Moody’s sends the world’s oldest bank to junk status

MILAN - Reuters

A woman strolls in front of Monte dei Paschi bank headquarters in Siena. REUTERS photo

Moody’s cut the rating of Italy’s third largest lender, Banca Monte dei Paschi di Siena (MPS), to junk and said it may need more state help, sending the bank’s shares down more than 4 percent in early trade yesterday.

MPS was the only Italian lender to fail the European Banking Authority’s stress tests and is now the first of Italy’s five systemically important banks to fall below investment grade.
The Tuscany-based lender has already requested 1.5 billion euros in state loans to plug a capital shortfall.

The bank has also won shareholder approval for a 1 billion euro capital increase to be launched by 2015.

However, Moody’s said overnight there was a “material probability that the bank will need to seek further external support.” This would probably be government help, Moody’s said and cut its long-term rating two notches to Ba2 from Baa3.

It cited MPS’s weak asset quality, which it said would continue to deteriorate due to Italy’s recession, and said MPS’s problem loans had risen to 17 percent of its loan book - above the 13 percent average of Italian banks rated by the agency.

“MPS’s weak profitability and fragile asset quality exacerbate its weak funding position, leaving it unable to access capital markets and in consequence making MPS highly reliant on the European Central Bank,” Moody’s said in a statement.

A business plan by the lender including 4,600 job cuts and the slashing of its loan book “is subject to significant execution risk.”

The outlook remains negative, Moody’s said.

MPS is the world’s oldest surviving bank and Italy’s third largest bank. It was founded in 1472 by the Magistrate of the city state of Siena. It has about 3,000 branches, 33,000 employees and 4.5 million customers in Italy.