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Rating Action:

Moody's places UniCredit Bank Austria's long-term ratings on review for upgrade

27 Jun 2016

Ratings of card complete Service Bank AG also on review for upgrade

Frankfurt am Main, June 27, 2016 -- Moody's Investors Service has today placed on review for upgrade the ratings of UniCredit Bank Austria AG (UBA), specifically the bank's Baa2 long-term debt and deposit ratings, the Ba2 subordinated debt ratings, various hybrid ratings assigned to UBA's non-cumulative preferred securities issued by finance vehicles, as well as its ba2 Baseline Credit Assessment (BCA) and ba1 adjusted BCA. UBA's Baa1(cr)/Prime-2(cr) Counterparty Risk Assessments were also placed on review for upgrade. The bank's Prime-2 short-term deposit and (P)Prime-2 program ratings were affirmed.

The review for upgrade reflects the expected benefits of the fundamental restructuring of UBA, which entails the carve-out and transfer of its large operations in Central and Eastern European Countries (CEE) to its Italian parent bank, UniCredit SpA (deposits Baa1 stable, debt Baa1 stable, BCA ba1) in early October 2016. The review will consider the change of the Austrian Macro Profile to Strong + from Very Strong --, which is now less supportive for the ratings of banks operating in Austria. However, while the weaker Austrian Macro Profile will offset some of the upward pressure on UBA's ratings, Moody's expects the benefits of the planned restructuring to outweigh this effect. The rating agency may upgrade the BCA by more than one notch whereby any upgrade of the BCA above the ba1 level could trigger upgrades of the bank's debt and deposit ratings.

For a detailed analysis of Austria's Macro Profile please click on the following link: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1032780

Prompted by the review on UBA's ratings, Moody's has also initiated a review for upgrade of the Baa3 and Prime-3 long- and short-term deposit ratings of card complete Service Bank AG (card complete), an Austrian credit card issuer which is majority-owned by UBA. Card complete's ba2 BCA and adjusted BCA were also placed on review for upgrade.

Concurrently, Moody's has placed on review for upgrade UBA's A3 ratings for guaranteed senior obligations and its Baa3 guaranteed subordinated debt obligations, which benefit from the creditworthiness of the guarantor, the City of Vienna. Moody's positions the ratings for "backed" senior unsecured debt at a level two notches above that of UBA's non-guaranteed debt in order to reflect uncertainty about the value of such guarantees to bondholders.

Please refer to the end of this press release for a list of all affected ratings.

RATINGS RATIONALE

-- BENEFITS OF UBA's RESTRUCTURING ON ITS CREDIT PROFILE

The review for upgrade of UBA's ba2 BCA reflects the prospect of a material improvement to the bank's risk profile, in particular better asset quality and lower risks to capital after the transfer of its CEE operations to its Italian parent bank. In recent years, the CEE business has, on several occasions, required additional capital, which UBA struggled to provide by purely drawing on its own resources. The required capital was therefore partly provided by the Italian parent, UniCredit SpA. Apart from the substantial credit risk associated with UBA's CEE business, capital pressures were sometimes triggered by market risk and/or political intervention in some of the CEE countries in which UBA operates. At the end of 2015, UBA's CEE segment represented 50% of the bank's loans, and 73% of its risk-weighted assets.

In the context of the CEE related risks, Moody's said that UBA's future business scope will be in a much more stable operating environment. Today, UBA's operating environment is, and therefore its ratings are, heavily influenced by the Macro Profiles of several Eastern European markets, in particular Russia (Ba1 negative), Turkey (Baa3 negative), the Czech Republic (A1 stable) and Croatia (Ba2 negative). Due to the transfer of the CEE operations in October 2016, the bank's Strong- Weighted Macro Profile score will likely improve to Strong or even Strong+, as the bulk of its non-CEE assets are domiciled in Austria. That said, Moody's expects that intragroup funding to CEE entities will only decline over time as current funding arrangements fall due.

FACTORS TO BE CONSIDERED IN THE RATING REVIEW

-- UNICREDIT BANK AUSTRIA'S RATINGS

Moody's review for upgrade will focus on: (1) the regional breakdown of UBA's future lending exposures, and the resulting Macro Profile score for its business; (2) changes in UBA's key metrics for solvency, as well as funding and liquidity; and (3) possible changes of UBA's future liability profile which could prompt a reassessment of the result of Moody's Advanced Loss Given Failure (LGF) analysis. Moody's Advanced LGF analysis takes into account the severity of loss faced by the different liability classes in resolution, and provides two notches of rating uplift to UBA's senior unsecured debt and deposit ratings.

Moody's has said that for a comprehensive picture of UBA's future credit profile, considerable additional information will be necessary. As no target capital ratios have been reported for UBA so far, Moody's will focus on the bank's plans for its future regulatory common equity and leverage ratios. However, Moody's expects some improvement in UBA's transitional Common Equity Tier 1 ratio of 11.2% at 31 March 2016.

As a result of the review, Moody's assessment of the capacity and willingness of UniCredit SpA to support its Austrian subsidiary will likely be less significant for UBA's debt and deposits ratings. A one-notch upgrade of the ba2 BCA to ba1 would result in the removal of the current single notch of affiliate support uplift factored into UBA's debt and deposit ratings, thereby aligning UBA's BCA with the ba1 BCA of its parent. In this context, Moody's notes that the rating review will additionally focus on the extent to which UBA may restrict its intragroup lending exposures, in particular its lending to UniCredit SpA. This is because the latter will be an important factor in the rating agency's assessment of the extent to which UBA's future BCA can exceed the ba1 BCA of its parent bank.

-- CARD COMPLETE'S RATINGS

The review for upgrade for the long- and short-term deposit ratings of card complete was prompted by the review for upgrade of UBA's Baa2 long-term debt and deposit ratings, which serve as an anchor point for card complete's deposit ratings.

An upgrade of UBA's ba2 BCA would prompt an upgrade of card complete's ratings because: (1) card complete displays a sound financial profile which, without any restrictions, would allow for a higher BCA; and (2) a higher BCA of UBA could imply that the ratings of the credit card complete will be less restricted or no longer restricted by the ratings of UBA.

WHAT COULD MOVE THE RATINGS UP/DOWN

-- UNICREDIT BANK AUSTRIA

As indicated by the status of the current review, Moody's does not expect any downward pressure on UBA's long-term ratings.

Upward rating pressure on UBA's long-term ratings will be subject to a successful execution of the planned carve-out and transfer of its CEE operations to UniCredit SpA. A successful execution will likely prompt an upgrade of UBA's ba2 BCA. In addition UBA's management of intra-group exposures within prudent limits relative to its capital, and/or an improvement in UniCredit SpA's credit profile could exert upward pressure on UBA's BCA above the ba1 level, and therefore on its debt and deposit ratings.

In addition, materially higher subordinated capital instruments relative to the bank's total assets could result in one additional notch of rating uplift from Moody's Advanced LGF analysis. Conversely, a change in UBA's liability structure that results in a lower volume of subordinated and/or senior debt instruments and junior deposits could reduce the rating uplift from Moody's Advanced LGF analysis, and therefore offset some of the positive rating pressure expected from the planned restructuring.

-- CARD COMPLETE

Upward pressure on the bank's deposit ratings could be triggered by an upgrade of UBA's ba2 BCA because such an upgrade would lower or remove the key restricting factor for card complete's BCA and deposit ratings. A higher BCA would prompt an upgrade of its deposit ratings.

In addition, the same factors that drive the result of the Advanced LGF analysis for deposits at UBA also drive card complete's deposit ratings, because Moody's believes that both banks would share a common perimeter and treatment in resolution. A change in Moody's expectation of the loss-given-failure for deposits at UBA would therefore equally affect card complete's deposit ratings.

Downward pressure could be exerted on card complete's deposit ratings as a result of: (1) a downgrade of its BCA which, however, is not currently under pressure; or a weakening of UBA's credit profile which is also not expected.

LIST OF AFFECTED RATINGS

On Review for Upgrade:

ISSUER: UniCredit Bank Austria AG:

....Adjusted Baseline Credit Assessment, currently ba1

....Baseline Credit Assessment, currently ba2

....Long Term Counterparty Risk Assessment, currently Baa1(cr)

....Short Term Counterparty Risk Assessment, currently P-2(cr)

....Long Term Bank Deposit Ratings, currently Baa2, outlook changed to Rating Under Review from Stable

....Senior Unsecured Rating, currently Baa2, outlook changed to Rating Under Review from Stable

....Senior Unsecured MTN Rating, currently (P)Baa2

....Subordinate Rating, currently Ba2

....Subordinate MTN Rating, currently (P)Ba2

....Backed Senior Unsecured Ratings, currently A3, outlook changed to Rating Under Review from Stable

....Backed Senior Unsecured MTN Rating, currently (P)A3

....Backed Subordinate Rating, currently Baa3

....Backed Subordinate MTN Rating, currently (P)Baa3

ISSUER: Creditanstalt AG:

.Backed Subordinate Rating, currently Baa3

ISSUER: BA-CA Finance (Cayman Island) Ltd:

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

ISSUER: BA-CA Finance (Cayman Island) 2 Ltd:

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

ISSUER: card complete Service Bank AG:

....Adjusted Baseline Credit Assessment, currently ba2

....Baseline Credit Assessment, currently ba2

....Long Term Counterparty Risk Assessment, currently Baa2(cr)

....Short Term Counterparty Risk Assessment, currently P-2(cr)

....Long Term Bank Deposit Ratings, currently Baa3, outlook changed to Rating Under Review from Stable

....Short Term Bank Deposit Ratings, currently P-3

Affirmations:

ISSUER: UniCredit Bank Austria AG:

....Short Term Bank Deposit Ratings, currently P-2

Short Term Deposit Note / CP Program, currently P-2

Other Short Term Ratings, currently (P)P-2

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in January 2016. Please see the Ratings 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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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
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 places UniCredit Bank Austria's long-term ratings on review for upgrade
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