DBRS Confirms Veneto Banca at BB, Negative Trend

DBRS Ratings Limited (DBRS) has today confirmed the BB/R-4 ratings of Veneto Banca SpA (Veneto Banca or the Bank). This concludes the rating review on the Bank, originally initiated on March 4, 2015. The Senior Long-Term Debt and Deposit Ratings were confirmed at BB, with a Negative Trend, and the Short-Term Debt and Deposits Rating was confirmed at R-4 with a Stable Trend. Concurrently, DBRS maintained the Bank’s Intrinsic Assessment (IA) at BB and the support assessment at SA3. The rating action follows an updated analysis of the Bank’s credit fundamentals and restructuring process.

On March 04, 2015, DBRS placed Veneto Banca’s ratings Under Review with Negative Implications to reflect the risk to Bank’s creditworthiness linked to the investigation launched by the Public Prosecutor's Office on Veneto Banca’s management team. The review period was extended in August 2015 to also reflect the investigations by the European Central Bank (ECB) into the Bank’s corporate governance, internal systems and capital, as well as the Bank’s pending 1H15 results and any potential negative impact this could have on the capital position.

Today’s rating action, including the confirmation of the Intrinsic Assessment at BB, takes into account the progress made by the Bank in converting into a joint stock-company, which was approved in December 2015, as well as DBRS’ expectation that Veneto Banca will be able to complete its planned capital increase.

Veneto Banca plans to issue EUR 1 billion in additional equity as part of its public listing, targeted for April 2016, and has secured a pre-underwriting agreement from a consortium of ten major financial institutions. Execution risk remains, but DBRS considers the Bank and its shareholders are committed to the capital raise. Completion of the capital plan is needed for Veneto Banca to be compliant with the European Central Bank’s (ECB) capital thresholds. At September 2015, Veneto Banca reported a Common Equity Tier 1 (CET1) ratio of 7.1%, which is well below the 10.0% minimum set by the ECB under the SREP process. DBRS notes that the ECB SREP requirement will increase to 10.25% from June 2016.

Despite the capital plan, Veneto Banca remains challenged on a number of fronts. The IA of BB takes into account the Bank’s still poor earnings, weak asset quality profile, as well as ongoing reputational and litigation risks. At September 2015, Veneto Banca’s impaired lending ratio increased to 26.1% of total gross loans, which compares unfavorably with the average for the peer group. At the same time, coverage ratios remain modest and will need to be addressed via further provisions. This will continue to add pressure to the Bank’s earnings. The Negative Trend reflects these issues, as well as the additional risks to Veneto Banca’s reputation and capital stemming from the pending investigations by the ECB and Consob.

A successful execution of the Bank’s public listing and capital increase together with a favourable outcome from the investigations and a halt in the deteriorating asset quality trend, could contribute to a stabilisation of the Trend. Additional negative rating pressure could, however, result if the Bank is unable to complete its capital plan as a result of additional findings by Consob and/or the ECB, or should Veneto Banca’s franchise and financials further deteriorate.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (December 2015). Other applicable methodologies include the DBRS Criteria: Support Assessments for Banks and Banking Organisations (December 2015) 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’s 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.

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: Nicola De Caro
Rating Committee Chair: Elisabeth Rudman
Initial Rating Date: May 13, 2013
Most Recent Rating Update: August 6, 2015

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