DBRS has downgraded Veneto Banca to ’B’ and placed the rating under review with negative implications.
According to the rating agency, the downgrade and rating review reflect “the additional risks for Veneto Banca's senior bondholders due to the increased uncertainty over the Bank's capital position. On March 17, 2017, Veneto Banca made a formal request to the Italian Ministry of Economy and Finance (MEF), the Bank of Italy and the ECB for State Aid in the form of a precautionary recapitalisation.”
The recapitalisation would allow “Veneto Banca to improve its risk profile and merge with Banca Popolare di Vicenza, which is also applying for State Aid. However, at this stage, it is unclear whether Veneto Banca is eligible for State Aid.”
Other aspects of the precautionary recapitalisation remain uncertain, including mechanism and timing. As a first step, DBRS expects the ECB to assess whether the bank is solvent and to determine the size of the capital shortfall. Subsequently, the European Commission will decide whether the public support is in line with EU State Aid rules, DBRS said.
A precautionary recapitalisation should reduce the risk of bail-in for the Bank's senior bondholders, however holders of subordinated notes, not rated by DBRS, will likely be subject to mandatory conversion, in line with EU rules on burden sharing, the rating agency noted.
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