DBRS Confirms Intesa at BBB (high) following Veneto Banca and BPVI transaction; Stable Trend

DBRS Ratings Limited (DBRS) has today confirmed the ratings of Intesa Sanpaolo SpA (Intesa or the Bank), including the Issuer and Senior Long-Term Debt and Deposits ratings at BBB (high) and the Short-Term Debt and Deposits rating at R-1 (low). Concurrently, DBRS confirmed the Bank’s Intrinsic Assessment at BBB (high) and the support assessment at SA3. The trend on all ratings remains Stable. A full list of rating actions is included at the end of this press release.

Today’s rating action follows Intesa’s announcement on June 26, 2017, that it has signed a contract to acquire, under specific conditions, certain assets and liabilities of Banca Popolare di Vicenza SpA (or BPVI) and Veneto Banca SpA, for a symbolic price of 1 EUR. These two banks were placed in liquidation on June 25, 2017, under the Law Decree no. 99/2017, as a result of the decision of the European and Italian authorities to wind-down the banks, following the announcement by the European Central Bank that Banca Popolare di Vicenza SpA and Veneto Banca SpA were failing or likely to fail.

The confirmation of Intesa’s ratings reflects DBRS’ view that the acquisition does not negatively impact Intesa’s credit fundamentals, and also takes into account Intesa’s track record in managing acquisitions, as well as a number of conditions set by the Bank for the acquisition.

Intesa has acquired certain assets and liabilities of Banca Popolare di Vicenza SpA and Veneto Banca SpA, including approximately EUR 30 billion of performing loans (approx. 8% of Intesa’s total net loans as of March 2017), financial and tax assets, deposits, senior bonds (including the State Guaranteed Notes), indirect funds, as well as around 900 branches and 9,960 employees in Italy. The acquisition excludes the non-performing loans (NPLs), subordinated bonds and legal claims of Veneto Banca SpA and Banca Popolare di Vicenza SpA.

As part of the terms of the contract, Intesa received a total cash consideration of EUR 4.8 billion from the Italian Government, of which EUR 3.5 billion is to offset any impact on Intesa’s regulatory capital ratios, as well as EUR 1.3 billion which will be used by Intesa to downsize the retail operations with the closure of ~600 branches and the exit of ~3,900 employees.

In addition, Intesa received State guarantees for up to EUR 12 billion, which are expected to cover various risks including high-risk performing exposures for EUR 4 billion, potential future claims for EUR 1.5 billion, and a credit facility provided by Intesa to the banks in liquidation for up to EUR 6.4 billion. In addition, the contract includes a termination clause which allows Intesa to return back assets and liabilities to the entities in liquidation in the event that the decree is not converted into law or is converted with amendments that make the transaction more onerous for Intesa.

Considering the above conditions and taking into consideration the Bank’s strong market position and track record in managing acquisitions, DBRS views Intesa as well-positioned to manage the integration and execution risks.

RATING DRIVERS
Upward rating pressure to Intesa’s ratings would require an improvement of the Italian sovereign rating, as well as continued improvement in asset quality. Negative rating implications could result from a downgrade of Italy’s sovereign rating or a material deterioration in the Bank’s capital position.

Notes:
All figures are in Euros unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017). Other applicable methodologies include the DBRS Criteria: Guarantees and Other Forms of Support (February 2017). These can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company reports, the Italian Government, the Ministry of Economy and Finance (MEF), the European Central Bank, the Bank of Italy and the Single Resolution Board (SRB). DBRS considers the information available to it for the purposes of providing this rating to be 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 historical default rates published by the European Securities and Markets Authority (“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, Vice President – Global FIG
Rating Committee Chair: Roger Lister, Managing Director, Chief Credit Officer - Global FIG and Sovereign Ratings

Initial Rating Date: September 19, 2013
Most Recent Rating Update: June 9, 2017

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