Fitch Rates Intesa Sanpaolo S.p.A.'s EUR AT1 Notes 'BB-'

The notes are perpetual, but can be redeemed at the option of the issuer after five years from the issue date and every interest payment date thereafter, subject to regulatory approval, and pay an annual coupon of 7%.

The final rating is in line with the expected rating Fitch assigned to the notes on 12 January 2016 (see 'Fitch Rates Intesa Sanpaolo S.p.A.'s Upcoming EUR AT1 Notes 'BB-(EXP)'' at www.fitchratings.com).

KEY RATING DRIVERS
The notes are rated five notches below IntesaSP's 'bbb+' Viability Rating (VR), comprising two notches for loss severity relative to senior unsecured creditors and three notches for incremental non-performance risk relative to IntesaSP's VR. The notching for non-performance risk reflects the instruments' fully discretionary interest payment, which Fitch considers the most easily activated form of loss absorption. Under the terms of the notes, the issuer will not make an interest payment (in full or in part) if it has insufficient distributable items. The notes have fully discretionary interest payments and are subject to write-down on breach of a 5.125% consolidated or unconsolidated common equity Tier 1 (CET1) ratio.

IntesaSP's transitional Basel III CET1 ratio at 30 September 2015 of 13.4% provides the bank with a buffer of over EUR23bn from the 5.125% CET1 ratio trigger. However, Fitch notes that non-performance in the form of non-payment of interest could possibly be triggered before this, for example if the bank breaches its Pillar 2 CET1 capital requirement of 9.5% as established by the European Central Bank. The current CET1 ratio provides it with a buffer of over EUR11bn from this requirement.

The principal write-down can be reinstated and written up at full discretion of the issuer if positive net income (unconsolidated or consolidated) is recorded. Fitch expects to assign 50% equity credit to the securities, reflecting the agency's view that the 5.125% trigger is not so distant to the point of non-viability, which limits the instrument's "going concern" characteristics. It also reflects the notes' full coupon flexibility, their permanent nature and the subordination to all senior creditors.

RATING SENSITIVITIES
The rating of the securities is sensitive to a change in IntesaSP's VR. The rating is also sensitive to a change in the notes' notching, which could arise if Fitch changes its assessment of their non-performance relative to the risk captured in IntesaSP's VR. This could reflect a change in capital management or flexibility or an unexpected shift in regulatory buffers and requirements, for example.