Myskin
Forumer stoico
Italian Veneto Banca 'BB/B' Ratings Affirmed And Removed From CreditWatch Negative Following Review; Outlook Negative
Publication date: 17-Jun-2014 14:20:43 EST
View Analyst Contact Information
Following the appointment of a new board of directors, we believe Veneto
Banca SCPA should be able to successfully complete the announced
capital-enhancing actions over the coming four months and, as a result,
significantly boost its solvency levels.
In our view, the successful completion of these actions would be
sufficient to offset the effect of deteriorating asset quality on the
bank's financial profile.
We are therefore affirming our current 'BB' long-term rating on Veneto
Banca and removing it from CreditWatch negative, where it was originally
placed on April 14, 2014. At the same time, we are affirming our 'B'
short-term rating.
The negative outlook reflects the possibility that we could lower the
ratings if the economic conditions in which Italian banks operate
deteriorate further and this, combined with weaker-than-expected capital
generation, were to negatively affect our view of the bank's capital
position.
NEW YORK (Standard & Poor's) June 17, 2014--Standard & Poor's Ratings Services
today affirmed its 'BB' long-term counterparty credit rating on Italy-based
Veneto Banca SCPA and removed it from CreditWatch negative, where it was
originally placed on April 14, 2014. We also affirmed our 'B' short-term
rating. The outlook is negative.
At the same time, we affirmed and removed from CreditWatch negative our 'B-'
issue ratings on Veneto Banca's subordinated debt, and our 'CCC' issue ratings
on the bank's preferred stock.
The rating actions primarily reflect our view that Veneto Banca is likely to
be able to successfully complete the capital-enhancing actions that it
announced on March 25, 2014. In this context, we note that Veneto Banca has
completed all of the actions required to address the Bank of Italy's concerns
regarding the bank's governance and strategy, including the appointment of a
new board of directors. We believe Veneto Banca also benefits from the
strength of its franchise, as well as the loyalty of its shareholders and
customer base. In our view, the combination of these factors reduces the
execution risk of the announced capital-strengthening measures. The successful
completion of these actions would be sufficient to offset the effect of
deteriorating asset quality on our view of the bank's risk position.
We understand that the Bank of Italy explicitly required Veneto Banca to take
several actions aimed at changing several features of its governance
structure. These actions included the appointment of a completely new board of
directors, a few organizational changes, and some internal restructuring aimed
at streamlining the bank's organization. While we consider that the need for
the Bank of Italy to request such changes might have negatively affected
Veneto Banca's reputation, we believe that the proven strength of its
franchise, as well as the loyalty of its customer and shareholder base, reduce
the execution risk of its announced capital plan.
We therefore believe that, in the next few months, Veneto Banca will likely be
able to complete all of its capital-enhancing actions. These actions mainly
include the conversion of a €350 million convertible bond into equity and a
capital increase of about €500 million through a rights issue (which is
expected to be completed by early October).
The successful completion of these measures should, in our opinion, allow
Veneto Banca to absorb the sizable credit losses on its capital base and to
enhance its total solvency level. We estimate that, as a result, Veneto
Banca's risk-adjusted capital (RAC) ratio before diversification would stand
in the 5.5%-6.0% range by the end of 2014. We are therefore revising Veneto
Banca's capital and earnings assessment to "moderate" from "weak." In
addition, Veneto Banca is also aiming to sell its stake in Banca
Intermobiliare. However, this process could take longer than anticipated and
we are not incorporating the benefit of this potential sale in our assessment
of Veneto Banca's capital position.
At the same time, we expect that asset quality will continue to deteriorate in
coming quarters, and that Veneto Banca is likely to accumulate a higher level
of problematic assets than we previously incorporated into the ratings. We
think that the total problematic assets that Veneto Banca will accumulate
during the full economic cycle is likely to exceed 20% of its total loans,
before stabilizing. Our estimates take into account the continued performance
deterioration in Veneto Banca's asset quality over the past 18 months. We also
consider that the total NPL coverage level, at about 33% as of year-end 2013,
remains modest overall, when compared with domestic and international
standards. The combined effect of increasing problem assets and lower coverage
of loan-loss reserves makes Veneto Banca, in our view, highly vulnerable to
higher credit losses. We have therefore revised our assessment of the bank's
risk position to "weak" from "moderate."
We continue to assess Veneto Banca's liquidity profile as being "moderate,"
taking into account the fact that, in our view, it still relies on substantial
short-term funding sources, despite some improvement. These sources include
liquidity facilities provided by the European Central Bank's (ECB) long-term
refinancing operation (LTRO). In our view, Veneto Banca remains dependent on
the completion of several liquidity-enhancing actions--including continued
access to the wholesale market at affordable prices--in order to reach what we
consider to be an adequate liquidity position on a sustainable basis by the
time the LTRO expires. We continue to incorporate one notch of short-term
support into our 'BB' long-term rating on Veneto Banca to reflect our view
that its ongoing access to the ECB's LTRO gives it time to implement the plans
that will help it to rebalance its liquidity profile to a more sustainable
position.
As a result of the factors above, our assessment of Veneto Banca's stand alone
credit profile (SACP) remains unchanged, at 'b+'.
Our ratings on Veneto Banca continue to incorporate one notch of uplift on the
SACP. This accounts for potential extraordinary government support, based on
our view of the bank's "moderate" systemic importance and Italy's supportive
stance toward its banking system.
The negative outlook reflects the possibility that we could lower our ratings
on Veneto Banca if any of the following conditions were to occur:
The economic conditions in which Italian banks operate deteriorate
further and this, combined with weaker-than-expected capital generation
were to negatively affect our view of the bank's capital position;
Veneto Banca were ultimately unable to complete its plan to reduce its
exposure to funding from the ECB and correct its funding imbalances.
Under this scenario, we would be unlikely to consider that the bank would
be able to achieve an "adequate" liquidity position according to our
criteria by the time the ECB LTRO expires; or
If we were to envisage any evidence of unexpected corporate governance
issues, particularly if regulatory authorities were to request Veneto
Banca to take additional significant restructuring actions.
We do not currently expect to revise the outlook on Veneto Banca to stable.
However, we could do so if the bank were to successfully deliver its business
and financial plans, and if we were to believe that downside risks to the
economic operating environment in Italy--and subsequently to our assessment of
Veneto Banca's capital--were easing.
In addition, we could lower our ratings on Veneto Banca by one notch by
year-end 2015 if we were to consider that extraordinary government support is
less predictable under the EU's new legislative framework. We could remove the
notch of uplift for potential extraordinary support, which we currently
incorporate into the ratings, shortly before the January 2016 introduction of
bail-in powers under the EU's Bank Resolution and Recovery Directive (BRRD)
for senior unsecured liabilities. The BRRD's bail-in powers indicate to us
that EU governments will be less willing to bail out senior unsecured bank
creditors, even though it may take several more years to eliminate concerns
about financial stability and the resolvability of systemically important
banks.
In addition to potential changes in the SACP and government support, we will
review other relevant rating factors when taking any rating actions. These
might include any measures that Veneto Banca might take that provide
substantial additional flexibility to absorb losses while a going-concern and
mitigate bail-in risks to senior unsecured creditors.
Publication date: 17-Jun-2014 14:20:43 EST
View Analyst Contact Information
Following the appointment of a new board of directors, we believe Veneto
Banca SCPA should be able to successfully complete the announced
capital-enhancing actions over the coming four months and, as a result,
significantly boost its solvency levels.
In our view, the successful completion of these actions would be
sufficient to offset the effect of deteriorating asset quality on the
bank's financial profile.
We are therefore affirming our current 'BB' long-term rating on Veneto
Banca and removing it from CreditWatch negative, where it was originally
placed on April 14, 2014. At the same time, we are affirming our 'B'
short-term rating.
The negative outlook reflects the possibility that we could lower the
ratings if the economic conditions in which Italian banks operate
deteriorate further and this, combined with weaker-than-expected capital
generation, were to negatively affect our view of the bank's capital
position.
NEW YORK (Standard & Poor's) June 17, 2014--Standard & Poor's Ratings Services
today affirmed its 'BB' long-term counterparty credit rating on Italy-based
Veneto Banca SCPA and removed it from CreditWatch negative, where it was
originally placed on April 14, 2014. We also affirmed our 'B' short-term
rating. The outlook is negative.
At the same time, we affirmed and removed from CreditWatch negative our 'B-'
issue ratings on Veneto Banca's subordinated debt, and our 'CCC' issue ratings
on the bank's preferred stock.
The rating actions primarily reflect our view that Veneto Banca is likely to
be able to successfully complete the capital-enhancing actions that it
announced on March 25, 2014. In this context, we note that Veneto Banca has
completed all of the actions required to address the Bank of Italy's concerns
regarding the bank's governance and strategy, including the appointment of a
new board of directors. We believe Veneto Banca also benefits from the
strength of its franchise, as well as the loyalty of its shareholders and
customer base. In our view, the combination of these factors reduces the
execution risk of the announced capital-strengthening measures. The successful
completion of these actions would be sufficient to offset the effect of
deteriorating asset quality on our view of the bank's risk position.
We understand that the Bank of Italy explicitly required Veneto Banca to take
several actions aimed at changing several features of its governance
structure. These actions included the appointment of a completely new board of
directors, a few organizational changes, and some internal restructuring aimed
at streamlining the bank's organization. While we consider that the need for
the Bank of Italy to request such changes might have negatively affected
Veneto Banca's reputation, we believe that the proven strength of its
franchise, as well as the loyalty of its customer and shareholder base, reduce
the execution risk of its announced capital plan.
We therefore believe that, in the next few months, Veneto Banca will likely be
able to complete all of its capital-enhancing actions. These actions mainly
include the conversion of a €350 million convertible bond into equity and a
capital increase of about €500 million through a rights issue (which is
expected to be completed by early October).
The successful completion of these measures should, in our opinion, allow
Veneto Banca to absorb the sizable credit losses on its capital base and to
enhance its total solvency level. We estimate that, as a result, Veneto
Banca's risk-adjusted capital (RAC) ratio before diversification would stand
in the 5.5%-6.0% range by the end of 2014. We are therefore revising Veneto
Banca's capital and earnings assessment to "moderate" from "weak." In
addition, Veneto Banca is also aiming to sell its stake in Banca
Intermobiliare. However, this process could take longer than anticipated and
we are not incorporating the benefit of this potential sale in our assessment
of Veneto Banca's capital position.
At the same time, we expect that asset quality will continue to deteriorate in
coming quarters, and that Veneto Banca is likely to accumulate a higher level
of problematic assets than we previously incorporated into the ratings. We
think that the total problematic assets that Veneto Banca will accumulate
during the full economic cycle is likely to exceed 20% of its total loans,
before stabilizing. Our estimates take into account the continued performance
deterioration in Veneto Banca's asset quality over the past 18 months. We also
consider that the total NPL coverage level, at about 33% as of year-end 2013,
remains modest overall, when compared with domestic and international
standards. The combined effect of increasing problem assets and lower coverage
of loan-loss reserves makes Veneto Banca, in our view, highly vulnerable to
higher credit losses. We have therefore revised our assessment of the bank's
risk position to "weak" from "moderate."
We continue to assess Veneto Banca's liquidity profile as being "moderate,"
taking into account the fact that, in our view, it still relies on substantial
short-term funding sources, despite some improvement. These sources include
liquidity facilities provided by the European Central Bank's (ECB) long-term
refinancing operation (LTRO). In our view, Veneto Banca remains dependent on
the completion of several liquidity-enhancing actions--including continued
access to the wholesale market at affordable prices--in order to reach what we
consider to be an adequate liquidity position on a sustainable basis by the
time the LTRO expires. We continue to incorporate one notch of short-term
support into our 'BB' long-term rating on Veneto Banca to reflect our view
that its ongoing access to the ECB's LTRO gives it time to implement the plans
that will help it to rebalance its liquidity profile to a more sustainable
position.
As a result of the factors above, our assessment of Veneto Banca's stand alone
credit profile (SACP) remains unchanged, at 'b+'.
Our ratings on Veneto Banca continue to incorporate one notch of uplift on the
SACP. This accounts for potential extraordinary government support, based on
our view of the bank's "moderate" systemic importance and Italy's supportive
stance toward its banking system.
The negative outlook reflects the possibility that we could lower our ratings
on Veneto Banca if any of the following conditions were to occur:
The economic conditions in which Italian banks operate deteriorate
further and this, combined with weaker-than-expected capital generation
were to negatively affect our view of the bank's capital position;
Veneto Banca were ultimately unable to complete its plan to reduce its
exposure to funding from the ECB and correct its funding imbalances.
Under this scenario, we would be unlikely to consider that the bank would
be able to achieve an "adequate" liquidity position according to our
criteria by the time the ECB LTRO expires; or
If we were to envisage any evidence of unexpected corporate governance
issues, particularly if regulatory authorities were to request Veneto
Banca to take additional significant restructuring actions.
We do not currently expect to revise the outlook on Veneto Banca to stable.
However, we could do so if the bank were to successfully deliver its business
and financial plans, and if we were to believe that downside risks to the
economic operating environment in Italy--and subsequently to our assessment of
Veneto Banca's capital--were easing.
In addition, we could lower our ratings on Veneto Banca by one notch by
year-end 2015 if we were to consider that extraordinary government support is
less predictable under the EU's new legislative framework. We could remove the
notch of uplift for potential extraordinary support, which we currently
incorporate into the ratings, shortly before the January 2016 introduction of
bail-in powers under the EU's Bank Resolution and Recovery Directive (BRRD)
for senior unsecured liabilities. The BRRD's bail-in powers indicate to us
that EU governments will be less willing to bail out senior unsecured bank
creditors, even though it may take several more years to eliminate concerns
about financial stability and the resolvability of systemically important
banks.
In addition to potential changes in the SACP and government support, we will
review other relevant rating factors when taking any rating actions. These
might include any measures that Veneto Banca might take that provide
substantial additional flexibility to absorb losses while a going-concern and
mitigate bail-in risks to senior unsecured creditors.
