Press Release: S&PGR Affirms Veneto Banca ‘B/B’ Ratings; Outlook Negative
The following is a press release from Standard & Poor's: -- On June 30, 2016, Veneto Banca SpA (Veneto) announced the completion of its EUR1 billion capital increase, almost entirely subscribed by the Atlante fund after the failure of the IPO. -- As we expected, Veneto's capital adequacy has gradually improved from its previously weak level. -- We are therefore affirming the 'B/B' long- and short-term counterparty credit ratings on Veneto. -- The negative outlook mainly reflects our view of the risks related to the bank rebalancing its funding and liquidity profile and reporting higher losses than currently expected. MADRID (S&P Global Ratings) July 7, 2016--S&P Global Ratings today affirmed its 'B/B' long- and short-term counterparty credit ratings on Italy-based Veneto Banca SpA (Veneto). The outlook remains negative. The rating affirmation follows Veneto's announcement that it has completed its EUR1 billion capital increase, enabling it to comply with regulatory requirements and achieve a risk-adjusted capital (RAC) ratio of more than 5%. Consequently, we revised upward the bank's stand-alone credit profile (SACP) to 'b' from 'b-'. However, our revised assessment of Veneto's SACP has no effect on the rating since we are removing the notch of positive adjustment that had already factored in the success of Veneto's capital strengthening exercise. The capital strengthening was part of an initial public offering (IPO) launched at the beginning of June 2016, which failed to attract investors' interest--only about 2% of shares were ultimately subscribed--and also failed to secure the minimum free float for a listing on the Italian stock exchange. On June 30, Veneto was able to complete the capital increase thanks to the intervention of the newly created Atlante fund. While the unsuccessful market listing reflects poor market conditions in addition to the bank's weakened franchise, profitability, asset quality, and outstanding legacy risks, we view positively the arrival of Atlante. We expect the new shareholder to support Veneto's current strategic plan and to help its customer franchise stabilization. Following the EUR1 billion additional capital injection, Veneto's common equity tier I reached 11.22%, so above the 10.25% regulatory requirement under the supervisory review and evaluation process (SREP). We consider that the bank will be able to maintain a RAC ratio of between 5.0% and 5.5% in the next 12 months. This is despite the fact that we expect Veneto to remain lossmaking in 2016 due to pressure on revenues and still-high cost of risk. We forecast gradual operating income improvement only in 2017 on the back of declining cost of risk. While the bank's weak profitability hampers the possibility of building up capital organically, we consider that Veneto will continue its deleveraging effort and accelerate the sale of non-core assets. Although the bank managed to reach a Basel III liquidity coverage ratio (LCR) of about 80% as of March 2016, from 53% at end-2015, it experienced further funding outflows since then dragging the LCR again below regulatory minimum. Specifically, total customer deposits--which we consider to be the bank's core business and a stable funding source--declined by more than 17% in the first quarter of 2016 and this trend continued, though at slower pace, in the second quarter. We understand the outflows have now stopped and Veneto's liquidity position has improved following the bank's capital increase. Despite that, in our view, sustained improvements in the bank's funding and liquidity position will require material progress in the bank's franchise and risk profile. We remain cautious about the bank's risk profile given its weak asset quality metrics and legacy risks (mainly legal and regulatory claims). At end-March 2016, the nonperforming asset ratio reached as high as 30% of gross customer loans, well above the average for Italian banks, while coverage remained relatively low at around 35%. Although new inflows have been decreasing since last year, we expect the stock of impaired loans to keep growing until 2020, barring any expected sale of nonperforming loans (NPLs). This level of NPLs will continue to constrain both business development and profit generation in the next two years. The negative outlook reflects the possibility that we could lower the long-term rating on Veneto in the next 12 months if the bank fails to strengthen its funding and liquidity metrics as we currently expect. For example, this could happen if the bank does not maintain an LCR sustainably above regulatory minimum, its reliance on short-term funding remains high, or it experiences further customer deposits outflow. Moreover, we could also lower our rating if the bank reports higher losses, thereby pressuring the RAC ratio. This could occur if the bank fails to reach financial targets outlined in its business plan restructuring, asset quality metrics weaken, the projected economic improvement in Italy falters, or material regulatory and litigation risks materialize. We could revise the outlook to stable over our outlook horizon if Veneto were to successfully reinforce its financial profile by achieving a more sustainable funding and liquidity profile and stabilize its client franchise while showing a gradual profitability improvement. 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Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by this rating action can be found on the S&P Global Ratings public website at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009. Primary Credit Analyst: Antonio Rizzo, Madrid (34) 91-788-7205; Antonio.Rizzo[a]spglobal.com Secondary Contact: Luigi Motti, Madrid (34) 91-788-7234; luigi.motti[a]spglobal.com No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. 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Press Release: S&PGR Affirms Veneto Banca ‘B/B’ -2-
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