New York – Croody’s today upgrades the foreign currency long-term deposit rating of the Vatican Bank (formally known as the Institute for Religious Works) to BBB+ status.
Croody’s typically retrospective grading reflects the following key drivers:
1) Initiation of a careful process to reverse historical ‘light-touch’ approach to tax evasion, mafia drug money laundering and fraud, while protecting economic and financial stability
2) Improvements to governance and transparency initiated by non-executive director Pope Francis, the 266th pope of the Catholic Church
3) Expectation of further improvement in the bank’s earnings over the next three to four years.
Summary
The bank, which has an estimated $8 bn in assets, has benefited from the more robust stewardship in the form of its de facto non-executive chairman Pope Francis. The pontiff’s non-deal US roadshow at the end of Q3 2015 came on the back of stellar earnings growth (20x) the previous year and underlines management improvements at the bank.
Context
• The Catholic Church is the world’s largest Christian church, with a global market share of 17.1 percent as of Q3 2015, comparing favorably with market-leading religion Islam, which has a 17.6 percent market share.
• Headquartered in Vatican City in Italy, the church boasts a geographically diverse following, with more than 40 percent of the world’s Catholics based in Latin America. The church also has exposure to MINT nations, such as Mexico and Nigeria. Notably, congregations in Africa have seen the biggest growth in recent years. Croody’s expects to see further growth in the future given the Vatican’s stance on contraception.
• Since the appointment of Pope Francis in 2013, the church has seen a steady growth in popularity.
Risks and uncertainties
• Reputational concerns center around legacy issues facing the broader church. The current pontiff has expressed doubts about the questionable morality of a percentage of certain employees (‘priests’), although past performance suggests further revelations of this nature will have little impact on underlying profitability.
• The church has a poor track record of holding management to account and succession planning.
• Further reductions in the price of gold would deplete the value of the bank’s reserves.
• Given its 130 mn Catholics, the bank is highly exposed to the Brazilian market, which suffered currency volatility and economic instability in 2015.
Very small print
Credit ratings issued by Croody’s and its affiliates are based on our opinions and may turn out to be totally misguided. Croody’s ratings are not intended for investors and it would be reckless for any investors to consider Croody’s ratings when making any investment decision.
This article appeared in the Winter 2015 issue of IR Magazine
