Moody’s yesterday (Thursday) placed on review for downgrade Banca Monte dei Paschi di Siena because of uncertainty about the bank’s ability to make up a regulatory capital shortfall.

The Italian bank is rated Baa1 by Moody’s.

The rating agency noted that the issuer plans to raise Eu3.3bn, the regulatory capital shortfall calculated by the European Banking Authority (EBA), to reach a core tier one capital ratio of 9%, and that the plan includes joint ventures and disposals, which may be challenging to implement in the prevailing environment and which carry some execution risk.

In addition, it said that MPS’s internal capital generation capacity, which would allow it to meet such increased capital requirements or to absorb external shocks from its own earnings, is weak.

“This weak organic capital generation capacity is becoming more prevalent as we expect pressure on asset quality and earnings to increase for MPS as a result of the overall challenging macroeconomic outlook in Italy, thus increasing the possibility that MPS may require capital support from third parties,” said Moody’s.

The rating agency’s review will focus primarily on the short term measures that can be taken to improve the group’s capital levels to meet any EBA capital requirements, and management’s strategy to significantly enhance its operational flexibility and earnings generation capacity given the limitations of asset sales or disposals or deleveraging as an ongoing source of capital generation.