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TEXT-Fitch cuts Unione Banche Italiane mortgage covered bonds

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(The following statement was released by the rating agency)

Oct 12 - Fitch Ratings has downgraded Unione Banche Italiane's(UBI; 'BBB+'/Negative/'F2') mortgage covered bonds to 'AA-', Negative Outlookfrom 'AA+'/Rating Watch Negative (RWN) and Banca Monte dei Paschi di Siena's(BMPS; 'BBB'/Stable/'F3') to 'A+', Negative Outlook from 'AA'/RWN. Bothprogrammes have been removed from RWN.

The downgrade concludes Fitch's Discontinuity Cap (D-Cap) assessment based onits updated Covered Bonds Rating Criteria dated 10 September 2012. BMPS' andUBI's covered bonds had been assigned a D-Cap of 2 and their rating had beenplaced on RWN. Following the placement of the mortgage programmes on RWN, UBIand BMPS confirmed to Fitch that no changes will be made to the programmes tothe extent that would allow an improved D-Cap assessment for the Liquidity Gapsand Systemic Risk component.

The D-Cap of 2 is driven by the high risk assessment for the liquidity gap andsystemic risk component. This assessment is due to the less predictablewholesale market access that may reduce the likelihood that an Italian financialinstitution could buy a portion of Italian mortgage loans included in the coverpool in an issuer event of default (see "Fitch Puts 2 Italian Covered Bonds onRWN; Assigns Outlooks & D-Caps" dated September 2012 at ).

For UBI, the 'AA-' covered bonds' rating is based on the bank's Long-term IssuerDefault Rating (LT IDR) of 'BBB+', the D-Cap of 2 (high risk) and the assetpercentage (AP) that Fitch takes into account in its analysis, which iscurrently 70.1%.

In terms of sensitivity of the covered bonds' rating, the 'AA-' rating would bevulnerable to downgrade if any of the following occurred: (i) the LT IDR of theissuer was downgraded by one or more notches; or (ii) the D-Cap fell to 1 or 0;or (iii) the programme AP went above 76%, which is the breakeven level in linewith the 'AA-' rating. The Negative Outlook on Italy's IDR ('A-'/Negative/'F2')and on the issuer's LT IDR drives the Negative Outlook on the covered bonds.

As the issuer is rated 'F2', the agency relies, for the purpose of its analysis,on highest AP of the last 12 months. This level supports a 'A' rating on a PDbasis for the covered bonds.

For BMPS, the 'A+' covered bonds' rating is based on the bank's LT IDR of 'BBB',the D-Cap of 2 (high risk) and the AP of 67.7% that Fitch takes into account inits analysis.

In terms of sensitivity of the covered bonds' rating, the 'A+' rating would bevulnerable to downgrade if any of the following occurred: (i) the LT IDR of theissuer was downgraded by one or more notches; or (ii) the D-Cap fell to 1 or 0;or (iii) the programme AP went above 72%, which is the breakeven level in linewith the 'A+' rating. The Negative Outlook on Italy's IDR ('A-'/Negative/'F2')drives the Negative Outlook on the covered bonds.

As the issuer is rated 'F3', Fitch relies, for the purpose of its analysis, onthe AP which the issuer publicly commits to. This level of OC supports a 'A-'rating on a PD basis for the covered bonds.

The Fitch breakeven AP for the covered bond ratings will be affected, amongothers, by the profile of the cover assets relative to outstanding coveredbonds, which can change over time, even in the absence of new issuances.Therefore it cannot be assumed to remain stable over time.

(Caryn Trokie, New York Ratings Unit)

((Caryn.Trokie@thomsonreuters.com; 646-223-6318; Reuters Messaging:rm://caryn.trokie.reuters.com@reuters.net))

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