Moody’s placed on review for downgrade the Ba2 rating of Banca Monte dei Paschi di Siena (MPS) yesterday (Wednesday) as a result of uncertainty regarding the impact on the bank credit profile of some legacy structural trades entered into by the bank’s former management.

Banca MPS's Palazzo Salimbeni

The rating agency said that the trades had not been reported to the MPS board for approval or to the Italian regulator, and that the issue is under review by MPS’s current management. The review could result in a restatement of previous financial results, or in actions to reduce the negative impact of the trades on earnings of the legacy positions, said Moody’s.

Moody’s also noted that in November MPS requested an increase of Eu500m in state aid, for a total of Eu3.9bn, to absorb the impact on capital of the potential renegotiation of the trades.

The rating agency said that MPS’s rating could be downgraded if the cost of closing the trades exceeds the Eu500m in state aid requested by the bank, if further material losses or costs are likely to emerge, or if other issues related to those transactions are seen as likely to impact the bank’s efforts to improve its credit profile.

Moody’s will also take into account how these events may impact the propensity of the Italian government to give MPS further support, as the bank’s rating could also be downgraded if the rating agency considers that the probability of systemic support has decreased.