DBRS Places Veneto Banca Scpa ratings Under Review with Negative Implications

On November 26, 2013 DBRS Ratings Limited (DBRS) placed the ratings for Veneto Banca Scpa (Veneto Banca, the Bank or the Group) Under Review with Negative Implications. The review includes the Senior Long-Term Debt and Deposits Rating of BBB (low) and the Short-Term Debt and Deposits Rating of R-2 (low). As part of the review, the Intrinsic Assessment (IA) of the Group of BBB (low) and the support assessment of SA-3 will also be reassessed.

The review of Veneto Banca’s ratings follows the Bank’s press release of the 14th of November which highlighted the negative implications of the second asset quality investigation by the Bank of Italy this year. The review will focus on the implications of this investigation for the Bank’s capital position and any possible negative impact on the Bank’s franchise.

Veneto Banca’s announcement noted that the Bank’s capital needs have increased following the inspection due to the higher level of Bank of Italy mandated provisions. These increased due to the incremental asset quality issues identified by the banking supervisor and the higher provisions materially offset the bank’s planned capital generation goals for 2013. The Bank of Italy has requested that Veneto Banca increases its Core Tier 1 ratio to 8% by year end 2013 from the current level of 7%. To achieve this, the Bank will now need to raise additional capital and is exploring options to do so. These include the possible early commitment to convert Veneto Banca’s EUR 350 million 2013/17 soft mandatory convertible bond in May 2014 and/or asset disposals.

DBRS views the use of the convertible as the quickest option to bridge the capital gap for the Bank as this could improve the capital ratio by up to 140 basis points if it is fully converted. Although conversion would not occur before May 2014, a commitment by year end 2013 to convert would place Veneto Banca in pro-forma compliance with the Bank of Italy’s requirement. However, even at an improved level of capital, DBRS is concerned that the capital buffer may remain limited and leave insufficient capacity to absorb potential ongoing weak performance, further non-performing loans (NPL) deterioration, or any future requirements imposed as part of the European Central Bank (ECB) Asset Quality Review and European Banking Authority (EBA) stress tests in 2014.

In conducting the rating review, DBRS will evaluate the full level of capital that Veneto Banca will commit to raising. This could also include the proceeds from asset sales and/or other capital measures. The review will also consider any further impact of the Bank of Italy investigation on the ongoing operations of Veneto Banca and the future strength of the Bank's franchise.

Commenting on the potential outcomes of the review, DBRS noted that if the Bank is able to successfully complete solid and reliable actions towards re-building the Bank's capital buffer, while maintaining the strength of the franchise, then this would likely result in a confirmation of Veneto Banca's current ratings. However, ongoing concern that capital may remain under pressure, or should the franchise of the Bank be negatively impacted, the review could result in the downgrade of the IA and final ratings. Completion of the rating review is expected during 1Q14.

Notes:
All figures are in Euros (EUR) unless otherwise noted.

The principal methodology applicable is: the Global Methodology for Rating Banks and Banking Organizations. Other methodologies used include the DBRS Criteria – Intrinsic and Support Assessments. The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company reports and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance.

This rating is under review. Generally, the conditions that lead to the assignment of reviews are resolved within a 90 day period. DBRS reviews and ratings are under regular surveillance.

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
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Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Peter Burbank
Rating Committee Chair: Alan G. Reid
Initial Rating Date: May 13, 2013
Most Recent Rating Update: May 13, 2013

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