UniCredit Luxembourg's deposits upgraded to A2, issuer rating affirmed at Baa2
Frankfurt am Main, May 31, 2017 -- Moody's Investors Service has today downgraded the long-term senior
unsecured debt and issuer ratings of UniCredit Bank AG (UCB) to Baa2 from
Baa1, and affirmed the A2 deposit and senior senior unsecured debt
ratings as well as the P-1 short-term ratings. Moody's
also affirmed the bank's baa2 Baseline Credit Assessment (BCA),
the baa2 adjusted BCA and the A1(cr)/P-1(cr) Counterparty Risk
Assessments (CR Assessment).
Concurrently, Moody's upgraded the long- and short-term
deposit ratings of UniCredit Luxembourg S.A. (UCL) to A2/P-1
from A3/P-2 and its long-term CR Assessment to A1(cr) from
A2(cr). UCL's Baa2 issuer rating and the P-1(cr) short-term
CRA were affirmed along with the bank's baa2 BCA and the baa2 adjusted
BCA.
UCB's and its subsidiaries' subordinated debt and hybrid debt ratings
were also affirmed in today's ratings action, including instruments
issued by HVB Funding Trust, HVB Funding Trust II and HVB Funding
Trust III.
The outlooks on the two banks' long-term deposit and issuer
ratings, and the outlooks on UCB's long-term senior
unsecured debt and the senior senior unsecured debt ratings remain stable.
The one-notch downgrade of UCB's senior unsecured debt rating
to Baa2 was prompted by a lower result from Moody's Loss Given Failure
(LGF) analysis which takes into account the severity of loss in resolution
for different liability classes. Moody's assessment of UCB's
fundamentals remained unchanged, as illustrated by the affirmation
of the baa2 BCA. The rating actions on UCL's ratings align
its ratings with those of parent UCB because Moody's considers the
credit risk of UCL indistinguishable from UCB based on existing close
integration and expectation of further strengthening ties between parent
and subsidiary.
For a detailed list of ratings affected, please refer to the end
of this Press Release.
RATINGS RATIONALE
-- UNICREDIT BANK AG
DOWNGRADE OF SENIOR DEBT REFLECTS INCREASE IN LOSS SEVERITY EXPECTATION
The one-notch downgrade of UCB's senior unsecured debt and
issuer ratings to Baa2 was prompted by a change in the result of Moody's
LGF analysis which takes into account the severity of loss in resolution
for different liability classes. Based on data as of year-end
2016, the LGF analysis for UCB reflects a reduced portion of non-structured
senior unsecured bonds outstanding. Moody's LGF analysis
now indicates a high loss-given-failure for senior unsecured
debt, while the previous LGF analysis resulted in a moderate loss-given-failure.
Unchanged loss-given-failure for UCB's other liability
classes led Moody's to affirm the ratings of its deposits,
senior senior unsecured debt, subordinated debt and various trust
preferred securities.
Moody's classifies only unstructured (or very mildly structured)
bonds as senior unsecured debt, in line with the definition of Article
46f(6) of the German Banking Act (Kreditwesengesetz). Structured
notes, in contrast, fall within the classification of senior
senior unsecured debt and enjoy pari-passu status with junior deposits.
UCB's deposit ratings, senior debt and senior senior unsecured
debt ratings continue to include one notch of government support,
reflecting Moody's assumptions of a high probability of systemic support
being available from Germany (Aaa stable).
AFFIRMATION OF UCB'S baa2 BCA REFLECTS STRONG CAPITALISATION AND
STABLE PERFORMANCE
The affirmation of UCB's BCA at baa2 reflects Moody's assessment
that UCB's solvency remains solid, even after a EUR3 billion
special dividend transferred to its parent company earlier in 2017.
The bank's strong capitalisation is illustrated by the reported
20.4% Common Equity Tier 1 ratio as of year-end 2016
which excludes the EUR3 billion dividend. The BCA is also underpinned
by gradually improving asset quality. Based on Moody's calculations,
the bank's non-performing loan ratio as of year-end
2016 was 3.8%, after 4.7% one year earlier.
At the same time, Moody's assesses the bank's significant
market funding reliance to somewhat constrain the BCA as this is only
partly mitigated by available liquidity resources.
RATIONALE FOR STABLE OUTLOOK
The stable outlook on UCB's long-term debt and deposit ratings
reflects a combination of the stable outlook on the long-term ratings
of its Italian parent bank UniCredit S.p.A. (deposits
Baa1 stable, senior debt Baa1 stable, bca ba1) and Moody's
view that UCB will show a stable performance of key solvency and funding
metrics during 2017-18.
-- UNICREDIT LUXEMBOURG (UCL)
RATING ACTIONS REFLECT MOODY'S DECISION TO FULLY ALIGN UCL'S
RATINGS WITH THOSE OF THE PARENT
The one-notch upgrade of UCL's deposit rating and the affirmation
of its issuer rating effectively align the ratings for the Luxembourg-based
subsidiary with those of the German parent. The alignment reflects
Moody's expectation that UCL is subject to closer integration in
the operations of UCB, in line with ongoing group-wide efforts
to streamline operations.
The aligned ratings are based on the same rating architecture as applicable
for UCB's ratings. Accordingly, Moody's continues
to 1) align UCL's BCA (and adjusted BCA) with the baa2 BCA of UCB;
and 2) include into UCL's ratings the same LGF analysis result,
which it performs at the German group level. In addition,
Moody's now also includes one rating notch for systemic support,
mirroring the support factored into the senior debt and deposit ratings
of the German parent bank.
The LGF result adds two notches to UCL's deposit rating and three
notches to its counterparty risk assessment, and deducts one notch
for its issuer rating from the bank's baa2 adjusted BCA.
Moody's decisions on whether government support for a parent bank
is also available to a cross-border subsidiary considers the degree
of integration of the subsidiary into group operations as well as the
level of group funding available to a subsidiary.
RATIONALE FOR STABLE OUTLOOK
The stable outlook on UCL's long-term deposit and issuer
ratings reflects the stable outlook on UCB's long-term ratings.
WHAT COULD MOVE THE RATINGS UP
An upgrade of the banks' long-term ratings could be prompted
by a higher BCA and/or an increase in uplift resulting from Moody's
LGF analysis.
Upward pressure on the banks' baa2 BCAs remains subject to an improvement
of UniCredit S.p.A.'s ba1 BCA. If UCB's BCA
was not constrained (or was less constrained) by the BCA of its parent
bank, upward pressure on UCB's BCA could be exerted by (1) changes
in the bank's earnings profile, that is, with larger earnings
contributions from less volatile businesses; and (2) sustained improvements
in asset-risk indicators.
WHAT COULD MOVE THE RATINGS DOWN
A downgrade of the banks' long-term ratings could be triggered
by (1) a downgrade of the BCAs; (2) a reduction in rating uplift
as a result of Moody's LGF analysis; and/or (3) a reduction
in Moody's government support assumptions.
The BCAs could be downgraded (1) if the group's financial fundamentals
deteriorate materially, although there is some leeway at the baa2
BCA level; (2) as a result of a downgrade of UniCredit S.p.A.'s
ba1 BCA; or (3) if any new regulation seeks to weaken or even disallow
the ring-fencing of systemically relevant cross-border subsidiaries
in the EU.
LIST OF AFFECTED RATINGS
Issuer: UniCredit Bank AG
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Bank Deposits,
affirmed A2 Stable
....Senior Senior Unsecured Regular Bond/Debenture,
affirmed A2 Stable
....Senior Senior Unsecured Medium-Term
Note Program, affirmed (P)A2
....Subordinate Regular Bond/Debenture,
affirmed Baa3
....Subordinate Medium-Term Note Program,
affirmed (P)Baa3
....Short-term Bank Deposits,
affirmed P-1
....Short-term Deposit Note/CD Program,
affirmed P-1
....Other Short Term, affirmed (P)P-1
....Adjusted Baseline Credit Assessment,
affirmed baa2
....Baseline Credit Assessment, affirmed
baa2
..Downgrades:
....Long-term Issuer Rating,
downgraded to Baa2 Stable from Baa1 Stable
....Senior Unsecured Regular Bond/Debenture,
downgraded to Baa2 Stable from Baa1 Stable
....Senior Unsecured Medium-Term Note
Program, downgraded to (P)Baa2 from (P)Baa1
..Outlook Action:
....Outlook remains Stable
Issuer: UniCredit Bank AG, London Branch
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Bank Deposits,
affirmed A2 Stable
....Short-term Bank Deposits,
affirmed P-1
..Downgrade:
....Long-term Issuer Rating,
downgraded to Baa2 Stable from Baa1 Stable
..Outlook Action:
....Outlook remains Stable
Issuer: HVB Funding Trust
..Affirmation:
....Preferred Stock Non-cumulative,
affirmed Ba1(hyb)
Issuer: HVB Funding Trust II
..Affirmation:
....Preferred Stock Non-cumulative,
affirmed Ba1(hyb)
Issuer: HVB Funding Trust III
..Affirmation:
....Preferred Stock Non-cumulative,
affirmed Ba1(hyb)
Issuer: UniCredit Bank AG, New York Branch
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Bank Deposits,
affirmed A2 Stable
....Short-term Bank Deposits,
affirmed P-1
..Downgrade:
....Long-term Issuer Rating,
downgraded to Baa2 Stable from Baa1 Stable
..Outlook Action:
....Outlook remains Stable
Issuer: UniCredit Bank AG, Paris Branch
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Deposit Rating,
affirmed A2 Stable
....Short-term Deposit Rating,
affirmed P-1
..Outlook Action:
....Outlook remains Stable
Issuer: UniCredit Luxembourg S.A.
..Upgrades:
....Long-term Counterparty Risk Assessment,
upgraded to A1(cr) from A2(cr)
....Long-term Bank Deposits,
upgraded to A2 Stable from A3 Stable
....Short-term Bank Deposits,
upgraded to P-1 from P-2
..Affirmations:
....Baseline Credit Assessment, affirmed
baa2
....Adjusted Baseline Credit Assessment,
affirmed baa2
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Issuer Rating,
affirmed Baa2 Stable
..Outlook Action:
....Outlook remains Stable
Issuer: UniCredit U.S. Finance Inc.
..Affirmation:
....Backed Commercial Paper, affirmed
P-1
Issuer: Unicredit Bank AG, Hong Kong Branch
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Subordinate Medium-Term Note Program,
affirmed (P)Baa3
....Other Short Term, affirmed (P)P-1
..Downgrade:
....Senior Unsecured Medium-Term Note
Program, downgraded to (P)Baa2 from (P)Baa1
..Outlook Action:
....Outlook remains Stable
Issuer: Unicredit Bank AG, Singapore Branch
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Subordinate Medium-Term Note Program,
affirmed (P)Baa3
....Other Short Term, affirmed (P)P-1
..Downgrade:
....Senior Unsecured Medium-Term Note
Program, downgraded to (P)Baa2 from (P)Baa1
..Outlook Action:
....Outlook remains Stable
Issuer: Unicredit Bank AG, Tokyo Branch
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A1(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Other Short Term, affirmed (P)P-1
....Subordinate Medium-Term Note Program,
affirmed (P)Baa3
....Commercial Paper, affirmed P-1
..Downgrade:
....Senior Unsecured Medium-Term Note
Program, downgraded to (P)Baa2 from (P)Baa1
..Outlook Action:
....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.
Katharina Barten
Senior Vice President
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
