Credit Opinion: Cassa Depositi e Prestiti S.p.A.
Global Credit Research - 26 Feb 2014
Rome, Italy
Ratings
Category
Moody's Rating
Outlook
Issuer Rating
Senior Unsecured
ST Issuer Rating
Stable
Baa2
Baa2
P-2
Contacts
Analyst
Dany Castiglione/London
Edoardo Calandro/London
Johannes Wassenberg/London
Will Riva/London
Phone
44.20.7772.5454
Key Indicators
Cassa Depositi e Prestiti S.p.A. (Consolidated Financials)[1]
Total Assets (EUR million)
Total Assets (USD million)
Tangible Common Equity (EUR million)
Tangible Common Equity (USD million)
Net Interest Margin (%)
(Market Funds - Liquid Assets) / Total Assets (%)
Core Deposits / Average Gross Loans (%)
Cost / Income Ratio (%)
Problem Loans / Gross Loans (%)
Problem Loans / (Equity + Loan Loss Reserves) (%)
Source: Moody's
[2]6-13 [2]12-12 [2]12-11 [2]12-10 [2]12-09 Avg.
339,906.9 328,551.3 287,143.2 260,924.4 238,046.7 [3]9.3
441,827.7 433,159.2 372,753.4 350,041.5 341,535.3 [3]6.6
17,125.3 17,046.4 14,461.5 13,041.2 10,051.6 [3]14.2
22,260.3 22,473.8 18,773.1 17,495.4 14,421.4 [3]11.5
1.1
1.3
0.9
0.7
0.9 [4]1.0
2.0
1.3
1.2
2.8
-8.3 [4]-0.2
107.5
104.1
129.3
166.5
117.7 [4]125.0
58.3
26.2
40.7
27.1
24.8 [4]35.4
0.0
0.0
0.0
0.0
0.2 [4]0.1
0.5
0.5
0.5
0.4
1.1 [4]0.6
[1] All figures and ratios are adjusted using Moody's standard adjustments [2] Basel I; IFRS [3] Compound Annual
Growth Rate based on IFRS reporting periods [4] IFRS reporting periods have been used for average calculation
Opinion
SUMMARY RATING RATIONALE
In accordance with Moody's Government-Related Issuers (GRI) rating methodology for non-banking financial
institutions, the current Baa2 issuer and debt ratings, on stable outlook, for Cassa Depositi e Prestiti S.p.A (CDP)
reflect the combination of the following inputs:
- Baseline Credit Assessment (BCA) of baa2;
- Italian government bond rating of Baa2, on stable outlook;
- Strong dependence and very high support from Italian government.
We also assign a short-term issuer rating of Prime-2.
CDP's BCA reflects the statutory majority ownership of the Italian State, with significant government involvement
and supervision of CDP's business activities. The BCA is also underpinned by CDP's overall low risk profile - as it
is currently mainly focused on its public sector activities - as well as its long-established dominant position in
public-sector financing, while taking into account its considerable market risk.
The probability of extraordinary support for CDP from the Republic of Italy is expected to be very high in case of
need, given CDP's dominant role in financing public sector entities. CDP's importance has increased over the last
couple of years, as it has become an important vehicle of the government in financing new infrastructure as well
as in channelling funds to the SME sector.
Rating Drivers
- Dominant player in public sector financing;
- Good asset quality
- Significant market risk coming from large equity stakes;
- Solid liquidity and funding profile.
Rating Outlook
CDP's Baa2 long-term issuer rating currently has a stable outlook, in line with the stable outlook on the Italian
government bond rating.
What Could Change the Rating - Up
Positive rating pressure could develop following a potential upgrade of Italy's government bond rating; however,
this would be contingent on CDP continuing to maintain its strong links with the Italian State.
What Could Change the Rating - Down
CDP's ratings could be downgraded as a consequence of a material deterioration in its risk profile and/or in the
event of a downgrade of Italy's rating. Negative pressure on CDP's ratings could also be triggered by substantial
weakening of its linkages with the Italian State.
Recent Results
CDP reported a net income of EUR1.6bn (1) in 1H2013 (1H2012: EUR2.1bn), driven by lower net interest income
(-22.6% year-on-year or yoy), which remain by far the largest source of income, and dividends (-46.9% yoy).
Cost/income ratio was 58.31% primarily because of the consolidation for the first time of three companies (namely
Fintecna, Sace and Simest) recently bought by CDP and for this reason not immediately comparable with the
21.4% if 1H2012. The consolidation driven the increase in administrative costs, which ended up to EUR2.2bn
(1H2012: EUR235m), as well as in other operating income, up to EUR2.9bn (1H2012: EUR856m).
(1) Unless noted otherwise, data in this report is sourced from the group company, group company reports,
Moody's Banking Financial Metrics and the Bank of Italy.
DETAILED RATING CONSIDERATIONS
DOMINANT PLAYER IN PUBLIC SECTOR FINANCING
Since its establishment in 1850, CDP has enjoyed a key role in financing Italian public-sector entities, channelling
state-guaranteed retail deposits collected through the Italian Post Office (Poste Italiane, rated Baa2/P-2/stable
outlook). In 2003 CDP was transformed into a joint stock company that is now 80.1% owned by the Italian state
and 18.4% distributed among 66 "fondazioni" (local banking foundations). The remaining 1.5% is in own shares. A
key change resulting from CDP's new legal status was the creation, within the same legal entity, of two separate
and segregated business areas: (i) the "gestione separata", which encompasses all of CDP's public interest
activities and (ii) the "gestione ordinaria", which incorporates market based lending activities. CDP's core
profitability continues to be mainly driven by interest income from "gestione separata", which is characterised by
thin margins and reflects the low-risk nature of this business and the currently low interest rate environment. Since
2007, CDP also consolidates the utility company Terna SpA (Baa1/P-2/stable outlook).
CDP has a dominant market position in lending to regions and local authorities and operates throughout Italy, with
large presence in poorer areas of the country, such as southern regions.
Moody's believes that CDP's key public role and strong links with the government will continue to ensure a stable
market leadership. We view this as an important positive rating factor.
GOOD ASSET QUALITY
CDP's risk profile is low and linked to its underlying public-sector business. CDP's shareholders' equity of
EUR18.5 billion (5.5% of total assets) at end 1H2013 is adequate and in line with its risk profile: problem loans (2)
as percentage of shareholder equity and loan loss reserve stood at an insignificant 0.45%. While this indicates a
satisfactory solvency profile, which we expect to remain so over the coming years, it also denotes good asset
quality. The "gestione ordinaria" part of the business represents a new role for CDP as a private investor in
infrastructure projects and equity participations providing essential public services. We are cautious about the
development of this business area, given the higher risks involved in lending to private borrowers coupled with the
challenges of establishing a new businesses.
(2) Problem loans include: non-performing loans (sofferenze), 30% of watchlist (incagli - including only an estimate
of those over 90 days overdue), restructured (ristrutturati) and past due loans (scaduti).
SIGNIFICANT MARKET RISK COMING FROM LARGE EQUITY STAKES
CDP carries a sizeable market risk due to its large equity participation in ENI SpA (A3/P-2/negative outlook), the
integrated oil & gas company (90% of CDP's own funds on a standalone basis). In addition, CDP's acquired 30%
stake (less one share) in Snam SpA (Baa1/Stable - about 20% of CDP's own funds on a standalone basis), the
European leader in the construction and management of gas infrastructure. This acquisition was partially financed
through the selling of 3% ENI stake. In our view the volatility embedded in such large equity stakes is a point of
concern.
SOLID LIQUIDITY AND FUNDING PROFILE
CDP's funding profile has traditionally been characterised by ample and fairly stable retail funding deriving from
postal passbook savings accounts and postal savings bonds to retail investors, which represents 78.2% of its
total funding at end 1H2013 and are fully guaranteed by the central government.
The remainder is mainly composed of market funds in the form of EMTN drawdowns and by disbursements on
credit facilities granted by the European Investment Bank. CDP has also access to ECB and REPO market
funding.
While we consider the funds coming through Poste Italiane as relatively stable, it is worth noting that CDP is
funding long-term lending with potentially shorter term funding and that any development which might affect this
structure would put negative pressure on its asset/liability mismatch. However, CDP consistently maintains a
good liquidity buffer on its balance sheet.
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