(Bloomberg) -- BFF Bank SpA was ordered by regulators to halt payouts and review its governance, sending the Italian specialty lender’s stock down by the most on record.

The Italian company said on Thursday it suspended profit distributions after the Bank of Italy shared the results of its probe on April 29. While the firm sought to play down the impact stemming from a review of the risk profile of its credits, investors and analysts were left stunned. 

The Bank of Italy’s move — one of the toughest measures that a banking regulator can take — sparked concerns about the lender’s accounting practices. The regulator found some BFF loans to state bodies should be classified as past due instead of performing and also questioned some of the company’s compensation practices for Chief Executive Officer Massimiliano Belingheri.

“BFF has entered into a period of uncertainty that, we believe, is set to last for a few months,” Simonetta Chiriotti, an analyst at Mediobanca, wrote in a Friday note, cutting her recommendation to neutral from outperform.

“The measures imposed on BFF exhibit an unprecedented harsh approach from the regulator” although “we remain confident in the bank’s prospects in the medium term and in the soundness of its business model,” she said.

BFF revealed the results of the Bank of Italy probe as it was presenting its first-quarter results, prompting a share selloff that shaved off more than a third of its €2.3 billion ($2.5 billion) market cap. Following a 10% drop on Thursday, shares tumbled as much as 36% on Friday. 

BFF Bank’s senior preferred bonds issued last month are indicated at 95.7 cents on the euro, down from 99.9 cents on Wednesday, according to data compiled by Bloomberg. BFF’s additional Tier 1 notes also fell even if the bank said limitations on profit distribution don’t apply to the payment of interest on these bonds.

BFF is a finance company specialized in management and acquisition of debt owed to suppliers by public-sector bodies, as well as factoring, securities services and corporate payments. Founded in 1985 by a group of pharmaceutical companies, it operates in Italy, Croatia, the Czech Republic, France, Greece, Poland, Portugal, Slovakia and Spain.

The Bank of Italy’s investigation stated that some BFF credits toward the public administration should be classified as past due instead of performing, in a move that can increase the bank’s risk-weighted assets.

BFF sought to ease concerns over the possible increase in RWA and prudential calendar provisioning, which won’t result in a “material change” to the bank’s economic and financial outlook. It should be able to cover any capital needs stemming from a risk-weighted asset increase under an “extreme scenario” with its own resources, it said on Friday. 

The company also said the probe findings don’t seem to imply higher credit losses on the group’s portfolio, having instead to do with reporting profiles for prudential purposes.

Analysts at Bank of America cut the bank to neutral, Equita downgraded it to hold, while Banca Akros suspended its recommendation pending details on the effects that the central bank report may have on the company financials. 

Read More: BFF Drops After Bank of Italy Suspends Dividends Amid Probe 

The central bank also made some undisclosed findings on BFF’s governance and on its corporate remuneration practices, with particular reference to certain contractual provisions referring to the CEO, ordering to suspend variable compensation. The board of directors confirmed its full confidence in Belingheri. 

The bank doesn’t see a change in its dividend policy nor in its profitability due to the probe and it will respond to the probe findings with its assessments in July. BFF’s policy on dividend will resume after the lifting by Bank of Italy of the temporary suspension of dividend payments, it also said on Friday.

--With assistance from Antonio Vanuzzo and Nicholas Comfort.

(Updates with RWA increase impact in tenth paragraph.)

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