February 20, 2017 / 4:47 PM / 10 months ago

Fitch Downgrades UBI Banca to 'BBB-'; Outlook Negative

(The following statement was released by the rating agency) MILAN/LONDON, February 20 (Fitch) Fitch Ratings has downgraded UBI Banca's (UBI) Long-Term Issuer Default Rating (IDR) to 'BBB-' from 'BBB' and its Viability Rating (VR) to 'bbb-' from 'bbb'. The Outlook is Negative. A full list of rating actions is at the end of this rating action commentary. UBI's ratings were downgraded because Fitch believes that even if the bank achieves its targeted reduction of non-performing loans (NPLs), capitalisation will remain burdened by a high level of unreserved NPLs, which the bank expects to remain at a high 80% of tangible equity by 2020, in the absence of any NPL sale. The high level of unreserved impaired loans exposes the bank to changes in the valuation of the collateral for these loans, and the bank is therefore highly vulnerable to a further deterioration of the Italian operating environment. The Negative Outlook reflects Fitch's view that a further deterioration in Italy's economic environment would make reaching the bank's targets under its strategic plan more difficult, which would put capitalisation under pressure. KEY RATING DRIVERS VR, IDRs AND SENIOR DEBT UBI's Long-Term IDR is driven by its VR, which reflects the bank's weak asset quality, only acceptable capitalisation, and modest performance. The VR also reflects the bank's respectable domestic franchise as a second-tier bank, particularly in northern Italy, and adequate funding and liquidity. The quality of UBI's loan portfolio with a 14% gross impaired loan ratio at end-2016 is weak compared to international banks, but it compares favourably with domestic peers. UBI reported EUR12.5bn of gross impaired loans at end-2016, which it intends to reduce by a moderate EUR1.5bn by end-2020. In Fitch's opinion, the bank's plans are not sufficiently ambitious to strengthen the quality of its loan portfolio to become more in line with the averages in other western European countries. UBI increased the coverage of impaired loans to about 41% at end-2016 in order to bring it closer to domestic and international peers, but unreserved impaired loans remain high. The bank relies on collateral, often in the form of real estate, which is illiquid. Because of the lengthy recovery times in Italy, the bank to date has not been able to reduce its impaired loans meaningfully. UBI's end-2016 regulatory capital ratios were only acceptable. The bank reported a fully loaded CET1 ratio of 11.2% and a leverage ratio of 5.62%, both of which are well above regulatory requirements. Fitch's assessment of the bank's capitalisation incorporates our view that capital is at risk from unreserved impaired loans. We expect UBI's regulatory capital ratios to strengthen moderately over the next three years as the ratios should benefit from the badwill release from the acquisition of three small bridge banks created following a resolution process in late 2015, a EUR400m planned capital increase and tax benefits. UBI's profitability has been highly sensitive to the economic and interest-rate cycle, and we believe that earnings remain vulnerable to any further deterioration in the domestic operating environment. However, operating profit should over the coming three years gradually benefit from cost savings and from a greater focus on fee-generating wealth management businesses. Restructuring costs and loan impairment charges related to its strategic plan were booked in 1H16, which affected 2016 earnings but should not be repeated in 2017. Customer funding is stable at 70% of total funding. The bank's liquidity is acceptable and debt maturities manageable. SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF) The SR and SRF reflect Fitch's view that senior creditors can no longer rely on receiving full extraordinary support from the sovereign in the event that a bank becomes non-viable. The EU's Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism (SRM) for eurozone banks provide a framework for resolving banks that require senior creditors participating in losses, if necessary, instead of or ahead of a bank receiving sovereign support. SUBORDINATED DEBT The subordinated debt issued by the bank is one notch lower than UBI's VR to reflect the below-average recovery prospects for the notes given their subordinated nature. No additional notching was applied for incremental non-performance risk as the write-down of the notes will only occur only after the point of non-viability is reached and there is no prior coupon flexibility. RATING SENSITIVITIES VR, IDRs AND SENIOR DEBT The Negative Outlook reflects Fitch's view that UBI's ratings could be downgraded if a further weakening of the Italian economic environment makes it more difficult for the bank to reduce its net impaired loans as this would affect Fitch's calculation of the bank's capitalisation. The ratings are also sensitive to UBI's ability to reach its targeted reduction of gross and net impaired loans. An upgrade of UBI's ratings would require asset quality improvements that are significantly above the bank's targets and a structural improvement in profitability. UBI's ratings are also sensitive to a further weakening in earnings generation, which could lead to a downgrade if it puts capital under further pressure. SUBORDINATED DEBT The subordinated debt rating is sensitive to the same factors that affect the bank's VR. The notes' rating is also sensitive to a change in notching, which could be triggered if Fitch reassesses the notes' loss severity or incremental non-performance risk. SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF) An upgrade of the SR and upward revision of the SRF are contingent on a positive change in the sovereign's propensity to support UBI. While not impossible, this is highly unlikely, in Fitch's view. The rating actions are as follows: Long-Term IDR: downgraded to 'BBB-' from 'BBB'; Outlook Negative Short-Term IDR affirmed at 'F3' Viability Rating: downgraded to 'bbb-' from 'bbb' Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Senior debt (including programme ratings): long-term rating downgraded to 'BBB-' from "BBB", short-term rating affirmed at 'F3' Subordinated debt: long-term rating downgraded to 'BB+' from 'BBB-' Contact: Primary Analyst Francesca Vasciminno Senior Director +39 02 879087 225 Fitch Italia S.p.A. Via Privata Maria Teresa, 8 20123 Milan Secondary Analyst Manuela Banfi Associate Director +39 02 879087 202 Committee Chairperson Christian Scarafia Senior Director +44 203 530 1012 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019268 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below