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Moody's reviews Monte dei Paschi for upgrade following government rescue plan

Moody's on Dec. 27 extended its review on Banca Monte dei Paschi di Siena SpA's "ca" stand-alone baseline credit assessment, but changed the direction to review for upgrade, having previously placed the rating on review with direction uncertain.

Moody's said the action reflects its expectation that the lender will see an improvement in its credit profile following the conversion of its subordinated bonds into shares and the Italian government's intervention through a precautionary recapitalization.

Moody's said the main driver behind the change in the direction of the review is the rescue plan, which foresees that the troubled lender will not be placed in resolution under the terms of the European Bank Recovery and Resolution Directive.

The agency said the review on Monte dei Paschi's baseline credit assessment will take into account the restructuring of the lender and the revised business plan that will be announced over the coming weeks, the potential reduction in asset risk, its new capital position and its funding and liquidity following the current period of uncertainty.

The recapitalization of Monte dei Paschi through the mandatory conversion of subordinated bonds and public funds will improve the bank's credit profile, Moody's said. The agency believes that the additional capital of €8.8 billion, higher than the €5 billion originally planned, will be used to materially reduce the bank's large stock of problem loans.

Moody's at the same time extended the review with direction uncertain on the lender's B3 senior debt rating, B2 long-term deposit ratings and B2(cr) long-term counterparty risk assessment. The lender's Not Prime short-term foreign- and local-currency deposit ratings and Not Prime(cr) short-term counterparty risk assessment were affirmed.