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Fitch acts on Popolare di Milano, Banco Popolare ahead of pending merger

Fitch Ratings on Dec. 23 took various ratings action on Banca Popolare di Milano Scarl and Banco Popolare Società Cooperativa ahead of an impending merger between the two Italian banks.

Fitch downgraded Banca Popolare di Milano's long-term issuer default and senior unsecured debt ratings to BB- from BB+ and its viability rating to "bb-" from "bb+." The rating agency removed the ratings from Rating Watch Negative and assigned the long-term issuer default rating a stable outlook.

The rating agency also downgraded the long-term issuer default rating of BPM unit Banca Akros SpA to BB- from BB+, removing it from Rating Watch Negative and assigning it a stable outlook.

In addition, Fitch lowered Banco Popolare's long-term issuer default and senior debt ratings to BB- from BB and its viability rating to "bb-" from "bb." The outlook on the long-term issuer default rating is stable. The agency also downgraded Banco Popolare Società Cooperativa unit Banca Aletti & C. SpA's long-term issuer default rating to BB- from BB, with a stable outlook.

Meanwhile, Fitch affirmed various other ratings of the banks.

The downgrades reflect the post-merger consolidated group's weak asset quality metrics, which put pressure on capitalization. Fitch believes that Italy's weak economic environment weighs on the overall credit profile of the new group, as it makes impaired loan disposals and projected revenue benefits more difficult to achieve.

Fitch expects to withdraw the issuer ratings of both BPM and Banco Popolare, following the completion of the merger. Both banks' outstanding senior rated debt will be transferred to the new parent, Fitch said.

The ratings of the two units are based on institutional support available from their respective parent companies, which, along with the new group, are expected to support these units if needed.

The new group will be Italy's third-largest banking group from Jan. 1, 2017, Fitch noted.