Standard & Poor’s has placed on CreditWatch negative Banca Popolare di Milano, rated BBB-, because it considers that the issuer may not fulfil capital measures in line with prevailing ratings after posting a larger than expected net loss of Eu614m for 2011.

The rating agency on Tuesday said that the announced loss will have a negative impact on its capital measures and that the bank may therefore not meet its expectations for the prevailing ratings.

S&P also placed on CreditWatch with negative implications the ratings of Banco Akros, a core subsidiary of BPM.

“We previously expected that BPM would be able to maintain a Standard & Poor’s risk-adjusted capital (RAC) ratio of close to 7%,” said the rating agency, “even after taking into account the reimbursement of a Eu500m government hybrid security (Tremonti Bond) at the end of 2012.”

Instead, as a result of the reported loss S&P estimates that the bank’s RAC ratio would be about 6.3% after the reimbursement, which it said is “well below” the 7% minimum level associated with an “adequate” assessment of capital under its criteria.

S&P said that it intends to resolve the CreditWatch in the next three months, after meeting with the bank’s management in order to assess its plans for the bank’s future capital strategy, control of asset quality, and future profitability, particularly with regard to potential cost savings.

The rating agency could affirm the ratings if, in S&P’s words:

• BPM’s management team establishes a clear cost-cutting agenda that would likely lead to significant improvement in the bank’s efficiency over the next couple of years.
• BPM’s asset quality metrics stabilise in 2012 and 2013, after the extraordinary provisioning the bank made in 2011, and if they remain better than the average of its domestic peers.
• The bank takes action to strengthen its capital and reduce its risk assets so that S&P’s RAC ratio would likely reach a 7% level within 18-24 months.

If S&P does not observe improvements in the above areas, it would likely lower the long and short term ratings by one notch to BB+/B.