UniCredit Luxembourg downgraded to Baa3, outlook stable
Frankfurt am Main, March 21, 2014 -- Moody's Investors Service has today downgraded the long-term senior
debt and deposit ratings of UniCredit Bank AG (UCB) and its affected subsidiaries
to Baa1 from A3, and those of UniCredit Luxembourg (UCL) to Baa3
from Baa2. Concurrently, Moody's affirmed the short-term
ratings of UCB and its subsidiaries at Prime-2 and downgraded UCL's
short-term ratings to Prime-3 from Prime-2.
Today's rating action follows Moody's lowering of UniCredit SpA's (UniCredit)
baseline credit assessment (BCA) to ba1 from baa3, and the affirmation
of its supported long-term senior ratings at Baa2 with stable outlook.
For further details, please refer to the press release: https://www.moodys.com/research/Moodys-affirms-UniCredit-SpAs-Baa2P-2-debt-and-deposit-ratings--PR_295096
dated 21 March 2014.
Furthermore, Moody's downgraded UCB's and its subsidiaries'
subordinated debt ratings to Ba1 from Baa3, its hybrid debt ratings
issued by HVB Funding Trust, HVB Funding Trust II and HVB Funding
Trust III to Ba2(hyb) from Ba1(hyb), and its bank financial strength
rating (BFSR) to D+ from C-, equivalent to a BCA of
baa3 from baa2 previously. UCL's BFSR/BCA, which is aligned
with that of UCB, was also downgraded to D+/baa3 from C-/baa2.
The outlook on all of the above ratings is now stable compared to negative
previously.
For a detailed list of ratings affected, please refer to the end
of the press release.
RATINGS RATIONALE
RATIONALE FOR DOWNGRADE
-- UNICREDIT BANK AG
The lowering of UCB's BCA to baa3 follows the lowering of UniCredit's
BCA to ba1 and reflects UCB's strategic, financial and operational
interconnectedness with its Milan-based parent bank. UCB's
baa3 BCA accounts for Moody's assessment of the bank's satisfactory
level of ring-fencing from credit risks elsewhere in the group,
including the bank's current intragroup exposures, which are
largely collateralised and have been lowered considerably over the past
few years. However, the continued correlation in the areas
of reputation and investor confidence constrain the positive standalone
rating differential with the parent. The combination of these factors
positions UCB's baa3 BCA at a level no higher than one-notch above
that of UniCredit's BCA of ba1.
The downgrade of UCB's debt and deposit ratings follows the lowering of
its baa3 standalone BCA. Moody's assumptions of a high probability
of systemic support from Germany (Aaa stable) are unaffected by today's
rating action and result in a two-notch uplift for UCB's Baa1 long-term
ratings from its baa3 standalone BCA. Given UniCredit's ba1 BCA,
UCB's long-term ratings do not benefit from rating uplift,
despite Moody's assessment of a very high likelihood of parental support.
-- UNICREDIT LUXEMBOURG
As a highly integrated subsidiary of UCB, UCL's baa3 BCA is aligned
with that of UCB. Given UCL's integrated management and role as
a service provider predominantly for Munich-based UCB, its
financial profile and profitability are strongly influenced by the parent
bank. Therefore, UCL's Baa3 deposit ratings reflect UCB's
baa3 standalone BCA and Moody's assessment of a very high probability
from parental support in the event of need. UCL's Baa3 long-term
ratings do not incorporate any uplift from systemic support, as
Moody's does not expect the bank to receive systemic support in Luxembourg
in the case of financial distress.
RATIONALE FOR STABLE OUTLOOK
The stable outlook on UCB's standalone BFSR reflects the stable outlook
on UniCredit's D+ BFSR and UCB's adequate credit profile
in combination with high loss-absorption capacity from earnings
and capital. The stable outlook on UCB's long-term ratings
follows the stable outlook on its D+ BFSR.
WHAT COULD MOVE THE RATINGS UP/DOWN
Upwards pressure on UCB's BFSR -- and in turn for UCL's
BFSR -- could develop as a result of (1) changes in the
bank's earnings profile, with a reduced weight of capital markets-related
activities and larger earnings contributions from more stable and less
volatile businesses; (2) sustained improvements in asset-quality
indicators; (3) the effective ring-fencing of credit risks
and exposures with other UniCredit group entities; and/or (4) an
improvement in UniCredit's BCA at the same time as a strengthening of
UCB's risk profile.
Downwards pressure on UCB's BFSR -- and in turn for UCL's
BFSR -- could be triggered by (1) a weakening in the bank's
financial fundamentals; and (2) an increase of risk appetite in --
and earnings volatility stemming from -- UCB's investment
banking activities. Weaker financial fundamentals, could
arise, for example, as a result of a significant deterioration
of the macro-economic environment beyond Moody's current
expectations, leading to higher credit losses and pressure on margins
and earnings.
In addition, negative pressure on UCB's and UCL's ratings could
also be triggered by a lowering of UniCredit's BCA, depending on
Moody's assessment of intra-group exposures and the degree of operational
interconnectedness between UCB and the group, at that time.
Similarly, UCB's long-term debt and deposit ratings could
be downgraded if Moody's considers that the systemic support available
to the bank has weakened.
LIST OF AFFECTED RATINGS
The following ratings of UCB were downgraded:
- D+ BFSR with stable outlook and mapping to a baa3 BCA from
C-/baa2 negative;
- Long-term senior debt and deposit ratings and issuer rating
to Baa1 with stable outlook from A3, negative;
- Subordinated debt rating to Ba1 with stable outlook from Baa3,
negative;
- Preferred stock ratings, issued by HVB Funding Trust,
HVB Funding Trust II and HVB Funding Trust III, to Ba2(hyb) with
stable outlook from Ba1(hyb), negative.
The following ratings of UCB were affirmed:
- Prime-2 short-term debt and deposit ratings;
The following ratings of UCL were downgraded:
- D+ BFSR with stable outlook and mapping to a baa3 BCA from
C-/baa2, negative;
- Long-term deposit ratings and issuer rating to Baa3 with
stable outlook from Baa2, negative;
- Short-term deposit ratings to Prime-3 from Prime-2.
PRINCIPAL METHODOLOGY
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.
Swen Metzler
Vice President - Senior Analyst
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's downgrades UniCredit Bank AG to Baa1 with stable outlook
