DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of Intesa Sanpaolo SpA (ISP, Intesa or the Bank), including the Long-Term Issuer Rating of BBB (high) and the Short-Term Issuer Rating of R-1 (low). The trend on all ratings remains Stable. Concurrently, DBRS Morningstar maintained the Bank’s Intrinsic Assessment at BBB (high) and the support assessment at SA3. A full list of rating actions is included at the end of this press release.
KEY RATING CONSIDERATIONS
In confirming the ratings of ISP with a Stable Trend, we believe that although the Bank will be affected by the economic disruption caused by the coronavirus (COVID-19) pandemic, it is better positioned than some domestic peers to manage this period of significant uncertainty.
As Italy’s largest provider of financial services to businesses and individuals, Intesa plays a critical role in the Italian financial system and the country’s payment mechanisms. The Bank has a robust funding profile underpinned by a large deposit base and its access to the international funding market has remained stronger than Italian peers, even during periods of stress. In addition, the Bank has been able to strengthen its capital buffers over time while its diversified business model and cost discipline underpin its resilient earnings. The Bank has also made significant progress in reducing its large stock of non-performing loans accumulated from the past crisis.
Nonetheless, the wide and growing scale of economic and market disruptions resulting from the COVID-19 pandemic will likely put pressure on the Bank’s revenues, profits and balance sheet in 2020. The impact will likely result from a combination of low interest rates and weaker business volumes although we expect an increase in credit facilities to support the liquidity of companies, especially SMEs. Asset quality and the cost of risk are also expected to be affected. In addition, DBRS Morningstar expects that the sharp market falls will likely affect capital market revenues, fees from asset management and capital reserves. The full impact will likely emerge in the coming quarters, while the implications for the medium to long-term will depend on the evolution of the outbreak, the length of the economic shutdown, as well as the transition phase of the recovery. A prolonged crisis could add downward rating pressure.
We will continue to monitor the performance of the Bank during this period of stress, its contingency plans and all measures to support its franchise and customer base, including the debt moratorium measures. In this context of heightened uncertainty, we note that on March 31, ISP’s board of directors decided to suspend a proposal to pay roughly EUR 3.4 billion in dividends at least until October 2020, following the ECB’s recommendation to postpone such distributions amid the effects of the coronavirus pandemic on the economy. This measure will strengthen ISP’s CET1 capital cushion by 110 basis points to 15.2% at YE 2019. At the same time, we will assess the impact of unprecedented support measures announced by the Italian government, as well as several other international authorities and central banks, to contain the economic fallout.
Given ISP’s domestic concentration and large exposure to Italian government bonds, DBRS Morningstar considers that the Bank is unlikely to be rated higher than the Italian sovereign. DBRS Morningstar currently rates the Republic of Italy at BBB (high)/R-1 (low) with a Stable trend.
Given the current situation and the implications from the global pandemic, an upgrade is unlikely in the short-term, and would require an upgrade of the sovereign ratings of Italy.
A downgrade could result from a downgrade of Italy’s sovereign rating or a material deterioration in the Bank’s risk profile and capital due to the COVID-19 outbreak.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792
The Grids Summary Grades for Intesa Sanpaolo SpA are as follows: Franchise – Strong; Earnings – Good; Risk Profile – Moderate; Funding & Liquidity – Strong / Good; Capitalisation – Good.
DBRS Morningstar notes that this press release was amended on May 20, 2020, to incorporate the DBRS Morningstar Criteria: Guarantees and Other Forms of Support.
All figures are in EUR unless otherwise noted.
The principal methodologies are the Global Methodology for Rating Banks and Banking Organisations (11 June 2019). https://www.dbrsmorningstar.com/research/346375/global-methodology-for-rating-banks-and-banking-organisations
and the DBRS Morningstar Criteria: Guarantees and Other Forms of Support (22 January 2020) https://www.dbrsmorningstar.com/research/355780/dbrs-morningstar-criteria-guarantees-and-other-forms-of-support
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883
The sources of information used for this rating include Intesa Sanpaolo 2019 Annual Report, Intesa Sanpaolo 2019 Results Presentation, Intesa Sanpaolo Press Releases and Presentations, and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.
DBRS Morningstar 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 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.
For further information on DBRS Morningstar 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
The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/359175
Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.
Lead Analyst: Nicola De Caro, Senior Vice President, Credit Ratings
Rating Committee Chair: Elisabeth Rudman, Managing Director, Credit Ratings
Initial Rating Date: September 13, 2013
Last Rating Date: May 30, 2019
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