Fitch downgraded mortgage-backed obbligazioni bancarie garantite issued by Banca Popolare di Milano (BPM) from A- to BBB+, on negative outlook, yesterday (Tuesday), after the rating agency on Monday cut the Italian bank’s issuer rating from BBB- to BB+.

Banca Popolare di Milano

Downgrading BPM, Fitch said that uncertainty over the bank’s future strategy and its ability to strengthen its capitalisation has increased following a delay in the bank’s shareholders reaching agreement as to how to strengthen the bank’s corporate governance, which has also led to a delay in a planned Eu500m capital increase.

The new BBB+ rating of BPM’s OBGs is based on the bank’s new BB+ rating, a Discontinuity Cap (D-Cap) of 1 (“very high” discontinuity risk assessment), and an asset percentage of 81.5% committed to by the issuer, according to Fitch. The asset percentage enables the OBGs to be rated two notches higher than their BBB- rating on a probability of default basis under Fitch’s methodology and calculations.

The covered bonds’ negative outlook is a result of the negative outlook on BPM’s rating and the outlook for the Italian residential mortgage market, said the rating agency. Fitch said that, all else being equal, the OBG’s rating would be vulnerable to a downgrade if the issuer’s rating was downgraded by two or more notches.