Covered bond benchmarks issued by Banco Popolare and Banca Popolare di Milano could be upgraded by Moody’s, according to an analyst, after the rating agency yesterday (Thursday) upgraded the two Italian banks’ Counterparty Risk (CR) assessments upon approval of their merger.

The rating agency upgraded the CR assessments of Banco Popolare Societa Cooperativa (PMIIM) and Banca Popolare de Milano (BPIM) from Ba1 to Ba2 after the banks last Saturday announced that their shareholders had approved the merger, which is expected to be completed on 1 January to form Banco BPM SpA.

Moody’s put covered bonds of the two issuers on review for upgrade on 13 April and Maureen Schuller, head of financials research at ING, said today (Friday) that the ratings of their benchmark OBGs are likely to be upgraded from A2 to A1, taking into account the new CR assessments and the covered bonds’ Timely Payment Indicators (TPIs) of “probable”, which the rating agency in April said constrained the OBGs’ ratings.

“In our view,” added Schuller, “given the merger approval there seems to be a tad more convergence potential between the BPIM 0.75 3/22 and the PMIIM 0.875 9/22 with the latter still indicated 2bp tighter versus swaps.”