DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of Intesa Sanpaolo SpA (ISP or Intesa), including the Long-Term Issuer Rating of BBB (high) and the Short-Term Issuer Rating of R-1 (low). At the same time, DBRS Morningstar upgraded the ratings of Unione di Banche Italiane SpA (UBI Banca or UBI) by one notch, including the Long-Term Issuer Rating to BBB (high) from BBB and the Short-Term Issuer Rating to R-1 (low) from R-2 (high). The trend on these ratings is Negative. Concurrently, DBRS Morningstar maintained Intesa’s Intrinsic Assessment at BBB (high) and the support assessment at SA3, whereas the support assessment for UBI was changed to SA1 from SA3 to reflect its ownership by Intesa. The Intrinsic Assessment of UBI was withdrawn.
Today’s rating actions follow the conclusion of ISP’s public purchase and exchange offer for the ordinary shares of UBI Banca. A full list of rating actions is included at the end of this press release.
KEY RATING CONSIDERATIONS
On August 3, 2020, Intesa published the final results of its public offer for UBI Banca. The offer included 17 newly issued ordinary shares for every 10 shares tendered by UBI’s shareholders, as well as a cash consideration of EUR 0.57 per share, implying a premium of 44.7% on the value of UBI’s share as of February 14. With the conclusion of the offer, Intesa owns more than 91% of UBI’s share capital.
In DBRS Morningstar’s view, the acquisition of UBI is largely neutral for Intesa’s ratings. UBI strengthens Intesa’s already strong position in Italy, by increasing its size and market shares for loans and deposits, as well as supporting Intesa’s growth ambitions in the wealth management and insurance businesses. Nevertheless, the full benefits of the acquisition are likely to take some time to accrue and will involve some execution risk, in DBRS Morningstar’s view. In terms of capital and funding, the transaction does not have significant implications for Intesa. In addition, the deal creates potential for cost synergies as well as further NPL reduction through the usage of badwill for EUR 2.8 billion.
As a result of the acquisition, DBRS Morningstar considers UBI Banca as a core banking subsidiary of Intesa Sanpaolo. This is a key element underpinning the upgrade of UBI’s ratings and all the ratings of UBI are now equalised with those of Intesa. The SA1 support assessment for UBI incorporates the expectation that Intesa has the willingness and ability to support UBI, if required, and that UBI will be merged and fully integrated into Intesa’s Group (expected by YE 2021). Execution risks are largely manageable, in our view, considering the Banks’ similar cultures, as well as Intesa’s past track record in implementing post-acquisition integrations.
As next steps of the integration process, Intesa will proceed with the acquisition of the remaining shares of UBI Banca, pursuant to law, and the delisting of UBI’s shares. In October 2020, ISP is expected to appoint a new board of directors for UBI. In addition, to ensure compliance with the Antitrust requests, DBRS Morningstar expects Intesa to complete the disposal of 532 branches alongside a perimeter of assets and liabilities to BPER by end-2020. The merger of UBI and IT integration are targeted for completion by April 2021.
Intesa’s Long-Term Senior Debt ratings and its Deposit ratings are both positioned in line with the sovereign rating of Italy. In our view, the ratings of Intesa are highly correlated with any changes made to the sovereign rating, given its high exposure to Italian sovereign bonds and concentration in the domestic banking market. The Trend on Intesa’s and UBI’s ratings is Negative, reflecting the heightened risks and uncertainty to the Italian economy caused by the global pandemic (COVID-19) and its future implications for Italy’s operating environment. The Negative trend is in line with the trend on DBRS Morningstar’s Italian sovereign rating.
Given the Negative trend, a rating upgrade for Intesa is unlikely at this time. However, the trend on the Long-Term ratings would change to Stable if the Trend on the Italian Sovereign was to return to Stable, and the impact of the current economic environment on the Bank’s earnings and asset quality is manageable.
A downgrade of Intesa’s ratings could result from a downgrade of Italy’s Sovereign rating or a material deterioration in the Bank’s risk profile and capital position due to COVID-19.
Given the SA1 designation, UBI’s ratings will generally move in tandem with Intesa Sanpaolo’s ratings. An upgrade would require an upgrade of the parent’s ratings.
Similarly, a downgrade of UBI’S ratings could result from a downgrade of ISP’s ratings or should the Bank become a non-core subsidiary for the Group.
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 Grid Summary Grades for Intesa Sanpaolo SpA are as follows: Franchise – Strong; Earnings – Good; Risk Profile – Moderate; Funding & Liquidity – Strong / Good; Capitalisation – Good.
All figures are in EUR unless otherwise noted.
The principal methodologies are the Global Methodology for Rating Banks and Banking Organisations (8 June 2020) https://www.dbrsmorningstar.com/research/362170/global-methodology-for-rating-banks-and-banking-organisations and the DBRS Criteria: Guarantees and Other Forms of Support (22 January 2020)
For more information regarding 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 Q2 2020 Results Press Release, Intesa Sanpaolo Q2 2020 Results Presentation, Intesa Sanpaolo Press Release on the Final Results of the Voluntary Public Purchase and Exchange Offer for all Ordinary Shares of Unione di Banche Italiane SpA (3 August 2020), UBI Q2 2020 Results Press Release, UBI Q2 2020 Results Presentation, 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/365432 and https://www.dbrsmorningstar.com/research/365433
Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.
Lead Analyst: Nicola De Caro, Senior Vice President, Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of EU FIG – Global FIG
Initial Rating Date: September 13, 2013
Last Rating Date: May 12, 2020
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