Fitch Assigns Mediobanca 'BBB ' IDR; Outlook Stable
Mediobanca is the parent bank of a banking group based in Italy. The group's business model encompasses diverse activities (ranging from corporate lending, investment banking and advisory to consumer finance and asset management) some of which are run out of separate subsidiaries, including leading consumer finance company Compass S.p.A.
KEY RATING DRIVERS - VR AND IDRs
Mediobanca's Long- and Short-term IDRs are driven by its standalone intrinsic strength as captured in its VR. The VR reflects the group's strong historical franchise in specialised business segments in Italy, adequate risk appetite, acceptable capitalisation and adequate funding profile, albeit with a bias towards wholesale and retail bonds, complemented by sound liquidity. The VR also reflects the concentrations in Mediobanca's corporate lending activities and its legacy equity exposures, which it is seeking to reduce, some fluctuations in its operating profitability, driven by its more cyclical businesses, and the asset quality deterioration which is a result of the economic recession in Italy.
Mediobanca has maintained a strong franchise in Italian corporate and investment banking and consumer finance over several business cycles. A more recent and conservatively implemented strategy of geographic diversification of its corporate and investment banking activities in selected Western and South Eastern European countries, should contribute to reducing the impact of the Italian domestic macroeconomic cycle on the group's performance and risks.
Mediobanca's risk metrics are adequate for its type of activities and their inherent risks. In Fitch's opinion, the group's risk appetite is conservative and underpinned by a track record of coherent underwriting standards. The group's risk management framework has evolved and strengthened in line with business growth. The bank's activities (specifically corporate and investment banking) result in high risk concentration levels, but the revision of limits on large credit exposures and the partly executed plan of disposals of historical equity participations should mitigate future concentration risks.
Mediobanca's asset quality is adequate relative to its lending exposure and compares favourably with domestic banks' averages. The group's impaired loans ratio and unreserved impaired loans in relation to Fitch Core Capital deteriorated as a result of the prolonged recession in Italy but remain better than domestic peers'.
Mediobanca's profitability tends to fluctuate over the economic and interest rate cycle, given the relevance of investment banking profits and net interest income generated by the group's wholesale and retail/consumer lending activities. The increased focus on business volume expansion outside of Italy and on enlarging the group's asset management activities should increasingly mitigate some volatility in operating profitability. The planned and partly executed reduction in equity investments is also gradually contributing to a reduction of fluctuations in operating results.
The bank's long-term funding channels are adequately diversified and the bank benefits from a sound franchise and reputation in the wholesale and retail third party channels segment. Funding is skewed towards wholesale and unconventional retail funding channels but to date this has not entailed undue volatility. Refinancing risk is limited and the management of debt maturities careful. Liquidity is underpinned by abundant unencumbered eligible assets available for central bank refinancing.
The bank's regulatory and Fitch-calculated capital ratios are acceptable given risk concentrations in its aggregate equity and credit exposures and the diverse nature of its businesses, which include some comparatively more volatile activities. The bank's ability to maintain high weighted capital ratios mitigates concentration and volatility risk considerations. Leverage is low by international standards.
RATING SENSITIVITIES - VR AND IDRs
Mediobanca's IDRs are sensitive to movements in its VR.
Material asset quality deterioration, increased risk appetite for large exposures above the limits currently in place, growing riskier activities in non-Italian operations or a less rigorous approach to pricing its consumer finance risks could lead to a downgrade of the bank's VR. Similarly, significantly increased volumes of foreign-originated activities without an equivalent evolution of its risk controls framework could put pressure on the ratings. A deterioration of group liquidity and of its funding profile could also result in a downgrade.
Fitch considers Mediobanca's credit profile to be influenced by the sovereign's and in particular by the operating environment in Italy, where a large part of the group's operations are located. Mediobanca's VR and IDRs would therefore be sensitive to a downgrade of the sovereign rating (BBB+/Stable), which would result in a downgrade of the bank's VR and IDRs. Rating upside is limited in view of the bank's business profile and the bias in its funding mix towards wholesale and retail bond funding.
KEY RATING DRIVERS AND SENSITIVITIES- SUPPORT RATING AND SUPPORT RATING FLOOR
Mediobanca's Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'No Floor' reflect Fitch's view that external support for the bank from national authorities, in case of need, is possible but cannot be relied upon. Fitch's assessment is based on Mediobanca's limited retail customer deposit franchise domestically, the prevalence of wholesale funding and retail bonds sold through third-party networks in its funding structure and its specialised lending activities. Given these factors, Fitch considers that changes to Mediobanca's SR and SRF are unlikely.
The rating actions are as follows:
Long-term IDR: assigned at 'BBB+'; Outlook Stable
Short-term IDR: assigned at 'F2'
Viability Rating: assigned at 'bbb+'
Support Rating; assigned at '5'
Support Rating Floor: assigned at 'No Floor'
Fitch will shortly publish a Ratings Navigator for Mediobanca.
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