Moody’s cut Banca Carige to B2 yesterday (Wednesday) and Banca Popolare di Milano to B1, and their mortgage covered bonds are expected to be downgraded to sub-investment grade as a result.

Banca Popolare di Milano

Banca Carige’s rating was cut by three notches, from Ba2. The new, lower rating remains on review for downgrade. Banca Popolare di Milano (BPM) was cut from Ba3 to B1, concluding a review for downgrade.

With a Timely Payment Indicator (TPI) of Improbable for the bank’s mortgage obbligazioni bancarie garantite (OBG) programmes, these face being cut to sub-investment grade following the issuer rating actions, said Maureen Schuller, head of covered bond strategy at ING.

“In the case of Banca Carige, the expected downgrade is at least three notches to the Ba1-Ba3 area,” she said, “while for Banca Popolare di Milano the downgrade is minimum two notches to the Ba1-Ba2 area.”

Carige mortgage OBGs are rated Baa1 by Moody’s, and BPM’s are rated Baa2.

Moody’s said that the downgrade of Carige’s ratings was due to a combination of four key risk factors: severe asset quality erosion; a considerably weaker profitability outlook; possible corporate governance changes that could have an impact on the bank’s capital; and the rating agency’s view of heightened execution risk for a planned capital raising.

At BPM, delay in reforming the corporate governance structure of the bank was behind Moody’s downgrade, with the rating agency noting that this is a point the Bank of Italy has made several times in its inspections of the bank.

“Moody’s believes that this prolonged postponement of necessary reforms may impact the ability of the bank’s senior management to focus on, and in turn successfully complete, the turnaround of the bank,” said the rating agency.