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Rating Action:

Moody's affirms UniCredit SpA's Baa2/P-2 debt and deposit ratings, lowers standalone BCA to ba1

21 Mar 2014

Stable outlook on all ratings

London, 21 March 2014 -- Moody's Investors Service has today affirmed UniCredit SpA's Baa2 long-term senior debt and deposit ratings and its Prime-2 short-term ratings. Moody's also lowered UniCredit's standalone baseline credit assessment (BCA) to ba1 from baa3, within the D+ bank financial strength rating (BFSR) category, which resulted in a downgrade of the bank's subordinated debt rating to Ba2 from Ba1.

The affirmation of UniCredit's senior debt and deposit ratings reflects the incorporation of two notches of systemic support, whilst the lowering of the standalone BCA reflects the bank's balance sheet and profitability pressures caused by the ongoing deterioration of its -- primarily Italian -- loan book, as revealed by the bank's 2013 results published last week. The BCA also takes into account UniCredit's likely ability to access to the equity market, if needed, and Moody's expectations of economic recovery in Italy.

The ratings of UniCredit's subordinated debt instruments and programmes are affected by today's action. The outlook on all the bank's ratings is stable. Separate press releases will be issued for the group's subsidiaries. A full list of rating actions follows at the end of this release.

RATINGS RATIONALE

--- DEPOSIT RATINGS

Moody's affirmation of UniCredit's Baa2 deposit rating incorporates two notches of uplift for the debt ratings from the bank's standalone BCA of ba1, reflecting the rating agency's unchanged expectation of a very high probability of systemic support from the Italian government (rated Baa2 stable -- i.e., two notches higher than the bank's BCA) in the event of need. This support uplift was previously constrained by the Italian government rating and is a result of UniCredit's position as one of the leading Italian banks, with a market share of loans of around 12%, and its position as a Global systemically important financial institution (SIFI).

The outlook for UniCredit's deposit ratings is stable, reflecting the stable outlook on the bank's standalone D+ BFSR and on the Italian sovereign rating.

--- LOWERING OF THE BCA

FIRST DRIVER -- ASSET QUALITY WEAKNESSES DEPRESS PROFITABILITY

UniCredit's very weak profitability, as evidenced by the bank's recently published 2013 results, is mainly attributable to very high loan loss provisions in Italy. Moody's expects the bank to report persistently low profitability in 2014 as a result of pressure on revenues and a still elevated (although declining) level of loan loss provisions. Moody's expects asset quality to deteriorate further during 2014, albeit at a slower rate, against the background of the moderate economic recovery. Moody's anticipates recovery in UniCredit's profitability only from 2015, and the rating agency believes that the bank will be challenged to achieve the EUR3.6 billion net profit target in 2016 -- as this objective reflects significantly reduced cost-of-credit assumptions.

UniCredit's EUR14 billion net loss in 2013 was primarily driven by (1) EUR9.3 billion goodwill and other intangible impairments, which does not affect regulatory capital and is excluded by Moody's from its historical profitability assessment; and (2) EUR13.7 billion loan loss provisions (EUR9 billion in 2012), which were driven partly by a deterioration of UniCredit's loan book, and partly by the bank's decision to strengthen its reserve coverage. The forecast for continuing weakness of the bank's profitability, and, more notably, the magnitude of credit costs reflected in the clean-up of the bank's loan portfolio was beyond the expectations Moody's had incorporated in the previous BCA level, and is not consistent with an investment grade BCA.

SECOND DRIVER --- WEAKENED CAPITAL ADEQUACY

In Moody's opinion, following the 2013 results, UniCredit has a weakened capital buffer, based on Moody's assessment of the bank's resilience under the rating agency's adverse scenario. Moody's also believes that the bank's capital buffer is sufficient in view of the ECB's comprehensive assessment.

Following the net loss in 2013, UniCredit's Basel III phased-in Common Equity Tier 1 ratio reduced to 10.4% in December 2013 (from 11.3% in September 2013), a level below European peers. Moody's notes that this ratio includes 35 bp from the revaluation of UniCredit's stake in the Bank of Italy, which may not be recognised by the ECB.

UniCredit's problem loans -- as adjusted by Moody's -- as a proportion of equity and loan loss reserves grew to 69% in 2013 (2012: 62%), which exceeds that of European peers. The 24% reported reduction of equity following the net loss was partly offset by strengthened loan loss reserves.

UniCredit's ratings are also supported by its likely ability to raise capital externally, if necessary, by accessing the equity market. Further, Moody's expects Italy to record positive -- albeit modest -- GDP growth of around 0.5% in 2014 and 2015, which will contribute to reduced credit costs.

The stable rating outlook incorporates Moody's expectations that a gradual recovery in UniCredit's profitability from the low point in 2013 and a stabilisation of asset quality are likely from 2015.

WHAT COULD MOVE THE RATING UP/DOWN

There is no upwards pressure on UniCredit's BCA in the short-term given the recent lowering of the BCA. Over time, Moody's could change the rating outlook to positive following (1) achievement of significant net profitability, broadly in line with business plan targets; and (2) a significant reduction of problem loans as a proportion of equity and loan loss reserves. Moody's could upgrade the deposit rating if the BCA is raised and if Italy's sovereign creditworthiness improves.

Conversely, Moody's could lower UniCredit's BCA (1) if the bank materially misses its EUR2 billion profit target in 2014; (2) following further significant deterioration of the ratio of problem loans to equity and loan loss reserves; or (3) if the bank fails to, at least, maintain the current regulatory capital ratios, for example following the ECB's comprehensive assessment.

Moody's could downgrade UniCredit's long-term deposit and debt ratings as a result of (1) a lowering of the BCA; (2) a downgrade of the Italian government bond rating; or (3) evolution of systemic support prospects in Italy and in the EU, in light of developments associated with resolution mechanisms and burden sharing for European banks.

Downgrades:

..Issuer: UniCredit SpA

.... Baseline Credit Assessment, Downgraded to ba1 from baa3

.... Adjusted Baseline Credit Assessment, Downgraded to ba1 from baa3

....Junior Subordinated Regular Bond/Debenture, Downgraded to Ba3 (hyb) from Ba2 (hyb)

....Tier III Debt Medium-Term Note Programme Rating, Downgraded to (P)Ba2 from (P)Ba1

....Junior Subordinated Medium-Term Note Program Rating, Downgraded to (P)Ba3 from (P)Ba2

....Subordinate Medium-Term Note Program Rating, Downgraded to (P)Ba2 from (P)Ba1

....Pref. Stock Non-cumulative Preferred Stock, Downgraded to B1 (hyb) from Ba3 (hyb)

....Subordinate Regular Bond/Debenture, Downgraded to Ba2 from Ba1

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

....Pref. Stock Non-cumulative Preferred Stock, Downgraded to B1 (hyb) from Ba3 (hyb)

..Issuer: UniCredit Luxembourg Finance S.A.

....Subordinate Medium-Term Note Program Rating, Downgraded to (P)Ba2 from (P)Ba1

....Tier III Debt Medium-Term Note Programme Rating, Downgraded to (P)Ba2 from (P)Ba1

....Subordinate Regular Bond/Debenture, Downgraded to Ba2 from Ba1

..Issuer: UniCredito Italiano Capital Trust III

....Pref. Stock Non-cumulative Preferred Stock, Downgraded to B1 (hyb) from Ba3 (hyb)

..Issuer: UniCredito Italiano Capital Trust IV

....Pref. Stock Non-cumulative Preferred Stock, Downgraded to B1 (hyb) from Ba3 (hyb)

Affirmations:

..Issuer: UniCredit SpA

.... Bank Financial Strength Rating, Affirmed D+

.... Short-Term Deposit Ratings, Affirmed P-2

....Senior Unsecured Medium-Term Note Program Rating, Affirmed (P)Baa2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)P-2

....Senior Unsecured Deposit Program, Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

....Long-Term Deposit Ratings, Affirmed Baa2

..Issuer: UniCredit Bank Ireland p.l.c.

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

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

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa2

..Issuer: UniCredit Luxembourg Finance S.A.

....Senior Unsecured Medium-Term Note Program, Affirmed (P)P-2

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa2

..Issuer: UniCredito Italiano Delaware, Inc.

.... Commercial Paper, Affirmed P-2

..Issuer: Unicredito SpA, New York Branch

....Long-Term Deposit Rating, Affirmed Baa2

Outlook Actions:

..Issuer: UniCredit SpA

....Outlook, Changed To Stable From Stable(m)

..Issuer: UniCredit Bank Ireland p.l.c.

....Outlook, Remains Stable

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

....Outlook, Changed To Stable From Stable(m)

..Issuer: UniCredit Luxembourg Finance S.A.

....Outlook, Changed To Stable From Stable(m)

..Issuer: UniCredito Italiano Capital Trust III

....Outlook, Changed To Stable From Negative

..Issuer: UniCredito Italiano Capital Trust IV

....Outlook, Changed To Stable From Negative

..Issuer: Unicredito SpA, New York Branch

....Outlook, Remains Stable

The principal methodology used in these ratings was Global Banks published in May 2013. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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

Johannes Felix Wassenberg
MD - Banking
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 Baa2/P-2 debt and deposit ratings, lowers standalone BCA to ba1
No Related Data.
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