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Rating Action:

Moody's affirms UniCredit SpA's Baa1 debt and deposit ratings and ba1 standalone BCA; outlook stable

18 May 2016

London, 18 May 2016 -- Moody's Investors Service has today affirmed UniCredit SpA's Baa1 long-term senior debt and deposit ratings, Prime-2 short-term ratings, ba1 standalone baseline credit assessment (BCA) and its subordinated debt instruments and programmes. The ratings of Unicredit SpA's supported entities have also been affirmed.

The affirmation of UniCredit's ratings with a stable outlook incorporates the bank's limited headroom relative to its prudential capital requirements, its large stock of problem loans, and the risk from its investment in the Atlante fund. The affirmation also reflects the bank's continued profitability, underpinned by broad diversification, and a slowly improving operating environment in Italy, resulting in a reduced inflow of problem loans.

A full list of rating actions follows at the end of this release.

RATINGS RATIONALE

The ratings affirmation with a stable outlook reflects pressure from the bank's high asset risk and limited capital headroom above prudential requirements, which is somewhat offset by an improving operating environment.

UniCredit reported a consolidated Common Equity Tier 1 (CET1) ratio, on a transitional basis, of 10.5% at end-March 2016, compared to a 10% prudential requirement set by the ECB. Moody's regards this level of capitalization as weaker than many other internationally active banking groups, given UniCredit's very high problem loan stock, at 15% of gross loans and 84% of equity and loan loss reserves at end-March 2016. Given the low economic growth and the lengthy recovery process for problem loans in Italy (typically over six years), it will likely take many years before the bank is able to complete the cleansing of its balance sheet.

In addition, Moody's views UniCredit's investment in Italy's bad loan and recapitalization fund Atlante as a net negative for the group because it increases its exposure to weaker banks and their low-quality assets and puts additional pressure on its capital ratios. UniCredit's investment in Atlante could reduce its CET1 ratio by up to 20 basis points, further reducing its capital headroom and increasing the risk of restrictions on distributions on some capital instruments in the event of large unexpected losses.

Nevertheless, the risk of distribution restrictions applies primarily to Additional Tier 1 instruments which Moody's does not rate, and such an event is unlikely to herald a resolution of the bank, in the rating agency's view.

Indeed, Moody's sees Unicredit's provisioning coverage as better than the average within Italy, while its broad geographical diversification provides additional protection from potential further write-downs in asset values. This will be further supported by the gradual economic recovery in Italy, the reduction in the formation of new problem loans, and over time, government measures to accelerate the bad loan recovery process.

WHAT COULD CHANGE THE RATING UP/DOWN

Moody's said that UniCredit's ratings have a stable outlook, reflecting the modest recovery in Italy's economy and incorporating a gradual strengthening of the bank's financials.

Moody's could upgrade the BCA in the event of: (1) a significant reduction in problem loans as a proportion of equity and loan loss reserves; (2) a material increase in capitalization to a level decisively above prudential requirements; and/or (3) a significant improvement in profitability. An upgrade in the BCA would result in an upgrade of all UniCredit's debt and deposit ratings.

Conversely, Moody's could downgrade the BCA if: (1) the bank's profits were to fall materially short of its targets; (2) the group's CET1 were to fall close to or below its prudential requirement; or (3) Italy's economic recovery were to falter, resulting in renewed problem loan formation. A downgrade in the BCA would result in a downgrade to all UniCredit's debt and deposit ratings. UniCredit's senior debt could also be downgraded if the bank were to reduce its currently substantial subordinated debt cushion.

LIST OF AFFECTED RATINGS

Issuer: UniCredit SpA

..Affirmations:

.... Adjusted Baseline Credit Assessment, affirmed ba1

.... Baseline Credit Assessment, affirmed ba1

.... Short-term Counterparty Risk Assessment, affirmed P-2(cr)

.... Long-term Counterparty Risk Assessment, affirmed Baa1(cr)

....Long-term Deposit Ratings, affirmed Baa1 Stable

.... Short-term Deposit Ratings, affirmed P-2

....Junior Subordinated Regular Bond/Debenture, affirmed Ba3(hyb)

....Subordinate Medium-Term Note Program, affirmed (P)Ba1

....Senior Unsecured Medium-Term Note Program, affirmed (P)Baa1

....Other Short Term, affirmed (P)P-2

....Pref. Stock Non-cumulative, affirmed B1(hyb)

....Subordinate Regular Bond/Debenture, affirmed Ba1

....Deposit Note/CD Program, affirmed (P)Baa1

....Senior Unsecured Regular Bond/Debenture, affirmed Baa1 Stable

..Outlook Actions:

....Outlook, remains Stable

Issuer: UniCredit Int'l Bank (Luxembourg) S.A.

..Affirmations:

....Backed Pref. Stock Non-cumulative, affirmed B1(hyb)

....Backed Commercial Paper, affirmed P-2

....Backed Other Short Term, affirmed (P)P-2

....Backed Senior Unsecured Medium-Term Note Program, affirmed (P)Baa1

....Backed Senior Unsecured Regular Bond/Debenture, affirmed Baa1 Stable

..Outlook Actions:

....Outlook, Remains Stable

Issuer: UniCredit Luxembourg Finance S.A.

....Backed Subordinate Medium-Term Note Program, affirmed (P)Ba1

....Backed Other Short Term, affirmed (P)P-2

....Backed Senior Unsecured Medium-Term Note Program, affirmed (P)Baa1

....Backed Subordinate Regular Bond/Debenture, affirmed Ba1

..Outlook Actions:

....No Outlook assigned

Issuer: UniCredito Italiano Delaware, Inc.

....Backed Commercial Paper, affirmed P-2

..Outlook Actions:

....No Outlook assigned

Issuer: UniCredit Bank Ireland p.l.c.

..Affirmations:

....Backed Commercial Paper, affirmed P-2

....Backed Other Short Term, affirmed (P)P-2

....Backed Senior Unsecured Medium-Term Note Program, affirmed (P)Baa1

....Backed Senior Unsecured Regular Bond/Debenture, affirmed Baa1 Stable

..Outlook Actions:

....Outlook, remains Stable

Issuer: Unicredito SpA, New York Branch

..Affirmations:

....Short-term Counterparty Risk Assessment, affirmed P-2(cr)

....Long-term Counterparty Risk Assessment, affirmed Baa1(cr)

....Long-term Deposit Rating, affirmed Baa1 stable

..Outlook Actions:

....Outlook, remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Carlo Gori
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Nicholas Hill
Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms UniCredit SpA's Baa1 debt and deposit ratings and ba1 standalone BCA; outlook stable
No Related Data.
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