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Rating Action:

Moody's reviews UniCredit Bank Austria's ratings for downgrade

23 Dec 2014

Review affects the Baa2/P-2 debt and deposit ratings and standalone D+ bank financial strength rating

Frankfurt am Main, December 23, 2014 -- Moody's Investors Service has today placed on review for downgrade the ratings of UniCredit Bank Austria AG (UBA), specifically the bank's Baa2 and Prime-2 long- and short-term debt and deposit ratings, the Ba2 subordinated debt ratings, the B1(hyb) ratings assigned to UBA's non-cumulative preferred securities issued by BA-CA Finance (Cayman Island) Ltd and BA-CA Finance (Cayman Island) 2 Ltd, and its D+ standalone Bank Financial Strength Rating (BFSR) which is equivalent to a ba1 Baseline Credit Assessment (BCA).

The review was prompted by the materially increased risks to earnings and capitalisation for UBA's Russian subsidiary, ZAO UniCredit Bank AG (unrated), which is an important contributor to UBA's profits. The subsidiary faces a potentially significant deterioration of operating conditions following the sharp depreciation of the rouble and a substantial key interest rate increase to 17.0% (from 10.5%) by the Central Bank of Russia (CBR) on 16 December 2014.

Concurrently, Moody's placed on review for downgrade UBA's Baa1 ratings for guaranteed senior obligations and its Ba2 guaranteed subordinated debt obligations which benefit from the creditworthiness of the guarantor, the City of Vienna (Aaa stable). Moody's positions the ratings for "backed" senior unsecured debt at a level one notch above that of UBA's non-guaranteed debt in order to reflect uncertainty about the value of such guarantees to bondholders.

Prompted by the review on UBA's ratings, Moody's also initiated a review for downgrade 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 standalone D BFSR which is equivalent to a ba2 BCA, remains unaffected by today's rating action.

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

RATINGS RATIONALE

-- UBA's STANDALONE CREDIT PROFILE

The review for downgrade of UBA's standalone D+ BFRS was triggered by the materially increased risks to earnings and capitalisation for its Russian subsidiary which represents a substantial portion of UBA's revenues, earnings and capital. Moody's expects that the rise in risks may be substantial, considering (1) the expected pressure on capital ratios from currency devaluation, given that the Russian subsidiary's rouble-denominated capital backs an asset base which includes a material portion denominated in US dollars and other foreign currencies; (2) the rise in system-wide funding costs and deteriorating local funding conditions; and (3) the prospect of a substantial rise in credit risk in the bank's (mostly corporate) lending activities.

The key drivers for rising credit risk include materially higher borrowing costs for Russian corporate and retail customers; and lower GDP growth as result of lower oil prices. The weak market conditions will also constrain UBA's ability to find prudent lending opportunities and might pressure its interest margins, because of rising funding costs.

-- UBA'S LONG- AND SHORT-TERM RATINGS

The review for downgrade of UBA's senior debt and deposit ratings as well as the ratings of its subordinated and hybrid instruments follows the review of the bank's standalone credit profile. A lowering by one-notch of the ba1 BCA would likely prompt a one-notch downgrade of the bank's various long-term ratings.

FACTORS TO BE CONSIDERED IN THE RATING REVIEW

-- UNICREDIT BANK AUSTRIA'S RATINGS

Notwithstanding the benign asset quality metrics and strong profitability displayed by UBA's Russian subsidiary during recent years and quarters, Moody's believes that the adverse impact of challenging market conditions in Russia may be considerable. The review for downgrade will particularly focus on (1) the combined adverse impact of rouble depreciation against the US dollar and potential asset quality deterioration on UBA's asset quality metrics and capital ratios; and (2) the negative impact on UBA's earnings and capital generation capacity both from elevated credit losses and from market risk.

During the review, the rating agency will also assess the capacity of UBA's parent -- Italy's UniCredit SpA (deposits Baa2 negative, BFSR D+ stable/BCA ba1) to provide financial assistance in case of need. Moody's highlights the parent bank's proven willingness to support UBA, as recently illustrated by the Italian bank's subscribing to a considerable amount of subordinated (Tier 2) debt which UBA issued during 2014.

-- CARD COMPLETE'S RATINGS

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

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 upward pressure on UBA's long-term ratings; however, any upward rating pressure would be subject to (1) an upgrade of UBA's BFSR following a significant and sustained reduction in the stock of non-performing loans, and a further strengthening of its capital buffers; or (2) an improvement in UniCredit SpA's credit profile which would result in parental support assumptions being re-instated. However, the latter is unlikely given the stable outlook on UniCredit SpA's standalone BFSR.

Negative rating pressure could be exerted on UBA's long-term ratings because of (1) a weakening of its BCA; and/or (2) adverse changes in Moody's systemic support assumptions.

-- CARD COMPLETE

Upward pressure on the bank's deposit ratings would need to be triggered by (1) a significant multi-notch upgrade in card complete's BFSR; or (2) an upgrade in UBA's long-term ratings, which is unlikely as indicated by the review for downgrade.

Downward pressure could be exerted on card complete's deposit ratings as a result of (1) a downgrade of its BFSR which, however, is not currently under pressure; or (2) a weakening of UBA's credit profile.

LIST OF AFFECTED RATINGS

The following ratings of UniCredit Bank Austria AG were placed on review:

- The Baa2 long-term senior debt and deposit ratings

- The Prime-2 short-term debt and deposit ratings

- The Baa1 ratings for guaranteed senior obligations which benefit from the creditworthiness of the guarantor, the City of Vienna (Aaa stable)

- The Ba2 subordinated debt rating;

- The Ba2 ratings for guaranteed subordinated debt obligations which benefit from the creditworthiness of the guarantor, the City of Vienna (Aaa stable)

- The Ba2 rating for assumed subordinated instruments originally issued by Creditanstalt AG (an entity merged in 2002)

- The B1(hyb) ratings for UBA's non-cumulative preferred securities, issued by BA-CA Finance (Cayman Island) Ltd and BA-CA Finance (Cayman Island) 2 Ltd

- The standalone D+ BFSR equivalent to a ba1 BCA;

The following ratings of card complete Service Bank AG were placed on review:

- The Baa3 long-term deposit ratings

- The Prime-3 short-term deposit ratings

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Banks published in July 2014. 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.

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
VP - Senior Credit Officer
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 reviews UniCredit Bank Austria's ratings for downgrade
No Related Data.
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