Fitch downgraded Banca Carige soft bullet covered bonds from BBB+ to BBB on Friday, and placed them on Rating Watch Evolving (RWE), after having cut the issuer’s IDR to CCC two weeks earlier – with the Italian bank continuing to question the rating agency’s actions.

Fitch cut Carige’s issuer default rating (IDR) from CCC+ to CCC on 17 January, and left the rating on RWE.

“The downgrade of the long term IDR to CCC reflects Fitch’s view that Carige’s senior creditors face an increased risk of losses now that the bank has been placed under temporary administration as this, in our opinion, reflects a heightened risk of further regulatory intervention,” it said. “The bank’s administrators are examining a range of options to address capital and asset quality problems at the bank for which the outcome is still uncertain, which is reflected in the RWE.”

Carige – which was placed under temporary administration by the ECB on 2 January and received support measures from the Italian government a week later – responded to the IDR downgrade by saying it showed a lack of understanding of recent events and was inconsistent with previous Fitch statements, and it pointed to Moody’s having put Carige’s rating under review, direction uncertain. The bank had disputed an earlier IDR downgrade, to CCC+, in October.

The previous IDR downgrade let to Carige’s soft bullet obbligazioni bancarie garantite (OBGs) being put on Rating Watch Negative rather than cut thanks to one notch of unused payment continuity uplift (PCU) under Fitch’s methodology, but the latest IDR downgraded resulted in the covered bonds being cut on Friday.

Fitch noted that the covered bonds now have no buffer against an IDR downgrade, but also that an upgrade of the bank would lead to an upgrade of the OBGs providing sufficient overcollateralisation (OC) is available.

In its analysis, Fitch varied from its European RMBS rating criteria by decreasing the weighted average recovery rate in each rating scenario, with the rating agency citing consistently weaker recovery performance of Carige’s residential mortgage loans compared with the Italian average – although it noted that this had no impact on the OBG rating.

Moody’s rates the OBGs Baa3 and DBRS rates them BBB.

Carige last month issued EUR2bn of short-dated government-guaranteed bonds under the government support measures, and these have been rated short and long term ratings of R-1 (low) and BBB (high), respectively, by DRBS, in line with those of the Republic of Italy.