DBRS Downgrades Veneto Banca to BB; Places Ratings Under Review Negative

DBRS Ratings Limited (DBRS) has today lowered its ratings on Veneto Banca Scpa (Veneto Banca, the Bank or the Group) by one notch. The Senior Long-Term Debt & Deposits Rating was downgraded to BB from BB (high) and placed Under Review with Negative Implications, whereas the Short-Term Debt & Deposits Rating was lowered to R-4 from R-3 with the trend revised to Stable from Negative. Concurrently, DBRS lowered the Bank’s Intrinsic Assessment (IA) to BB from BB (high) and confirmed the support assessment of SA-3.

The downgrade reflects DBRS’ view that the Bank’s progress with regards to its corporate governance and structural issues remains limited, and is likely to be constrained by the current management transition period. DBRS’ rating action also reflects the deterioration in the Bank's asset quality and low coverage levels which are likely to add pressure on the Bank’s future earnings and capital position.

At YE 2014, based on preliminary data, Veneto Banca reported a total impaired lending ratio of 21%, up from 17% at YE 2013, and a total cash coverage for impaired loans of 34% (or 38% including the write-offs), which compare unfavorably with the average for the Italian banks. Moreover, while the Bank reported a Common Equity Tier 1 (CET1) ratio pro-forma of 10.4%, this level provides only a little capital buffer over the ECB minimum CET1 of 10%.

The Under Review with Negative Implications reflects the risk of negative consequences on Veneto Banca's creditworthiness linked to the ongoing investigation process. On February 17, 2015 the Public Prosecutor's Office placed under investigation Veneto Banca’s current General Manager, as well as the Bank’s former Chairman. The investigation is focused on allegations that the Bank’s management team obstructed the Bank of Italy’s inspection carried out in 2013.

During the period April-August 2013, Veneto Banca was subject to a second inspection by the Bank of Italy which revealed a number of weaknesses in the Bank’s corporate governance, asset quality and capital. These were the issues that contributed to the DBRS’ downgrade of Veneto Banca ratings on February 18, 2014.

Since then, DBRS notes that Veneto Banca has implemented several remedial actions including capital strengthening and an increase in provisioning levels. However, the ongoing investigation poses risks for Veneto Banca including the need for additional adjustments and/or reclassifications which may have a negative impact on the Bank’s earnings, risk profile and capitalisation.

During the review period, DBRS will evaluate Veneto Banca’s reputation risk linked to the ongoing investigation and any potential negative impact on the Bank’s franchise, liquidity profile and flexibility to raise additional capital, if needed. The review will also focus on the potential outcome of the investigation and its implications for Veneto Banca’s risk profile and capital, as well as any further deterioration in the Bank’s fundamentals

Additional negative rating pressure could result if the concerns highlighted above are not sufficiently addressed, and/or should new problems arise from the ongoing investigation or further weakening of the Bank’s fundamentals become evident. Conversely, a favourable outcome from the investigation could contribute to a more supportive view of the rating by DBRS over the medium term especially if it were to coincide with meaningful progress towards addressing the corporate governance and structural issues of the Bank. Completion of the rating review is expected during 1H15.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2014). Other applicable methodologies include the DBRS Criteria: Support Assessment for Banks and Banking Organisations (January 2014) and DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2015).These can be found 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.

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:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Peter Burbank
Rating Committee Chair: Roger Lister
Initial Rating Date: May 13, 2013
Most Recent Rating Update: February 18, 2014

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