(The following statement was released by the rating agency)
MILAN/LONDON, September 16 (Fitch) Fitch Ratings has affirmed Banca Monte dei
Paschi di Siena's (MPS) Long-term Issuer Default Rating (IDR) at 'BBB',
Short-term IDR at 'F3', Support Rating (SR) at '2' and Support Rating Floor
(SRF) at 'BBB'. The Outlook on the Long-term IDR is Negative. At the same time
Fitch has downgraded MPS's Viability Rating (VR) to 'ccc' from 'b' and removed
it from Rating Watch Negative (RWN). A full list of rating actions is at the end
of this rating action commentary.
KEY RATING DRIVERS - IDRS, SR, SRF AND SENIOR DEBT
MPS's Long-term IDR is at its SRF and therefore based on Fitch's expectation of
support from the Italian authorities. The affirmations of the IDRs, SR and SRF
reflect Fitch's unchanged view that there is a high probability that MPS would
continue to receive support from the Italian government given its systemic
importance domestically and the amount of government hybrid capital received to
The terms of the EUR4.1bn government hybrid instruments issued by the bank
include an option for the bank to convert the instruments into common shares.
Fitch believes that the probability that the Italian government will become a
material shareholder in MPS has increased. The government hybrid capital is
likely to be converted into common shares if the bank does not raise EUR2.5bn
capital from private investors by end-2014 as requested by the European
Commission as part of its agreement for state aid provided to the bank. The
likelihood that the state could become the bank's major shareholder in the
future underpins Fitch's view of a high probability of continued support for
The Negative Outlook on MPS's Long-term IDR mirrors the Negative Outlook on
Italy's 'BBB+' Long-term IDR and reflects Fitch's view that MPS's SRF would
likely be revised downward if the Italian sovereign was downgraded. A downwards
revision of the SRF would result in a downgrade of the bank's Long-term IDR.
RATING SENSITIVITIES - IDRS, SR, SRF AND SENIOR DEBT
MPS's IDRs, SR, SRF and senior debt ratings are sensitive to a change in Fitch's
assumptions about the availability of sovereign support for the bank. A
downgrade of Italy's sovereign rating would likely result in a downward revision
of the SRF and therefore a downgrade of the Long-term IDR as it would indicate
Fitch's view of a decline in the authorities' ability to provide support.
On 11 September 2013, Fitch outlined its approach to addressing the topic of
support in its bank ratings in light of the evolving support dynamics for banks
worldwide (see 'Fitch Outlines Approach for Addressing Support in Bank Ratings',
at www.fitchratings.com). MPS's SRF and SR would come under downward pressure if
Fitch concluded that support had weakened or that senior-level support for a
failed bank is possible but can no longer be relied upon. If Fitch considered
that support had declined, factors that would be taken into consideration in its
assessment of the degree of support it would continue to factor into the ratings
would include the amount and nature of any government ownership in MPS as Fitch
believes that states are likely to want to protect the value of their
investment, at least up to a point.
Fitch currently expects that the Italian authorities will be able to provide
support to MPS, but the European Commission has not yet granted its final
approval for the provision of the state aid that the bank has already received.
MPS's SR and SRF would come under downward pressure if changes or limitations in
the provision of state aid to MPS increased the risk of reduced government
support to all senior creditors, which Fitch does not expect.
Any downward revision of MPS's SRF would lead to a downgrade of the bank's IDRs.
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 MPS's VR reflects Fitch's view that the probability that the
government will become a large shareholder in the bank has significantly
increased. Fitch would consider the state becoming a large shareholder of the
bank as receipt of extraordinary support and an indication of its non-viability
and therefore failure without this support. MPS's 'ccc' VR reflects Fitch's
opinion that extraordinary state support has become a real possibility.
On 8 September 2013 the Italian ministry of finance announced that the bank's
revised restructuring plan, which is due to be approved by the bank's board on
24 September and presented to the European Commission in late September,
includes a planned EUR2.5bn capital increase to be completed by end-2014. The
European Commissioner has reportedly stated that if the fresh capital is not
raised in the market, the government hybrid capital would be converted into
common shares. This would mean that the Italian state would own a significant
stake in MPS.
Although the revised restructuring plan has not yet been approved by MPS's
board, which discussed its key points on 11 September 2013, Fitch believes that
the increased amount of capital to be raised and the timeframe for the
completion of the capital increase has raised the likelihood of at least a
part-nationalisation of the bank materially.
MPS's VR also reflects MPS's weak profitability and asset quality. MPS reported
a EUR380m net loss for H113, which included EUR1bn loan impairment charges. The
bank's revised restructuring plan will include further measures to reduce
operating expenses. Asset quality deteriorated further in Q213, and the bank's
gross impaired loans/total loans ratio at end-June 2013 was above 18%.
MPS's end-H113 Fitch core capital (FCC) ratio, which excludes government hybrid
capital, was weak at just above 5%. Fitch eligible capital (FEC), which includes
the EUR4.1bn government hybrid capital received, was over 10% at end-H113, which
is still low given the high volume of unreserved impaired loans.
RATING SENSITIVITIES - VR
MPS's VR is primarily sensitive to changes in Fitch's view on the probability of
the bank receiving further extraordinary support, most likely in the form of the
The bank's VR would likely be downgraded to 'f' if the bank received additional
government support to avoid a failure. Fitch would subsequently reassess the
bank's VR, taking into consideration the impact of the support measures, which
could include a conversion of government hybrid capital into common shares.
The bank's VR would also come under downward pressure if the prospects for the
bank's viability deteriorated further, which could arise from a further material
weakening in asset quality, or from large losses, which Fitch currently does not
Fitch does not expect an upgrade of the VR before the bank's planned capital
increase in 2014. Any upgrade of the VR would require successful capital
strengthening, excluding capital received from the state, a stabilisation of the
bank's performance and signs that the bank can generate adequate operating
profit and improve asset quality, which Fitch considers challenging in the
current operating environment.
KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt and other hybrid capital issued by MPS are all notched down
from MPS's VR in accordance with Fitch's assessment of each instrument's
respective non-performance and relative loss severity risk profiles, which vary
The ratings of the bank's Upper Tier 2 and Tier 1 instruments and preferred
securities reflects Fitch's opinion that these notes' non-performance risk in
the form of non-payment of coupon is high. The receipt of state aid means that
if it reports a net loss, MPS will be obliged not to make coupon payments where
the terms of the instruments allow for non-payment.
RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The ratings of subordinated debt and other hybrid capital issued by MPS are
sensitive to changes in Fitch's assumptions on the probability and severity of
non-performance of these notes.
The rating actions are as follows:
Long-term IDR: affirmed at 'BBB'; Outlook Negative
Short-term IDR: affirmed at 'F3'
VR: downgraded to 'ccc' from 'b'; off RWN
Support Rating: affirmed at '2'
Support Rating Floor: affirmed at 'BBB'
Debt issuance programme (senior debt): affirmed at 'BBB'
Senior unsecured debt, including guaranteed notes: affirmed at 'BBB'
Lower Tier 2 subordinated debt: downgraded to 'CC' from 'B-'; off RWN
Upper Tier 2 subordinated debt: downgraded to 'C' from 'CCC'
Preferred stock and Tier 1 notes: downgraded to 'C' from 'CC'
+39 02 87 90 87 212
Fitch Italia S.p.A.
V.lo Santa Maria alla Porta, 1
+39 02 87 90 87 202
+48 22 338 6292
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:
Additional information is available on www.fitchratings.com
Applicable criteria, 'Global Financial Institutions Ratings Criteria', dated 15
August 2012, 'Evaluating Corporate Governance', dated 12 December 2012 and
'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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