Fitch is withdrawing its BB+ rating of Banco Popolare mortgage covered bonds in a move that analysts said will result in better regulatory treatment of the OBGs, and the Italian bank is also expected to solicit a DBRS rating that is anticipated to be investment grade.

Fitch on Friday said that it will withdraw the rating in the next 30 days for “commercial reasons”.

The obbligazioni bancarie garantite (OBGs) were downgraded by Fitch from BBB+ to BB+ at the end of September after amendments were made to Banco Popolare’s covered bond programme, most importantly in relation to the issuer as Italian account bank, in a process that surprised many market participants.

Moody’s rates the OBGs A2.

The withdrawal of Fitch’s sub-investment grade rating is seen as having positive effects.

“As many investors have to rely on the lower of two ratings in case of a split rating, the decision to withdraw the Fitch rating will be spread positive, we think,” said Michael Spies, covered bond and SSA strategist at Citi. “Obviously, the investor universe is substantially bigger for investment grade-only bonds.

“Moreover, the higher ratings should lead to better regulatory treatment among some investor classes.”

Risk weights as defined under CRR Article 129 will fall from 50% to 20% for European bank treasuries, according to Spies, and the bonds will potentially be eligible as Level 2A assets for LCR requirements. For insurance companies, capital charges will fall substantially, he added, with that of a March 2022 falling 17.5 percentage points to 7.8% under Solvency II. He noted that ECB and index treatment will be unchanged.

Ahead of the documentation changes, several market participants suggested that Banco Popolare would have been better off dispensing with Fitch’s OBG rating straight away and replacing it with a DBRS rating, since the latter rates the issuer, at BBB (low), higher than Fitch’s OBG rating. A DBRS rating of the OBGs is still considered likely.