April 1, 2014 / 5:27 PM / 4 years ago

Fitch Affirms Italian Covered Bonds on Criteria Amendments

(The following statement was released by the rating agency) MILAN/LONDON, April 01 (Fitch) Fitch Ratings has affirmed nine Italian covered bond programmes with Negative Outlooks and revised the Outlook on three programmes to Positive from Negative. The rating actions follow the implementation of Fitch's revised Covered Bonds Rating Criteria dated 10 March 2014 on covered bond programmes issued by Italian banks. The rating actions also take into account the Negative Outlooks on certain banks' Issuer Default Ratings (IDR) and potential downward revisions of Support Ratings and Support Rating Floors (see 'Fitch Revises Outlooks on 18 EU Commercial Banks to Negative on Weakening Support' and 'Fitch Affirms SRFs of 64 EMEA Banks; Downward Revisions Likely For Most Due To Weakening Support' dated 26 March 2014 at www.fitchratings.com). As part of its updated covered bonds analysis, Fitch has assigned IDR uplifts to each programme, where applicable. A full list of rating actions and IDR uplifts for Italian mortgage covered bonds (Obbligazioni Bancarie Garantite, OBG) is at the end of this comment. KEY RATING DRIVERS Banca Carige's (Carige; BB/Negative/B) OBG have been affirmed at 'BBB+'/Negative based on the bank's 'BB' IDR, a newly assigned IDR uplift of '0', an unchanged Discontinuity Cap (D-Cap) of 1 (very high discontinuity risk) and the asset percentage (AP) which Fitch takes into account in its analysis, and which provides more protection than the breakeven AP for the current rating as calculated by the agency. The Negative Outlook on the OBG reflects the Negative Outlook on the bank's IDR and the outlook for the Italian residential and small and medium enterprises (SME) mortgage market. Banca Monte dei Paschi's (BMPS; BBB/Negative/F3) OBG have been affirmed at 'A'/Negative based on the bank's 'BBB' IDR, a newly assigned IDR uplift of '1', an unchanged D-Cap of 1 and the AP which Fitch takes into account in its analysis, and which provides more protection than the breakeven AP for the current rating as calculated by the agency. The Negative Outlook on the 'A' rating of BMPS's OBG reflects the Negative Outlook on the bank's IDR and that a potential downgrade of the IDR may not be entirely compensated by the IDR uplift of '1' assigned to the programme. The Negative Outlook also reflects the outlook for the Italian residential mortgage market. Banco Popolare's (BP; BBB/Negative/F3) OBG have been affirmed at 'BBB+'/Negative based on the bank's 'BBB' IDR, a newly assigned IDR uplift of '1' and an unchanged D-Cap of '1'. The current level of AP exceeds the breakeven AP to sustain the rating on a probability of default (PD) basis, should BP's IDR be downgraded to its Viability Rating of 'bbb-'. The OBG rating on a PD basis is capped at BP's IDR (adjusted by the IDR uplift) for excessive exposure to the account bank. The current 80.7% AP commitment would allow the covered bonds to achieve a two-notch uplift on a recovery basis above the rating on a PD basis. However, the OBG rating is constrained at the 'BBB' rating category in line with the replacement provision set out in the programme documentation. The Negative Outlook on the rating of the OBG also reflects the outlook for the Italian residential mortgage market. Banca Popolare di Milano's (BPM; BB+/Negative/B) OBG have been affirmed at 'BBB+'/Negative based on the bank's 'BB+' IDR, a newly assigned IDR uplift of '0', an unchanged D-Cap of '1' and the AP which Fitch takes into account in its analysis, and which provides more protection than the breakeven AP for the current rating as calculated by the agency. The Negative Outlook on the 'BBB+' rating of BPM's OBG reflects the Negative Outlook on the bank's IDR and the outlook for the Italian residential mortgage market. Credito Emiliano's (CREDEM; BBB+/Negative/F2) OBG guaranteed by CREDEM CB S.r.l. (CREDEM CB) have been affirmed at 'A+'/Negative based on the bank's 'BBB+' IDR, a newly assigned IDR uplift of '0', an unchanged D-Cap of '1' and the AP which Fitch takes into account in its analysis, and which provides more protection than the breakeven AP for the current rating as calculated by the agency. The Negative Outlook on the 'A+' rating of the OBG guaranteed by CREDEM CB reflects the Negative Outlook on the bank's IDR and the outlook for the Italian residential mortgage market. CREDEM's OBG guaranteed by CANOSSA CB S.r.l. (CANOSSA CB) have been affirmed at 'BBB+'/Negative based on the bank's 'BBB+' IDR, a newly assigned IDR uplift of '0', an unchanged D-Cap of '1' and the AP which Fitch takes into account in its analysis, and which provides more protection than breakeven AP for the current rating as calculated by the agency. However, the OBG rating is constrained at the 'BBB' rating category in line with the replacement provision set out in the programme documentation. The Negative Outlook on the 'BBB+' rating of the OBG issued by CREDEM and guaranteed by CANOSSA CB is Negative due to the outlook for the Italian residential mortgage market. Unione di Banche Italiane Scpa - UBI Banca's (UBI; BBB+/Negative/F2) OBG guaranteed by UBI Finance S.r.l. (UBI Finance) have been affirmed at 'A+' and the Outlook revised to Positive from Negative. The revision of the Outlook indicates the potential for an upgrade based on the bank's 'BBB+' IDR, a newly assigned IDR uplift of '1', an unchanged D-Cap of '1' and the AP that Fitch takes into account in its analysis, and which provides more protection than the breakeven AP calculated by the agency for the current 'A+' rating. UBI's OBG guaranteed by UBI Finance CB2 S.r.l. (UBI Finance CB2) have been affirmed at 'BBB+' and the Outlook revised to Positive from Negative. The revision of the Outlook indicates the potential for an upgrade based on the bank's 'BBB+' IDR, a newly assigned IDR uplift of '1', an unchanged D-Cap of '0' (full discontinuity risk) and the AP that Fitch takes into account in its analysis, and which provides more protection than the breakeven AP calculated by the agency for the current 'BBB+' rating. Unicredit S.p.a.'s (UC; BBB+/Negative/F2) mortgage covered bonds have been affirmed at 'A+' and the Outlook revised to Positive from Negative. The revision of the Outlook indicates the potential for an upgrade based on the bank's 'BBB+' IDR, an IDR uplift of '1' and an unchanged D-Cap of '1' and the AP that Fitch takes into account in its analysis, and which provides more protection than the breakeven AP calculated by the agency for the current 'A+' rating. The IDR uplift expresses Fitch's judgement of the degree of protection in the event of a bank's resolution that would be available to prevent the source of covered bonds payments switching from the issuer to the cover pool. It is derived from the following factors: Fitch's opinion regarding the relative ease and motivations for resolution methods other than liquidation; the importance of covered bonds to the financial markets in a given jurisdiction; and the extent of buffer offered by senior unsecured debt. Fitch's view on the use of resolution methods other than liquidation contributes to the IDR uplift assigned to the programmes of UC and BMPS based on the complexity of UC and large size of UC and BMPS in their domestic market. Protection from the level of senior unsecured debt is reflected in the IDR uplift assigned to BP's and UBI's mortgage covered bonds. This is based on Fitch's estimate of long-term non-retail placed senior unsecured debt exceeding 5% of total adjusted assets on the latest available financial information. Fitch does not consider Italy to be a covered bond intensive jurisdiction. RATING SENSITIVITIES The 'BBB+'/Negative rating on Carige's OBG could be downgraded among others, if the bank's 'BB' IDR was downgraded by one or more notches. All else being equal, the rating of Carige's OBG would be vulnerable to downgrade if any of the following occurs: (i) the D-Cap falls to zero; or (ii) the programme's AP goes above Fitch's breakeven AP for the rating level. The 'A'/Negative rating of BMPS's OBG could be downgraded among others, if the bank's 'BBB' IDR was downgraded by two or more notches. All else being equal, the rating of BMPS's OBG would be vulnerable to downgrade if the programme's AP goes above Fitch's breakeven AP for the rating level. The 'BBB+'/Negative rating of BP's OBG could be downgraded among others, if the bank's 'BBB' IDR was downgraded by four or more notches. The 'BBB+'/Negative rating of BPM's OBG could be downgraded among others, if the bank's 'BB+' IDR was downgraded by two or more notches. All else being equal, if the D-Cap fell to zero or the programme AP went above the Fitch breakeven AP of 82%, the 'BBB+' rating would not be affected. However, in this scenario the payments of the bonds would not be timely and the OBG would be rated on a recovery basis only, as the rating on a PD basis would be at the same level as BPM's IDR and an uplift of up to three notches could be granted above the rating of the covered bonds on a PD basis. The 'A+'/Negative rating of CREDEM's OBG guaranteed by CREDEM CB could be downgraded among others, if the bank's 'BBB+' IDR was downgraded by one or more notches. All else being equal, the rating of CREDEM's OBG guaranteed by CREDEM CB would be vulnerable to downgrade if any of the following occurs: (i) the D-Cap falls to zero; or (ii) the programme's AP goes above Fitch's breakeven AP for the rating level. The 'BBB+'/Negative rating of CREDEM's OBG guaranteed by CANOSSA CB could be downgraded among others, if the bank's 'BBB+' IDR was downgraded by two or more notches. The 'A+'/Positive rating of UBI's OBG guaranteed by UBI Finance could be upgraded once the Bank Recovery and Resolution Directive is passed by the European Parliament and provided the overcollateralisation (OC) that Fitch relies upon in its analysis is commensurate with the breakeven level for the new rating The 'BBB+'/Positive rating of UBI's OBG guaranteed by UBI Finance CB2 could be upgraded once the Bank Recovery and Resolution Directive is passed by the European Parliament and provided the OC that Fitch relies upon in its analysis is commensurate with the breakeven level for the new rating. The 'A+'/Positive rating of UC's OBG could be upgraded once the Bank Recovery and Resolution Directive is passed by the European Parliament and provided the OC that Fitch relies upon in its analysis is commensurate with the breakeven level for the new rating. The rating actions and IDR uplift for each programme are as follows: Carige OBG: affirmed at 'BBB+'; Outlook Negative, IDR Uplift: 0 BMPS OBG: affirmed at 'A'; Outlook Negative, IDR Uplift: 1 BP OBG: affirmed at 'BBB+'; Outlook Negative, IDR Uplift: 1 BPM OBG: affirmed at 'BBB+'; Outlook Negative, IDR Uplift: 0 CREDEM OBG guaranteed by CREDEM CB: affirmed at 'A+'; Outlook Negative, IDR Uplift: 0 CREDEM OBG guaranteed by CANOSSA CB: affirmed at 'BBB+'; Outlook Negative, IDR Uplift: 0 UBI OBG guaranteed by UBI Finance: affirmed at 'A+'; Outlook revised to Positive from Negative, IDR Uplift: 1 UBI OBG guaranteed by UBI Finance CB2: affirmed at 'BBB+'; Outlook revised to Positive from Negative, IDR Uplift: 1 UC OBG: affirmed at 'A+'; Outlook revised to Positive from Negative, IDR Uplift: 1 Contact: Primary Analyst Roberto Del Ragno Analyst +39 02 87 90 87 206 Fitch Italia S.p.a. Via Privata Maria Teresa, 8 Milan, 20123 Secondary Analyst Paolo Sala Associate Director +39 02 87 90 87 292 Committee Chairperson Federica Fabrizi Senior Director +39 02 87 90 87 232 Media Relations: Christian Giesen, Frankfurt am Main, Tel: +49 69 768076 232, Email: christian.giesen@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, 'Covered Bonds Rating Criteria', dated 10 March 2014, 'Counterparty Criteria for Structured Finance and Covered Bonds', dated 13 May 2013, 'Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum', dated 13 May 2013, 'EMEA Criteria Addendum - Italy', dated 30 July 2013, 'EMEA Residential Mortgage Loss Criteria', dated 7 June 2013, 'EMEA RMBS Master Rating Criteria', dated 6 June 2013, 'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds', dated 23 January 2014, and 'Covered Bonds Rating Criteria - Mortgage Liquidity & Refinancing Stress Addendum', dated 4 February 2014 are available at www.fitchratings.com. Applicable Criteria and Related Research: Covered Bonds Rating Criteria here Counterparty Criteria for Structured Finance and Covered Bonds here Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum here EMEA Criteria Addendum - Italy here EMEA Residential Mortgage Loss Criteria here EMEA RMBS Master Rating Criteria here Criteria for Interest Rate Stresses in Structured Finance Transactions here Covered Bonds Rating Criteria - Mortgage Liquidity and Refinance Stress Addendum here Additional Disclosure Solicitation Status here 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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