TEXT-Fitch affirms Unicredit Bank AG at 'A+'
(The following statement was released by the rating agency)
Oct 9 - Fitch Ratings has affirmed UniCredit Bank AG's (HVB) Long-term Issuer Default Rating (IDR) at 'A+' with Stable Outlook, Short-term IDR at 'F1+', Support Rating Floor at 'A+', Support Rating at '1' and Viability Rating (VR) at 'a-'. A full list of rating actions is at the end of this rating action commentary.
RATING DRIVERS AND SENSITIVITIES - IDRs, SUPPORT RATING AND SUPPORT RATING FLOOR HVB's Long-term IDR is at its Support Rating Floor and could be downgraded if Fitch concluded that government support in Germany was being diluted through a combination of regulatory, legal and political changes. The Support Rating reflects Fitch's view of an extremely high likelihood of support by the Federal Republic of Germany if needed. However, given its ownership structure, Fitch believes HVB would first look to its 100% owner, UniCredit S.p.A.
'A-'/Negative/'F2') for support, if needed.
RATING DRIVERS AND SENSITIVITIES - VR HVB's VR reflects the bank's standalone credit strength, which benefits from its well-established domestic corporate and investment banking (CIB) franchise and strong capitalisation (Fitch core capital ratio at end-H112: 17.3%), which compensates for the intrinsic earnings volatility of these activities. HVB's solid capitalisation is the key rating strength and Fitch expects the bank's capital position to remain strong under forthcoming regulatory changes and the forecast business development. Therefore, HVB's VR is highly sensitive to any weakening in core capital ratios.
While the loan/deposit ratio has been trending downwards (end-H112: 129%), it still shows some reliance on wholesale funding. However, sources seem well diversified by type and geography. HVB prudently manages its liquidity and has substantial counterbalancing capacity, based on its pool of central bank eligible and unencumbered assets.
HVB's intragroup exposure to other parts of the UC group has decreased substantially since the beginning of 2012. Excluding business-driven exposure, which arises from HVB's role as the group's hub for CIB business, HVB's true upstream funding, which describes the intragroup placement of HVB's excess liquidity, stood at EUR4.7bn at end-H112.
However, despite reducing intragroup exposure, being part of UniCredit group might pose potential contagion risk for HVB's funding franchise from negative developments in the European sovereign crisis, which cannot be fully excluded.
HVB's credit profile is also characterised by income volatility due to the bank's CIB focus, and moderate levels of sustainable operating profitability. However, Fitch expects income volatility to reduce, as the bank increases its focus on customer-driven business and continues to reduce riskier exposures such as private equity and constrain businesses like leveraged finance and ship lending.
HVB's CIB business continues to drive financial performance, with profit contribution from retail and private banking remaining small. Fitch acknowledges that retail banking operations provide HVB with access to more stable retail deposits. However, a commercial benefit cannot be easily quantified.
Reflecting the German focus of its exposures, HVB's asset quality continued to benefit from the resilient German economy. Fitch expects this stable trend to continue in the coming quarters, but given the fragile economic situation, this trend could quickly reverse. In this context, some risk pockets remain, including risks from high concentrations in the bank's leveraged buyout exposure, project finance business and ship lending. Non-strategic assets are being worked out and the bank continues to reduce its exposure to riskier asset classes.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The ratings of HVB's hybrid capital instruments (issued through Funding Trusts I and II) reflect the financial standing of the UniCredit group. While Fitch acknowledges that the German regulator could demand a deferral of coupon payment on these profit-linked instruments in line with the terms and conditions of the instruments, the agency does not anticipate such intervention in light of the bank's solid standalone financial profile.
SUBSIDIARY AND AFFILIATED COMPANY RATING DRIVERS AND SENSITIVITIES UniCredit US Finance LLC is wholly owned by HVB. The Short-term rating of its Commercial Paper Programme is equalised with HVB's Short-term IDR and reflects the likelihood of systemic support. The Short-term rating of the commercial paper programme is sensitive to the same factors that might drive a change in HVB's IDR.
The rating actions are as follows:
UniCredit Bank AG Long-term IDR affirmed at 'A+'; Outlook Stable Short-term IDR affirmed at 'F1+' Viability Rating affirmed at 'a-' Support Rating Floor affirmed at 'A+' Support Rating affirmed at '1' Market Linked Securities affirmed at 'A+emr' Senior unsecured Certificates of Deposit affirmed at 'F1+' Senior unsecured Debt Issuance Programme affirmed at 'A+' Senior unsecured Debt Issuance Programme affirmed at 'F1+' Senior unsecured BMTN Programme affirmed at 'A+' Senior unsecured EMTN Programme affirmed at 'A+' Senior unsecured EMTN Programme affirmed at 'A+(Exp) ' Senior unsecured EMTN Programme affirmed at 'F1+(Exp) ' Senior unsecured notes affirmed at 'A+' Senior unsecured GTD notes affirmed at 'A+' Short-term debt notes affirmed at 'F1+' Subordinated notes affirmed at 'BBB+' Unicredit US Finance LLC Commercial Paper Programme affirmed at 'F1+' HVB Funding Trusts I and II Hybrid Notes affirmed at 'BB+'
Additional information is available on
. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable criteria, 'Global Financial Institutions Rating Criteria,' dated 15 August 2012 are available at
. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria (New York Ratings Team)