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Rating Action:

Moody's upgrades UniCredit Bank Austria's long-term ratings to Baa1 stable

08 Nov 2016

Ratings of card complete Service Bank AG upgraded to Baa1

Frankfurt am Main, November 08, 2016 -- Moody's Investors Service has today upgraded the ratings of UniCredit Bank Austria AG (UBA), specifically the bank's long-term debt and deposit ratings to Baa1 from Baa2, the subordinated debt ratings to Ba1 from Ba2, and the hybrid ratings assigned to UBA's non-cumulative trust preferred securities to Ba3(hyb) from B1(hyb). Moody's also upgraded the bank's Baseline Credit Assessment (BCA) to baa3 from ba2 and its Adjusted BCA to baa3 from ba1. UBA's long-term Counterparty Risk Assessment was upgraded to A3(cr) from Baa1(cr) and the short-term Counterparty Risk Assessment confirmed at Prime-2(cr). The bank's Prime-2 short-term deposit and (P)Prime-2 program ratings were affirmed. The outlook on the banks' long-term debt and deposit ratings is now stable.

The rating upgrades reflect the material benefits of the fundamental restructuring of UBA, which entailed the carve-out and transfer on 1 October 2016 of its operations in Central and Eastern European Countries (CEE) to its Italian parent bank, UniCredit SpA (deposits Baa1 stable, debt Baa1 stable, BCA ba1). The higher ratings take into account the positive effects of the CEE business carve-out on UBA's asset risk, regulatory capital ratios and funding profile, in particular against the change of UBA's Macro Profile to Strong + from Moderate +. The latter reflects the bank's mostly Austria-based asset profile and is considerably more supportive for UBA's BCA. Moody's said that these benefits outweigh the adverse effects of the bank's weakened return prospects and the limited predictability of its future profits.

Prompted by the upgrade of UBA's BCA, Moody's has also upgraded to Baa1 from Baa3 and to Prime-2 from Prime-3 the 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 BCA was upgraded to ba1 from ba2, and its Adjusted BCA to baa3 from ba2. The Adjusted BCA now includes one notch of rating uplift for affiliate support from its Austrian parent. The outlook on the banks' long-term deposit rating is now stable.

Concurrently, Moody's has upgraded UBA's ratings for guaranteed senior obligations to A2 from A3, and for guaranteed subordinated debt obligations to Baa2 from Baa3, which benefit from the creditworthiness of the guarantor, the City of Vienna (Aa1 stable). 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.

This rating action concludes the review for upgrade on UBA's and card complete's ratings and various rating input factors initiated on 27 June 2016.

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 upgrade to Baa1 of UBA's long-term debt and deposit ratings reflects the BCA upgrade by two notches to baa3, which was partly offset by the removal of one notch of affiliate support uplift. The Baa1 ratings now include 1) the baa3 BCA; 2) Moody's unchanged assumptions of a very high probability of support available from its Italian parent bank which, however, no longer translates into rating uplift, because UBA's BCA is already higher than that of UniCredit SpA; and 3) unchanged two notches of rating uplift from Moody's Advance Loss Given Failure (LGF) analysis reflecting a very low loss-given failure for senior creditors. Moody's Advanced LGF analysis takes into account the severity of loss faced by the different liability classes in resolution.

The two-notch upgrade of UBA's BCA to baa3 reflects the material improvement to the bank's risk profile, in particular better asset quality and lower risks to capital, following the transfer of its CEE operations to UniCredit SpA. Moody's said that UBA will henceforth report considerably lower non-performing loan (NPL) ratios, based on the 4.7% it reported for its domestic lending business as of June 2016, which compares with a 7.8% NPL ratio for the group including the CEE business. Moody's further expects UBA to achieve a Common Equity Tier 1 (CET1) ratio of ca. 14.0% at the end of 2016, which benefits from a capital injection from UniCredit SpA that was part of the agreement concerning the CEE carve-out. The ratio compares with a 11.7% CET1 ratio reported as of June 2016. In addition, the transfer of the CEE business has resulted in reduced market risk that was linked to its stakes in and cross-border lending to subsidiaries in non-euro countries as well as related political intervention risk.

Moody's expects further benefits for UBA's credit profile from the ongoing overhaul and streamlining of its domestic operations, in particular from a reduction in its branch network and related staff costs, which could show in UBA's financials starting from 2017. However, the rating agency pointed out that UBA faces risks that such efforts will be counteracted by the increasingly challenging operating environment in Austria, which remains a rating constraint. Respective pressures are a result of the persistently low interest environment which continues to erode net interest margins, and the fact that several domestic competitors have already undergone material streamlining exercises, thereby improving their respective competitive positions at the expense of UBA and other, less proactive players.

Notwithstanding these headwinds, Moody's said that UBA's reduced business scope is now positioned in a more stable operating environment which is no longer influenced by the weak Macro Profiles of several higher-risk Eastern European markets. Following the transfer of the CEE operations on 1 October 2016, the bank's Weighted Macro Profile score has improved to Strong+, in line with the Macro Profile for Austria. Moody's notes that remaining intragroup funding to CEE entities will gradually decline over time as current funding arrangements fall due.

Moody's notes that the baa3 BCA is partly based on certain assumptions that imply a level of downside risk for the BCA. These assumptions include that the continued restructuring efforts at the Italian UniCredit group will not have any detrimental impact on UBA, and that UBA will duly restrict its intragroup lending exposures, in particular its lending to UniCredit SpA. The latter is an important factor in the rating agency's assessment of the extent to which UBA's BCA can exceed the ba1 BCA of its parent bank.

-- CARD COMPLETE'S RATINGS UPGRADE REFLECTS UBA'S RELATIVE STRENGTH AND SUPPORT

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

The upgrade of UBA's BCA to baa3 prompted the upgrade of card complete's ratings because 1) it effectively lifted the earlier constraint at ba2, i.e., UBA's BCA level, for card complete's own BCA; with this constraint now removed, Moody's said card complete's satisfactory financial profile warrants a higher BCA at ba1; and 2) the improved financial strength of the parent bank triggered rating uplift for affiliate support, raising card complete's Adjusted BCA to baa3, from its ba1 BCA. The latter is based on Moody's assumption of a "high" probability that UBA would support its subsidiary if required.

RATING OUTLOOKS ARE STABLE FOR BOTH BANKS' LONG TERM RATINGS

The outlook on UBA's Baa1 long-term debt and deposit ratings is stable, reflecting Moody's expectation that the Austrian group will maintain its improved capital levels, successfully execute the restructuring of its domestic franchise, and that these efforts will gradually lead to improved earnings and therefore loss absorption capacity.

The outlook on card complete's Baa1 long-term deposit rating is also stable, mirroring the stable outlook on UBA's long-term ratings and additionally reflecting Moody's expectations of continuity of 1) the bank's relatively stable operating performance; 2) its ownership structure; and 3) its integration into UBA group, in particular in UBA's treasury and funding activities.

WHAT COULD MOVE THE RATINGS UP/DOWN

-- UNICREDIT BANK AUSTRIA

Upward rating pressure on UBA's long-term ratings could be triggered by a higher BCA, and/or a material improvement in UniCredit SpA's credit profile, which could lead Moody's to include affiliate support in UBA's ratings. Conversely, a lower BCA and /or a weakening in UniCredit SpA's credit profile could exert downward pressure on UBA's rating.

An upgrade of UBA's BCA would be subject to 1) a successful execution of the initiated restructuring; 2) a sustainable improvement in its profitability without compromising its asset risk profile; 3) higher capitalisation; and 4) the management of intra-group exposures within prudent limits relative to its capital. UBA's failure to improve its operational performance and retain profits could lead to a BCA downgrade, especially if this were accompanied by weakening asset quality and/or capital levels.

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.

-- CARD COMPLETE

Upward pressure on card complete's deposit ratings could principally be triggered by a 1) BCA upgrade by more than one notch (as a single notch upgrade would prompt Moody's to remove the current one notch of affiliate support uplift and therefore be rating neutral), and/or 2) an upgrade of UBA's baa3 BCA which could prompt Moody's to factor higher affiliate support into card complete's deposit ratings. Conversely, a lower BCA and/or a downgrade of UBA's BCA (and the resulting removal of affiliate support) would prompt a downgrade of its deposit ratings.

A further upgrade of card complete's BCA is unlikely, given its highly-specialised business profile and its dependence on group funding.

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.

LIST OF AFFECTED RATINGS

ISSUER: UniCredit Bank Austria AG:

....Baseline Credit Assessment, upgraded to baa3 from ba2

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

....Long Term Counterparty Risk Assessment, upgraded to A3(cr) from Baa1(cr)

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

....Long Term Bank Deposit Ratings, upgraded to Baa1 from Baa2, outlook stable (previously Rating Under Review)

....Short Term Bank Deposit Ratings, affirmed at P-2

....Senior Unsecured Debt Rating, upgraded to Baa1 from Baa2, outlook stable (previously Rating Under Review)

....Senior Unsecured MTN Rating, upgraded to (P)Baa1 from (P)Baa2

.Short Term Deposit Note / CD Program, affirmed at P-2

.Other Short Term Rating, affirmed at (P)P-2

....Subordinated Debt Rating, upgraded to Ba1 from Ba2

....Subordinate MTN Rating, upgraded to (P)Ba1 from (P)Ba2

....Backed Senior Unsecured Rating, upgraded to A2 from A3, outlook stable (previously Rating Under Review)

....Backed Senior Unsecured MTN Rating, upgraded to (P)A2 from (P)A3

....Backed Subordinate Rating, upgraded to Baa2 from Baa3

....Backed Subordinate MTN Rating, upgraded to (P)Baa2 from (P)Baa3

ISSUER: Creditanstalt AG:

.Backed Subordinate Rating, upgraded to Baa2 from Baa3

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

.Backed Pref. Stock Non-cumulative Rating, upgraded to Ba3(hyb) from B1(hyb)

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

.Backed Pref. Stock Non-cumulative Rating, upgraded to Ba3(hyb) from B1(hyb)

ISSUER: card complete Service Bank AG:

....Baseline Credit Assessment, upgraded to ba1 from ba2

....Adjusted Baseline Credit Assessment, upgraded to baa3 from ba2

....Long Term Counterparty Risk Assessment, upgraded to A3(cr) from Baa2(cr)

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

....Long Term Bank Deposit Ratings, upgraded to Baa1 from Baa3, outlook stable (previously Rating Under Review)

....Short Term Bank Deposit Ratings, upgraded to P-2 from P-3

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.

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

No Related Data.
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