 212
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 15
August 2012; 'Evaluating Corporate Governance', dated 12
'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
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