DBRS Assigns ‘B’ Rating to Banco BPM SpA’s AT1 Capital Notes

DBRS Ratings GmbH (DBRS) has assigned a B rating to the Additional Tier One (AT1) Capital Notes (the Notes), under consideration by Banco BPM SpA (BBPM or the Bank). The trend is Stable, in line with the trend of the Bank’s Issuer Rating.

The B rating assigned to the Notes is five notches below the BBB (low) Bank’s Intrinsic Assessment (IA). This reflects that the Notes are deeply subordinated and constitute the most junior debt instruments of the Bank. They are perpetual in tenor and can be written down in part or in full if the Issuer or Regulator determines there is a Trigger Event. The trigger level for write-downs is set at a minimum common equity tier 1 (CET1) ratio for BBPM of 5.125%. While the instruments can be written up in part or in full at the full discretion of the Bank, there are conditions for positive and distributable net income which need to be met. BBPM can cancel interest payments on the AT1 Instruments in part or in total and, under some circumstances the Bank may be required to cancel interest payments.

The ‘B’ rating considers both the probability of the Bank tripping the capital trigger, as well as expected recovery levels. In the case of BBPM, the notching from the IA takes into consideration the sizeable buffer of approximately 490 bps (or approximately 640 bps on an adjusted basis including already announced management capital actions) between the 5.125% trigger point and the Bank’s 10.0% fully loaded CET1 ratio at FY18 (or the 11.5% adjusted fully loaded). In addition, DBRS also considers the Bank’s 9.31% phased-in CET1 ratio requirement under the ECB’s SREP 2019. The notching also takes into account the risks captured in the Bank’s IA, given the large stock of NPEs which corresponded to approximately 10.8% of total gross loans (or 6.5%, net of provisions) as of FY18. For more detail on DBRS’s approach, see Global Methodology for Rating Banks and Banking Organisations (July 2018).

RATING DRIVERS
The rating of the Notes will generally move concurrently with the Banks IA.

Positive pressure on the Banks ratings would require further improvements in asset quality and profitability. Negative rating pressure could arise from a significant weakening of the Bank’s capital and funding position or should the Bank face challenges in improving its profitability and asset quality.

Notes:
All figures are in EUR unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (July 2018). This can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.
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 GmbH are subject to EU and US regulations only.

Lead Analyst: Nicola De Caro, Senior Vice President - Global FIG
Rating Committee Chair: Ross Abercromby, Managing Director – Global FIG
Initial Rating Date: 05 January 2017
Last Rating Date: 14 December 2018

DBRS Ratings GmbH
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60311 Frankfurt am Main Deutschland
Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

For more information on this credit or on this industry, visit www.dbrs.com.