September 26, 2012 / 4:36 PM / 5 years ago

TEXT-Fitch affirms Banco Popolare's Obligazioni Bancarie Garantite

Sept 26 - Fitch Ratings has affirmed Banco Popolare's (BP;
'BBB'/Stable/'F3') mortgage Obligazioni Bancarie Garantite (OBG) at 'BBB+' and,
simultaneously removed them from Rating Watch Negative (RWN). The agency has
also assigned a Negative Outlook to BP's OBG.

The RWN on BP's OBG was assigned to take into account the posting of swap
collateral not fully in line with Fitch's criteria from those swap
counterparties that were no longer eligible under the criteria (see "Fitch
Maintains Banco Popolare's Covered Bonds on RWN" dated 4 April 2012 and "Fitch
Downgrades Italian Mortgage Covered Bonds", dated 24 July 2012, both available

In July 2012, the OBG's rating was downgraded to 'BBB+' from 'AA' and Fitch's
updated Covered Bond Counterparty Criteria was published (see "Covered Bonds
Counterparty Criteria" dated 25 July 2012 at Under the
updated counterparty criteria, a minimum Long-term Issuer Default Rating (IDR)
of 'BBB-' and Short-term IDR of 'F3' are expected for eligible counterparties to
support bonds rated within the 'BBB' rating category, if no collateral is
posted. If collateral is posted, the lower minimum rating of 'BB-' will be
considered. BP's OBG swap counterparties are therefore eligible to support the
current 'BBB+' rating on the covered bonds, which is why the RWN has been

The 'BBB+' OBG rating is based on BP's Long-term IDR of 'BBB', the Discontinuity
Cap (D-Cap) of 2 (high risk) and the asset percentage (AP) of 80.7% that Fitch
takes into account in its analysis.

In terms of the OBG rating's sensitivity, the 'BBB+' rating would be vulnerable
to downgrade if the IDR was downgraded by one or more notches. Because the
covered bond rating on a probability of default (PD) is the same as BP's IDR,
even a drop in the D-Cap to 0 or an increase in the AP to 100% would not be
expected to cause a downgrade. The Negative Outlook on Italy's IDR
('A-'/Negative/'F2') drives the Negative Outlook for the covered bonds.

The agency takes into account the contractual AP for the purpose of its analysis
due to BP's Short-term IDR of 'F3'. The contractual AP does not support any
uplift on a PD basis from BP's IDR but it does support a 'BBB+' OBG rating
considering recoveries given default.

The D-Cap of 2 is driven by the high risk assessment for the liquidity gap and
systemic risk component. This assessment is due to the less predictable
wholesale market access that may reduce the likelihood that an Italian financial
institution could buy a portion of Italian mortgage loans included in the cover
pool in an issuer event of default.

Systemic alternative management risk is assessed as moderate high in line with
all regulated Italian programmes and asset segregation as moderate discontinuity
risk (see "Fitch Puts 2 Italian Covered Bonds on RWN; Assigns Outlooks & D-Caps"
dated 12 September 2012 at The privileged derivative
component has been assessed as low risk due to the presence of external swap
counterparties and the cover pool-specific alternative management as moderate

The outstanding covered bonds total EUR7.3bn and are guaranteed by BP Covered
Bond S.r.l., a special purpose company established under Italian Law.

The Fitch breakeven AP for the covered bond rating will be affected, among other
factors, 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.Additional information is available at

The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.

Applicable criteria, 'Covered Bonds Rating Criteria', dated 10 September 2012,
'Covered Bonds Counterparty Criteria', dated 25 July 2012, 'EMEA Criteria
Addendum - Italy', dated 30 July 2012 and 'EMEA Residential Mortgage Loss
Criteria', dated 7 June 2012 are available at

Applicable Criteria and Related Research:
Covered Bonds Rating Criteria - Amended
Covered Bonds Counterparty Criteria
EMEA Criteria Addendum - Italy - Mortgage and Cashflow Assumptions
EMEA Residential Mortgage Loss Criteria
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