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Fitch Places Banco Desio on Negative Watch on Banca Popolare di Spoleto Buy
April 30, 2014 / 4:52 PM / 3 years ago

Fitch Places Banco Desio on Negative Watch on Banca Popolare di Spoleto Buy

(The following statement was released by the rating agency) MILAN/LONDON, April 30 (Fitch) Fitch Ratings has placed Banco di Desio e della Brianza's (BDB) Long-term Issuer Default Rating (IDR) of 'BBB+', Short-term IDR of 'F2', and Viability Rating of 'bbb+' on Rating Watch Negative (RWN). A full list of rating actions is available at the end of this rating action commentary. The rating action follows BDB's announcement on 1 April 2014 that it plans to acquire Banca Popolare di Spoleto (BPSpoleto). The transaction is subject to regulatory approval. BPSpoleto is a small cooperative bank based in central Italy placed under a special administration regime since 8 February 2013. KEY RATING DRIVERS - IDRs and VR BDB's IDRs are driven by the bank's VR. The RWN on BDB's IDRs and VR reflects the negative impact that the acquisition will have on BDB's asset quality and, to a lower extent, on capital, and the execution risks inherent in the transaction. It also reflects the lack of track record of similar integrations at BDB, which has always grown organically, and BPSpoleto's ultimate ownership structure which will include minority interests (for risks for Italian mid-sized banks of undertaking acquisitions of small troubled banks see 'Fitch: Small Bank Rescues A Threat To Italian Mid-Sized Banks', which is available on The acquisition of BPSpoleto will result in a moderate deterioration of BDB's asset quality ratios and a weakening of capital. As a result of the acquisition Fitch expects the impaired loans ratio to increase, while coverage of impaired loans would benefit from the comparatively higher cash coverage at BPSpoleto. Capital should also weaken but BDB's strong capitalisation to date means that the bank will remain comfortably above the regulatory minimum and in line with the average of its immediate Italian peers. Execution risks stem from the bank's lack of experience in integrations and from expanding to a new geographical market. Execution risks are, to some extent, mitigated by BDB and BPSoleto sharing the same outsourced IT system, the lack of any significant territorial overlap and the two banks serving a broadly similar clientele of SMEs and households and running similar business models. BPSpoleto (end-2012: EUR3.8bn assets and EUR173m equity), was placed under special administration as a result of its rapidly deteriorating asset quality (with an impaired loans ratio of 15% of gross loans at end-2012), reported net losses in 2012 and 2011 and corporate governance issues. Seventy-five per cent of BPSpoleto's branch network is located in the region of Umbria where the economy is less robust compared with BDB's core market of Lombardy. BDB's IDRs and VR continue to reflect the bank's more resilient performance than peers, albeit results deteriorated materially in 2013, its prudent lending policies and a well-diversified loan book both by borrower and by industry. The ratings also reflect better than system-average asset quality ratios, a large and stable customer deposit base, which historically has kept wholesale funding low, and sound capitalisation (the bank's Tier 1 and Total Capital Ratio at end-2013 were equal to 11.82% and 12.97%, respectively). RATING SENSITIVITIES - IDRs and VR Fitch expects to resolve the RWN once the acquisition is formally complete, which is expected to take place in 2H14. The acquisition of BPSpoleto will result in weaker asset quality and capital but in the longer term, the acquisition could provide BDB with more room for cost efficiencies than currently available and ultimately support its revenue generation capacity. As a result, Fitch believes that the ratings would only be downgraded by one or two notches. At the same time, and irrespective of the announced acquisition, greater-than-expected asset quality deterioration, significant reported losses or a weakening of BDB's funding and liquidity position would put pressure on its ratings. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR BDB's SR of '4' and SRF of 'B+' reflect BDB's mainly private ownership structure and its fairly small size, making it unlikely that the authorities would support the bank if need be. The ability and propensity of BDB's private shareholders to provide support, albeit possible, cannot be relied upon. RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR The SR and SRF are sensitive to a weakening of sovereign support propensity due to further progress being made in addressing any remaining legislative and practical impediments to effective bank resolution. Fitch's base case is that sufficient progress is likely to have been made for BDB's SR to be downgraded to '5' and for the SRF to be revised downwards to 'No Floor' by the end of 2014 or in 1H15, but the timing could change and will be influenced by Fitch's continuing analysis of progress made on the bank resolution regime. BDB's SR and SRF are also sensitive to any change in Fitch's assumption on the reduced ability of the sovereign to provide support, for example following a sovereign downgrade which, however, is unlikely at present. The rating actions are as follows: Long-term IDR: 'BBB+' placed on RWN Short-term IDR: 'F2' placed on RWN Viability Rating: 'bbb+' placed on RWN Support Rating: affirmed at '4' Support Rating Floor: affirmed at 'B+ Contact: Primary Analyst Francesca Vasciminno Senior Director +39 02 87 90 87 225 Fitch Italia S.p.A. Via Privata Maria Teresa, 8 20123 Milano Secondary Analyst Alessandro Musto Associate Director +39 02 87 90 87 201 Committee Chairperson Maria Jose Lockerbie Managing Director +44 20 3530 1083 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: Additional information is available on Applicable criteria, Applicable criteria "Global Financial Institutions Rating Criteria" dated 31 January 2014, are available at Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status null/gws/en/disclosure/solicitation?pr_id=828333 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE 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 EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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