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TEXT - Fitch affirms Banca Monte dei Paschi di Siena S.p.a.
January 15, 2013 / 4:47 PM / 5 years ago

TEXT - Fitch affirms Banca Monte dei Paschi di Siena S.p.a.

(The following statement was released by the rating agency)
    Jan 15 - Fitch Ratings has affirmed Banca Monte dei Paschi di Siena S.p.a.'s
 (BMPS; 'BBB'/Negative/'F3') mortgage covered bonds (obbligazioni
bancarie garantite, OBG) at 'A+' with a Negative Outlook. The OBG are guaranteed
by MPS Covered Bond S.r.l. (MPS CB). The affirmation follows a full review of
the programme.

The rating is based on BMPS's Long-term (LT) Issuer Default Rating (IDR) of 
'BBB', a Discontinuity Cap (D-Cap) of 2 (high risk) and the committed asset 
percentage (AP) of 67.70%. Given that the issuer's Short-term IDR is 'F3', the 
agency relies on the publicly stated level of AP. 

In terms of sensitivity of the covered bonds' rating, the 'A+' rating would be 
vulnerable to downgrade if any of the following occurred: (i) the LT IDR of the 
issuer was downgraded by one or more notches; or (ii) the D-Cap fell to 1 or 0; 
or (iii) the programme AP went above 72.50%, which is the breakeven level in 
line with the 'A+' rating. The Negative Outlook on Italy ('A-'/Negative/'F2') 
drives the Negative Outlook on the covered bonds as a one-notch downgrade of the
sovereign would most likely cause a reduction of the applicable D-Cap.  

  

The D-Cap of 2 results from a high discontinuity risk assessment for the 
liquidity gap and systemic risk component (see "Fitch Puts 2 Italian Covered 
Bonds on RWN; Assigns Outlooks & D-Caps" dated September 2012 at 
www.fitchratings.com).

As of December 2012, the cover pool consisted of about 141,925 mortgage loans 
and the outstanding principal balance of the aggregated pool was EUR 13.2bn. In 
a 'A+' scenario Fitch has calculated a cumulative weighted average (WA) 
frequency of foreclosure for the cover assets of 23.8% and a WA recovery rate of
73.2%.

The cover assets WA residual maturity is 11.3 years, whereas the covered bonds' 
is 3.3 years. In its cash flows analysis, Fitch applied its refinance cost 
assumptions for Italian mortgage loans outlined in its 'Covered Bonds Rating 
Criteria - Mortgage Liquidity & Refinance Stress Addendum'.

Interest rate swaps are in place between BMPS and MPS CB to hedge any 
discrepancies between the interest rate yielded by the cover assets and the 
covered bonds. The 'A+' breakeven AP calculated by the agency is positively 
influenced by the 1.25% asset swap margin paid by the swap counterparty to MPS 
CB.

The Fitch breakeven AP for the covered bond ratings will be affected, among 
others, by the profile of the cover assets relative to outstanding covered 
bonds, which can change over time, even in the absence of new issuances. 
Therefore it cannot be assumed to remain stable over time.

More details on the portfolio and on Fitch's analysis are available in a credit 
update, which will shortly be available at www.fitchratings.com.

 (Caryn Trokie, New York Ratings Unit)

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