DBRS Comments on Rating Implications of Comprehensive Assessment for Italian Banks

DBRS Ratings Limited (DBRS) has evaluated the results of the Comprehensive Assessment (CA) for Italian banks, which included an Asset Quality Review (AQR), and two capital scenarios (Baseline and Adverse). DBRS publicly rates five of the 15 institutions included in the exercise, namely Intesa SanPaolo [A low, Negative trend], Banca Monte dei Paschi di Siena [BBB, Under Review Negative], Banca Popolare di Vicenza [BBB low, Negative trend], Credito Valtellinese [BBB low, Negative trend] and Veneto Banca [BB high, Negative trend].

DBRS notes that a number of Italian banks have taken actions to improve their balance sheets and capital position in the run-up to the CA and the CA results illustrate the benefit of these actions. However, four Italian banks still reported capital shortfalls after taking into account measures taken in 2014. In addition, the EUR 12 billion adjustments taken by Italian banks under the AQR, are an indication of the asset quality challenges still faced by the banks.

The five banks rated by DBRS passed the AQR and the baseline scenario of the CA, but two of the banks reported capital shortfalls in the adverse scenario.

• Intesa SanPaolo fully passed the CA based on year-end 2013 results
• Veneto Banca and Credito Valtellinese passed when capital actions taken during January-September 2014 were taken into account
• Banca Monte dei Paschi di Siena and Banca Popolare di Vicenza passed the AQR and baseline scenario, but reported capital shortfalls in CET1 under the adverse scenario of EUR 2.1 billion and EUR 223 million respectively

Overall, the results of the CA were generally in line with DBRS’ expectations and rating action has been limited to Banca Monte dei Paschi di Siena (MPS). The ratings of MPS were placed under review with negative implications on October 28, 2014, reflecting DBRS’ concerns about the pressure on management to successfully execute a further capital raise following the EUR 5 billion issue in June 2014. For Banca Popolare di Vicenza, DBRS has taken no action, as the Bank committed on October 25, 2014 to convert EUR 253 million soft mandatory bond, which is expected to fully cover the residual shortfall in 2015.

Notes:
All figures are in euros unless otherwise noted.