Fitch placed CPT covered bonds of Banca Monte dei Paschi di Siena on Rating Watch Evolving yesterday (Monday), while DBRS kept the bank’s OBGs under review after affirming their ratings and Moody’s changed a review of the issuer to direction uncertain, each citing potential upsides and risks of the Italian bank’s restructuring plan.

On 4 July, Banca Monte dei Paschi di Siena (MPS) announced that the European Central Bank was seeking a reduction of the Italian bank’s stock of problem loans. On 29 July, MPS then announced a plan to dispose of its bad loan portfolio, and raise Eu5bn of capital – on the same day EBA stress tests that showed the bank would have negative CET1 capital in a stressed scenario.

Fitch yesterday placed its BBB rating of MPS’s conditional pass-through (CPT) obbligazioni bancarie garantite (OBGs) on Rating Watch Evolving (RWE), directly reflecting a review on the bank’s B- Issuer Default Rating (IDR), which was placed on RWE last Thursday. The current rating of the covered bonds has no cushion against a downgrade of the IDR, and Fitch said that all else being equal, any upside or downside movement of the IDR will be reflected in the OBG rating.

The rating agency also downgraded the bank’s Viability Rating (VR) from b- to ccc last Thursday, which it said reflects that the decision to materially accelerate the reduction of the large stock of impaired loans has increased the risk of failure, by crystallising valuation losses on the bank’s impaired loans.

“The RWEs reflect Fitch’s expectation that the bank’s Long Term IDR, VR and debt ratings could be upgraded if the transaction is completed successfully,” it said, “but also that failure to do so will increase the risk of the bank failing and losses being imposed on junior and senior creditors, either in a resolution or a distressed debt exchange.”

DBRS yesterday confirmed its ratings on MPS’s two OBG programmes following an annual review, and maintained them under review with negative implications. DBRS rates MPS’s Eu10bn CPT OBG programme A (high), and a second Eu20bn OBG programme A.

The rating agency placed the ratings on both programmes under review with negative implications on 18 July, after taking the same action on the issuer’s ratings on 12 July to reflect the challenges to the bank’s capital position before the restructuring plan was announced.

Moody’s yesterday changed a review of MPS’s B2 deposit rating, B3 senior unsecured rating and B2 Counterparty Risk (CR) assessment to direction uncertain, from previously on review for downgrade, and also put on review with direction uncertain MPS’s ca standalone Baseline Credit Assessment (BCA).

The rating agency said the review with direction uncertain reflects the potential for improvements in the bank’s creditworthiness if the plan is successfully implemented, that there is considerable uncertainty as to whether the plan will be executed as outlined, and the anticipated negative consequences for the bank’s creditors if it is unsuccessful.

The rating agency placed its A2 rating of MPS OBGs on review for downgrade on 18 July, having taken the same action on the issuer’s B2 CR assessment on 15 July.