Moody’s put mortgage covered bonds issued by Banca Carige and UBI Banca on review for downgrade this (Tuesday) morning, but will not take any further action until it finalises bail-in inspired changes to its methodology that would ease downward pressure on the OBGs.

UBI Banca

Carige was cut to B2 by Moody’s last Wednesday and UBI Banca’s Baa2 rating was put on review for downgrade yesterday (Monday).

Those rating actions come either side of Moody’s on Friday releasing a request for comment (RFC) on proposals to change its methodology to take into account the introduction of a bail-in framework in Europe. Under the proposals, lower rated European covered bonds could be upgraded as the rating agency would be using a higher anchor point for covered bond ratings than previously (see article here).

Moody’s said that during the month long RFC period covered bond ratings that would otherwise be affected by downgrades of senior unsecured ratings may not face actions pending finalisation of its methodology, saying in its releases on Carige’s and UBI Banca’s covered bonds: “In our review we will incorporate all available information, including the recent ECOFIN proposal and until such analysis is completed we intend to leave on review any covered bond ratings potentially affected by downgrades of bank senior unsecured ratings.”

Analysts said absent the proposed changes, a downgrade of Carige’s OBGs, which are rated Baa1, to junk would have been expected. However, UBI Banca’s covered bonds, rated A2, already have a TPI Leeway of one notch, according to analysts, meaning that its OBGs could withstand a downgrade of UBI’s senior unsecured debt of one notch, all other things being equal.