Today Scope Ratings has affirmed all of its ratings on the Italian banks it covers. Intesa, Unicredit, and IBL are publicly rated. While affirming their long-term ratings – ‘A’ for Intesa and Unicredit and BBB for IBL – Scope has changed their Outlook to Negative from Stable. This action reflects the recent marked deterioration in market sentiment towards Italy, which has led to a material widening in sovereign and other Italy-related spreads and has reverberated through credit markets.

In line with Scope’s bank rating methodology (last updated in May 2018), there is no mechanistic sovereign cap on bank ratings. The methodology, however, does point to the importance of market sentiment in influencing issuance costs for rated banks. In this context, the agency considers that prolonged negative market sentiment on the Italian sovereign can affect debt issuance costs for Italian banks, in addition to negatively impacting the banks in several other ways.

In the near term, Scope does not expect bank fundamentals to be materially affected. Only a portion of the direct sovereign exposure is marked to market, and publicly rated banks’ capital positions remain reassuring, more able to withstand some erosion from losses in the securities portfolios. Italian banks have also make relatively little use of wholesale funding, hence limiting the impact of higher funding costs in the near term.

At the same time, Scope acknowledges the higher downside risks to capital should government bond prices continue to decline, and the potentially more challenging environment for reducing the remaining NPEs on banks’ balance sheets. In the medium term, Scope believes funding costs could be affected, including the cost of deposits.

For Intesa and Unicredit, Scope expects a non-material impact from government bonds held at fair value through other comprehensive income in Q3. In Q4, the impact could be greater but still manageable within the banks’ existing capital resources. However, the agency has cautioned that a prolonged period of market sentiment related to Italy may negatively impact the two banks’ debt issuance capacity at economically affordable costs. This may be especially so as the two large Italian banks, like other EU banks, will have eventually to issue more MREL-eligible non-preferred senior debt in the markets.

For IBL, Scope sees no material impact on the CET1 ratio as the bank has a negligible amount of securities held at fair value. However, Scope sees the large size of the government portfolio as a key vulnerability for a bank that runs an otherwise very low-risk business model.

The following ratings were affirmed. With the exception of the short-term ratings, for which the rating outlook remains Stable, all other rating outlooks have been changed to Negative from Stable.

Unicredit:

• ‘A’ Issuer Rating
• Preferred senior unsecured debt at A
• Non preferred senior unsecured debt at A-
• Tier 2 Ratings at BBB
• Short term rating at S-1

Intesa:

• ‘A’ Issuer Rating
• Preferred senior unsecured debt at A
• Non preferred senior unsecured debt at A-
• AT1 ratings at BB+
• Short-term rating at S-1

IBL:

• ‘BBB’ Issuer Rating

Cash flow analysis & stress testing
No cash flow analysis was performed. No stress testing was performed.

Methodology
The methodology used for this rating(s) and/or rating outlook(s) Bank Rating Methodology is available on www.scoperatings.com.
Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
Istituto Bancario del Lavoro participated in the rating process.
Unicredit’s and Intesa SanPaolo’s ratings were not requested by the rated entity or its agents.
The rated entities and/or its agents participated in the rating process. Scope had access to Intesa SanPaolo’s accounts, management and/or other relevant internal documents for the rated entity or related third party.
The following substantially material sources of information were used to prepare the credit ratings: public domain, the rated entity and third parties.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.”
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Marco Troiano, Executive Director
Person responsible for approval of the ratings: Samuel Theodore, Group Managing Director
The Istituto Bancario del Lavoro rating/outlook was first released by Scope on 12.03.2018.
The Unicredit issuer rating/outlook was first released by Scope on 11.06.2014. The rating/outlook was last updated on 20.03.2017.
The Unicredit short-term rating/outlook was first released by Scope on 11.06.2014. The rating/outlook was last updated on 26.10.2017.
The Unicredit senior unsecured debt rating/outlook was first released by Scope on 11.06.2014. The rating/outlook was last updated on 30.01.2018.
The Unicredit non-preferred senior unsecured debt rating/outlook was first released by Scope on 30.01.2018.
The Unicredit Tier 2 securities rating/outlook was first released by Scope on 19.12.2016. The rating/outlook was last updated on 20.03.2017.
The Intesa SanPaolo issuer rating/outlook was first released by Scope on 11.06.2014. The rating/outlook was last updated on 02.02.2017.
The Intesa SanPaolo short-term rating/outlook was first released by Scope on 11.06.2014. The rating/outlook was last updated on 26.10.2017.
The Intesa SanPaolo senior unsecured debt rating/outlook was first released by Scope on 11.06.2014. The rating/outlook was last updated on 30.01.2018.
The Intesa SanPaolo non-preferred senior unsecured debt rating/outlook was first released by Scope on 30.01.2018.
The Intesa SanPaolo Additional Tier 1 notes rating/outlook was first released by Scope on 25.02.2016.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
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