Next 26 October S&P will revise its rating on Italy, currently BBB with stable Outlook. It could directly lower the rating one level to BBB-. While we wait for whether this happen or not, another agency, Fitch, has cut Banca Carige’s rating from B- to CCC+ believing that the bank will have difficulties in reinforcing its capital ratios.
According to Fitch, Carige’s elevated dependency on the wholesale market could cause an increase in financing costs and the risk of deposit flight is high.
The flood of bad news about the Italian bank continues, which must confront greater financing costs as well as the deterioration in its capital ratios due to the increase in the country risk premium – currently around 300 bp.
Carige confronts a complicated position because the volume of non-performing assets excedes 5.2 billion euros – equivalent to twice the book value of the funds themselves-, the net attributed profit expected for 2018 barely excedes 10.0 million euros and the share price has an accumulated fall this year of 40%, beaten only by Monte Dei Paschi (-52.8%).
Despite this, Carige should not represent a systemic risk for the sector“. According to Bankinter:
“Given that the bank manages 15.5 billion euros in credits with a balance around 25 billion euros – equivalent to 1.5% of the balances of the largest banks in the country – and has a stock market capitalisation of barely 272 million euros which means a valuation multiple P/VC ~ 0.12 X (vs 0.3/0.7 X for the rest of Italian banks).