DBRS Maintains Review of BMPS Ratings Until Completion of Burden Sharing and Recapitalisation

DBRS Ratings Limited (DBRS) has today announced that it plans to conclude its rating review of Banca Monte dei Paschi di Siena SpA (BMPS or the Bank) within the next few weeks, after the issuance of the Ministerial Decrees which will implement the burden sharing and precautionary recapitalisation of the Bank approved by the European Commission (EC). DBRS currently rates BMPS at B (low), Under Review with Developing Implications for its Issuer Rating and for Senior Long-Term Debt & Deposits, while the Short-Term Debt & Deposits rating is R-5. The Bank’s Critical Obligations Ratings remain at BBB (low) / R-2 (middle), Under Review with Negative Implications. The State Guaranteed Notes, rated BBB (high) / R-1 (low) Stable trend, in line with the DBRS’s ratings on the Republic of Italy, are unaffected by this action. DBRS does not rate BMPS’s subordinated debt. A full list of rating actions is included at the end of this press release.

On July 4, 2017, the European Commission approved the provision of State Aid to BMPS in the form of a precautionary recapitalisation. This followed the confirmation by the European Central Bank (ECB) that BMPS is solvent, as well as the binding commitment from private investors to purchase a significant amount of the Bank’s stock of non-performing exposures (NPEs). As part of the EU approval, the Bank is also required to undertake a substantial restructuring plan.

The recapitalisation of BMPS will total EUR 8.1 billion, of which EUR 3.9 billion will be provided by the Italian Ministry of Economy and Finance (MEF), whilst the remaining EUR 4.3 billion will result from the mandatory conversion into equity of the Tier 1 and Tier 2 bonds issued by the Bank, in line with EU rules on burden-sharing. At the same time, as a form of compensation for mis-selling, eligible retail investors of the Bank’s 2008-2018 Upper Tier II notes will be offered the option to sell their converted shares to the MEF, in exchange for senior bonds of BMPS, for a total estimated amount of around EUR 1.5 billion. At the end of the recapitalisation process, the MEF is expected to contribute EUR 5.4 billion becoming the majority shareholder of BMPS with a stake of around 70%.

In line with EU State aid rules, the EC approved restructuring plan includes commitments to improve the Bank’s risk profile and efficiency as well as simplifying its business model over the period 2017-2021. A key element of the plan is the disposal of EUR 26.1 billion in gross bad loans (corresponding to around 57% of the outstanding NPE stock at March 2017) to a private securitisation vehicle by June 2018. This transaction will be partially funded by the Atlante II fund, which has signed a binding agreement to acquire the junior and mezzanine notes. The senior notes of the securitisation will be supported by the Italian State Guarantee scheme (GACS) and sold in the market.

The Italian authorities are expected to implement the burden sharing and precautionary recapitalization, through Ministerial Decrees, by the end of July. DBRS therefore expects to conclude its rating review on BMPS at the end of this process. DBRS views the recapitalisation of the Bank positively and expects this to have positive pressure on the Bank’s ratings for senior debt and deposits. However, although DBRS does not rate the Bank’s subordinated bonds, the rating agency expects that the mandatory conversion of the Tier 1 and Tier 2 bonds will likely result in the downgrade of the Bank’s Issuer Rating to Selective Default (SD). Following this, DBRS expects to re-assess the Bank’s Issuer Rating to reflect the improved capitalization and the restructuring plan.

RATING DRIVERS
BMPS’ ratings are currently Under Review. DBRS expects to complete the rating review in the coming weeks.

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 documents, the Ministry of Economy and Finance (MEF), the European Commission (EC) and the European Central Bank (ECB). 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.

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.

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: Alan G. Reid, Group Managing Director – Financial Institutions and Sovereign Group
Initial Rating Date: January 18, 2013
Most Recent Rating Update: March 24, 2017

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