UniCredit Bank AG
Primary Credit Analyst:
Benjamin Heinrich, CFA, FRM, Frankfurt + 49 693 399 9167; [email protected]
Secondary Contact:
Harm Semder, Frankfurt (49) 69-33-999-158; [email protected]
Table Of Contents
Major Rating Factors
Outlook
Rationale
Related Criteria
Related Research
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UniCredit Bank AG
SACP bbb+
Anchor a-
Business
PositionAdequate 0
Capital and
EarningsStrong +1
Risk Position Weak -2
Funding Average
0
Liquidity Adequate
+ Support 0
ALACSupport 0
GRE Support 0
GroupSupport 0
SovereignSupport 0
+AdditionalFactors 0
Issuer Credit Rating
BBB+/Negative/A-2
Resolution Counterparty Rating
A-/--/A-2
Major Rating Factors
Strengths: Weaknesses:
• Strong capital position.
• Sound franchise in German corporate banking
• Expected to have a separate resolution process to
that of Italian parent UniCredit SpA, supporting a
higher rating.
• Tail risk from strategic, financial, and operational
interaction with the lower-rated UniCredit Group,
which also results in downside risk to our capital
projection.
• Concentration in its corporate credit portfolio and
complexity in its credit market-related business.
• Business-flow volatility inherent in its investment
banking activity.
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Outlook: Negative
The negative outlook indicates that we could lower our ratings on UniCredit Bank over the next 24 months, once
the resolution strategy for UniCredit group, including the size and positioning of bail-in buffers, becomes clear. We
could also lower the ratings if increased economic or industry risks in Germany materially affect asset quality and
do not allow UniCredit Bank to maintain strong capitalization.
Downside scenario
If we conclude that the resolution approach for UniCredit Group meant a unified, single process involving all
entities, this would alter our current view that the prospects of stronger subsidiaries would be markedly different
from those of the weaker parent. As a result, we would no longer rate UniCredit Bank above the parent and lower
our ratings on the bank by one notch to the level of the group credit profile (GCP), all other factors remaining
equal.
In addition, if economic or industry risk increases for German banks, we would likely revise down our anchor for
UniCredit Bank to 'bbb+' from 'a-'. That could lead us to lower the rating as higher risks in Germany could
materially affect UniCredit Bank's asset quality, bringing our risk-adjusted capital (RAC) ratio for the bank below
the 10% threshold commensurate with strong capital and earnings. Further extraordinary capital transfers to other
group entities, or stronger credit expansion in a worsening economic cycle, could also weaken the RAC ratio and
lead to a downgrade.
We could also lower the ratings if the group's parent UniCredit were downgraded, which we consider unlikely
given the stable outlook on the group. Despite UniCredit's material exposure to Germany, we do not believe a
potential increase of economic risk in the country could have repercussions on the group's current
creditworthiness. We continue to see adverse developments in Italy that could jeopardize the recovery of asset
quality and earnings as the main risk for the group.
We cap our rating on UniCredit Bank at one notch above the GCP, since we believe its creditworthiness would feel
the weight of weaker credit quality at the parent and still see uncertainties in the implementation of the group's
resolution strategy. A downgrade of UniCredit Bank would result in the downgrade of the bank's senior preferred
debt, senior subordinated debt, and junior subordinated instruments.
Upside scenario
We could revise the outlook to stable if:
• Uncertainties regarding the resolution process were clarified, and it was clear that the European Banking Union's
Single Resolution Board (SRB) would employ separate resolution processes for the subsidiaries and the parent;
and
• UniCredit Bank is able to mitigate the effect of the negative trends we currently observe by maintaining
favorable asset quality and a RAC ratio sustainably above 10% through the economic cycle.
Rationale
In our ratings on UniCredit Bank, we incorporate its sound domestic corporate franchise and its solid small and
midsize enterprise (SME) and retail banking activities after successful restructuring. We also consider that UniCredit
Bank is the central hub for most markets activities within UniCredit Group. We continue to see the bank's capital and
earnings as a competitive edge over global peers. However, at the same time, we continue to see material downside
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UniCredit Bank AG
risk to our capital projection, reflecting recent customer loan growth materially above the market average and
significantly lower capital ratios at the parent, which we capture in our assessment of UniCredit Bank AG's risk
position as weak. This also includes potential tail-risks from strong operational and reputational links with its
lower-rated parent and across the group. In our view, the bank has a relatively higher reliance on short- and long-term
wholesale funding, but we consider this to be adequately buffered by liquid assets. Overall, we assess funding and
liquidity as a neutral factor.
We assess UniCredit Bank's stand-alone credit profile (SACP) at 'bbb+'. We do not factor in any further notches of
uplift from the SACP into the long-term rating for extraordinary German government support or for additional
loss-absorbing capacity (ALAC) support. Firstly, this is because we classify the German government's tendency to
support private sector banks as uncertain, as opposed to supportive before 2015. Although we expect the SRB would,
at this time, employ a separate resolution process for UniCredit Bank, secondly, we are uncertain whether the ALAC
ratio will stay above our 5% threshold for a one-notch uplift over the next two years. Moreover, we lack visibility about
how the SRB will determine the resolution strategy for the internationally active, cross-border UniCredit banking
group.
Anchor:'a-' for a commercial bank operating predominately in Germany.
Our bank criteria use our Banking Industry Country Risk Assessment (BICRA) economic risk and industry risk scores
to determine a bank's anchor, the starting point in assigning an issuer credit rating (ICR). Our anchor for banks
operating mainly in Germany is 'a-'.
Despite strengthening headwinds for Germany's economy from the ongoing trade war and a potentially disruptive U.K.
exit from the EU (Brexit), we maintain our view of Germany's economy as highly diversified, competitive, and resilient.
A strong fiscal and sizable net external creditor position provide important buffers to shocks. That said, the high degree
of openness, with exports accounting for almost 50% of GDP in 2018, greatly exposes Germany to external risks.
Moreover, risks of economic imbalances are starting to emerge. Real house price growth returned to 6.3%, after 3.9%
in 2017, and price pressures remain high thanks to low unemployment levels, rising wages, very high levels of net
immigration, and supply shortages. Given the emerging pockets of weakness in Germany's corporate sector, we expect
the very favorable cycle of minimal- or nonexisting-risk costs will end, although overall private-sector debt remains
low at 107% of GDP in 2018.
To assess the economic risk for UniCredit Bank, we use the weighted average of its private-sector lending to nonbanks
in each country in which it operates. Currently, UniCredit Bank conducts about 70% of its lending in Germany, and the
rest mainly in European countries with weaker economic risk scores than Germany (see chart 1). Consequently, the
weighted economic risk score for UniCredit Bank remains slightly below '2', which is weaker than that for German
lending institutions with higher proportions of domestic loans, but not to the extent that it affects the anchor. This also
means the anchor is sensitive to a potential downward revision of either our economic or industry risk assessments for
Germany, which we consider on a negative trend.
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UniCredit Bank AG
Chart 1
As is the case for many European banking industries, industry risk in Germany is intermediate, in our view. However,
returns in the German banking industry are trailing the Northern and Eastern European banking industries. In addition,
the lower-for-longer interest rate environment and very strong competition will continue to drag down profitability,
while progress in cost-reducing and efficiency-enhancing measures has only slowly translated into meaningful savings.
Importantly, the need for significant investment in core banking systems and digital customer services will keep cost
pressure high. Overall, German banks compare poorly in terms of cost efficiency with their European peers, and are
increasingly exposed to the risks of tech disruption.
Germany's retail banking market will continue to be dominated by well-funded and strongly capitalized savings and
cooperative banking groups that have about 50% of the market in this segment. Consequently large banks typically
carry riskier concentration and business risk, but have become significantly less vulnerable to economic risks due to
substantial deleveraging, de-risking, and recapitalization in recent years. We continue to consider the institutional
framework for the German banking system as intermediate, because regulatory reforms and expected progress are
resolving major deficiencies and improving accountability and transparency.
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UniCredit Bank AG
Table 1
UniCredit Bank AG--Key Figures
--Year ended Dec. 31--
(Mil. €) 2019* 2018 2017 2016 2015
Adjusted assets 294,406.0 286,539.0 298,615.0 301,635.0 298,283.0
Customer loans (gross) 138,469.0 131,810.0 121,906.0 122,345.0 115,806.0
Adjusted common equity 17,216.0 16,843.0 16,752.0 16,602.0 19,489.0
Operating revenues 2,254.0 4,682.0 5,349.0 5,178.0 4,999.0
Noninterest expenses 1,629.0 3,068.0 3,525.0 3,702.0 3,804.0
Core earnings 516.2 529.7 1,341.9 498.0 858.2
*Data as of June 30.
Business position: Mainly a domestic corporate bank but also the center of investment-bankingactivities within UniCredit Group
We view positively that Unicredit Bank can build on a solid franchise in its home market Germany, in particular in the
corporate and commercial banking segments. The bank also benefits from being the hub for most markets and
investment banking activities within UniCredit Group, which adds to total revenue capacity. However, this benefit is
partly offset by less stability in revenue, due to the material proportion of investment-banking activities. We believe
volatility in business flows and revenue generation will remain a less favorable component of these activities.
This brings UniCredit Bank's business position at par with an average bank in Germany, as well as other banks active
in European markets with similar industry risk profiles, such as Austria, Belgium, and France.
The bank has a strong presence in Germany's Bavaria and Hamburg regions and is striving to gain more relevance in
other areas. However, with only about 3% market share in customer loans on a national level, it will continue to lack
full regional diversification within Germany, and compared with its main domestic peers such as Commerzbank and
Deutsche Bank. Despite this, we believe that UniCredit Bank will be able to defend its sound market position in
domestic corporate banking.
The bank is now in the final year of UniCredit group's multi-year "Transform 2019" strategy, aimed at making the
group simpler, more cost efficient, better capitalized, and less risky. We recognize UniCredit Bank's progress in
improving cost efficiency over the past few years, mainly by restructuring its domestic franchise through cost-reducing
measures with a focus on SME and retail banking activities. These measures included an early and significant
reduction of the number of employees and branches, the repricing of the product range, and the roll-out of a digital
strategy. There remains some uncertainty on UniCredit's future strategic direction beyond 2019, as plans are not
expected to be released before December. For UniCredit Bank itself, given intense competitive pressure in its core
segments, we expect that stabilization of revenue streams and keeping costs under control will remain a key priority.
We believe UniCredit Bank AG will be able to mitigate pressure on its earnings in the low-interest-rate environment
and stabilize its cost-to-income ratio at about 65%, according to our measures, compared with 75% in 2015. In our
view, this is increasingly important because headwinds, in particular for the Germany economy, have increased and we
expect the market to move into a less favorable cycle than in previous years.
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UniCredit Bank AG
Due to its position within the group, the bank's revenue streams are relatively more diversified than some peers'. Net
interest income currently accounts for about 53% of operating revenue, followed by fee income (22%),
market-sensitive income (14%), and other income (11%). Overall, we expect the revenue share from corporate and
investment banking will remain one of the main spurs of revenue generation.
Table 2
UniCredit Bank AG--Business Position
--Year ended Dec. 31--
(%) 2019* 2018 2017 2016 2015
Total revenues from business line (mil. €) 2,654.0 4,708.0 5,349.0 5,178.0 4,999.0
Commercial banking/total revenues from business line 41.4 49.2 44.0 45.5 51.1
Return on average common equity 6.8 1.3 6.8 0.7 3.6
*Data as of June 30. N/A--Not applicable.
Capital and earnings: Strong capitalization will remain a competitive edge
UniCredit Bank's capitalization is a rating strength, with our assessment primarily based on our projection that it will
be able to maintain a RAC ratio of 10.5%-11.0%. This remains high compared with many major global banks and
above the 10% threshold that is commensurate with our strong assessment. The bank's regulatory core equity Tier 1
ratio under Basel III phase-in arrangements stood at a very high 19.4% (under International Financial Reporting
Standards [IFRS]) on June 30, 2019, above that of many large peers. However, we expect this ratio to fall in the
medium term because of new rules from the Basel committee, in particular with the introduction of risk-weight floors
for banks that apply internal ratings-based approaches. Overall, we expect that UniCredit Bank will be able to comply
with current and future regulatory capital requirements coming into effect under Basel III.
Our RAC ratio for UniCredit Bank (before adjustments) slightly worsened by 50 basis points (bps) to 10.7% on Dec. 31,
2018. This was the result of the high 8% annual loan growth that was not compensated by capital build up through
retained earnings, since UniCredit Bank payed out dividends equal to its net income under German generally accepted
accounting principles . In our base case, we forecast net income under IFRS will be €800 million-€1,200 million until
2021, but we expect no changes to dividend policy. Therefore, we include only very limited capital buildup through
retained earnings. However, we also do not factor in any further additional sizable extraordinary dividends to other
group entities. This remains a tail-risk to our projection as the German entity has excess regulatory capital and limited
growth prospects in the country's saturated markets compared to other group entities with exposure, for instance, to
Central Eastern Europe (CEE).
Our forecast includes only moderate changes in our risk-weighted asset metric, because we expect that customer loan
growth will be partly offset by a further reduction of legacy assets--such as in wind parks--over the next two years.
Overall, bringing all assumptions together, we expect RAC to move only marginally within a corridor of 10.5%-11.0%
over the next two years.
We view high capital ratios as an essential buffer to risks arising from the market-related activities and strong
operational links across UniCredit Group. We forecast worsening economic and credit conditions in Germany and
expect UniCredit Bank's three-year average earnings buffer to remain at 60 bps-70 bps--broadly in line with many
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UniCredit Bank AG
international peers'.
Table 3
UniCredit Bank AG--Capital And Earnings
--Year-ended Dec. 31--
(%) 2019* 2018 2017 2016 2015
Tier 1 capital ratio 19.4 19.9 21.1 20.4 25.1
S&P Global Ratings’ RAC ratio before diversification N/A 10.7 11.2 10.1 13.9
S&P Global Ratings’ RAC ratio after diversification N/A 11.0 11.6 10.2 15.6
Adjusted common equity/total adjusted capital 100.0 100.0 100.0 100.0 100.0
Net interest income/operating revenues 51.0 53.1 47.7 49.7 55.8
Fee income/operating revenues 21.7 21.7 20.6 20.6 20.7
Market-sensitive income/operating revenues 15.9 13.6 19.4 18.2 12.5
Noninterest expenses/operating revenues 72.3 65.5 65.9 71.5 76.1
Preprovision operating income/average assets 0.4 0.6 0.6 0.5 0.4
Core earnings/average managed assets 0.4 0.2 0.4 0.2 0.3
*Data as of June 30. N/A--Not applicable.
Table 4
UniCredit Bank AG--Risk-Adjusted Capital Framework Data
(Mil. €) Exposure*
Basel III
RWA
Average Basel III
RW(%)
S&P Global
Ratings RWA
Average S&P Global
Ratings RW (%)
Credit risk
Government & central banks 58,529.4 3,131.8 5.4 4,097.8 7.0
Of which regional governments and
local authorities
15,080.6 198.6 1.3 571.2 3.8
Institutions and CCPs 22,690.4 5,465.5 24.1 5,948.3 26.2
Corporate 122,626.5 42,415.9 34.6 92,520.3 75.4
Retail 31,342.0 5,610.1 17.9 9,635.7 30.7
Of which mortgage 21,748.0 2,645.8 12.2 4,394.7 20.2
Securitization§ 12,609.0 1,762.5 14.0 2,847.8 22.6
Other assets† 5,534.6 4,534.4 81.9 7,989.3 144.4
Total credit risk 253,332.0 62,920.1 24.8 123,039.2 48.6
Credit valuation adjustment
Total credit valuation adjustment -- 1,524.5 -- 5,954.3 --
Market Risk
Equity in the banking book 364.0 675.1 185.5 2,788.2 766.0
Trading book market risk -- 7,689.6 -- 11,541.8 --
Total market risk -- 8,364.6 -- 14,330.0 --
Operational risk
Total operational risk -- 8,341.6 -- 13,752.3 --
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UniCredit Bank AG
Table 4
UniCredit Bank AG--Risk-Adjusted Capital Framework Data (cont.)
Exposure
Basel III
RWA
Average Basel II
RW (%)
S&P Global
Ratings RWA
% of S&P Global
Ratings RWA
Diversification adjustments
RWA before diversification -- 82,596.7 -- 157,075.8 100.0
Total Diversification/
Concentration Adjustments
-- -- -- (3,490.5) (2.2)
RWA after diversification -- 82,596.7 -- 153,585.3 97.8
Tier 1 capital Tier 1 ratio (%)
Total adjusted
capital
S&P Global Ratings
RAC ratio (%)
Capital ratio
Capital ratio before adjustments 16,454.0 19.9 16,843.0 10.7
Capital ratio after adjustments‡ 16,454.0 19.9 16,843.0 11.0
*Exposure at default. §Securitization Exposure includes the securitization tranches deducted from capital in the regulatory framework. †Exposure
and S&P Global Ratings’ risk-weighted assets for equity in the banking book include minority equity holdings in financial institutions.
‡Adjustments to Tier 1 ratio are additional regulatory requirements (e.g. transitional floor or Pillar 2 add-ons). RWA--Risk-weighted assets.
RW--Risk weight. RAC--Risk-adjusted capital. Sources: Company data as of 'Dec. 31 2018', S&P Global Ratings.
Risk position: Tail risk from remaining strategic, financial, and operational interactions with thelower-rated UniCredit Group
We assess UniCredit Bank's risk position as a weakness relative to peers, predominately because it is part of a
cross-border banking group with material exposure to relatively weaker economic regions such as Italy and CEE. On a
consolidated basis, we assess UniCredit Group's credit profile to be at 'bbb', which is weaker than the subsidiary's
SACP.
This implies that our strong assessment of its capital and earnings to some extent overstates UniCredit Bank's capital
position. Although the German subsidiary demonstrates material excess regulatory capital with a Common Equity Tier
1 (CET1) ratio of 19.4% as of June 30, 2019, we observe much weaker capitalization at the consolidated group level
(CET1 ratio of 12.1%). Therefore, we consider the possibility that there may be further sizable extraordinary dividends
beyond the €3 billion payment made in 2017.
We also consider tail risk from strategic, financial, and operational connections with the lower-rated group as a
negative factor for UniCredit Bank's SACP. Here, we also see the risk that our RAC ratio does not fully cover
operational links across the group, particularly in corporate and investment banking. The bank also still bears
intragroup credit exposure to the parent, although this has markedly reduced since 2011.
Additionally, our assessment also reflects the bank's risk concentrations in its corporate credit portfolio and the
complexity of its credit market-related business. This incorporates further tail risks in credit losses at UniCredit Bank
that are not fully captured in our RAC framework. At about €9 billion, UniCredit Bank's exposure to the auto sector is
material. The sector's performance remains highly sensitive to a potential escalation of the U.S.-China trade war, while
more broadly the full value chain is going through a significant transformation.
UniCredit Bank's credit losses continue to be slightly below the peer average (see chart 2) but uncertainties remain as
to how its asset quality will develop through a full, less favorable economic cycle than in previous years, also
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UniCredit Bank AG
considering the bank's past restructuring of real estate assets before the 2008 financial crisis.
Chart 2
In April 2019, the bank entered a guilty plea agreement for processing dollar transactions over 2002-2012 on behalf of
Iranian entities subject to U.S. economic sanctions. Under the agreed terms, UniCredit Bank, together with sister
company UniCredit Bank Austria and parent company UniCredit SpA, agreed to pay about $1.3 billion, the vast
majority of which was attributable to UniCredit Bank and covered by provisions built up mainly over 2018. We
understand that UniCredit Bank will remain under observation by a mandatory consultant employed by U.S.
authorities over the next few years. However, we believe that current management implemented material
improvements of its control measures to mitigate the risks of future violations after the investigation started in 2012.
Table 5
UniCredit Bank AG--Risk Position
--Year ended Dec. 31--
(%) 2019* 2018 2017 2016 2015
Growth in customer loans 10.1 8.1 (0.4) 5.6 3.7
Total diversification adjustment/S&P Global Ratings’ RWA before diversification N/A (2.2) (2.9) (0.6) (10.9)
Total managed assets/adjusted common equity (x) 17.1 17.0 17.9 18.2 15.3
New loan loss provisions/average customer loans (0.3) 0.7 0.2 0.4 0.3
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UniCredit Bank AG
Table 5
UniCredit Bank AG--Risk Position (cont.)
--Year ended Dec. 31--
(%) 2019* 2018 2017 2016 2015
Net charge-offs/average customer loans (0.0) (0.0) 0.4 0.4 0.4
Gross nonperforming assets/customer loans + other real estate owned 2.1 2.3 3.0 3.8 4.7
Loan loss reserves/gross nonperforming assets 65.3 65.2 59.5 53.7 48.8
*Data as of June 30. N/A--Not applicable. RWA--Risk-weighted assets.
Funding and liquidity: Significant recourse to wholesale funding, but with prudent liquiditymanagement
UniCredit Bank's funding and liquidity remains a neutral factor for the rating. Although we consider the bank's funding
profile to be in line with large domestic or European bank peers', it remains clearly weaker than the strong German
savings and cooperative banking groups that dominate the domestic retail business.
Customer deposits represent about half of UniCredit Bank's funding base, which results in a loan-to-deposit ratio of
116% as of June 30, 2019. This is up by several percentage points since last year, mainly because of above-average
growth in customer loans over the past 18 months. German Pfandbriefe covered bonds remain an important and
reliable source of funding and liquidity, in particular during more stressful times.
Positively, the bank continues to benefit from Germany's currently favorable market conditions, resulting in a lower
cost of funding compared with the parent to which it provides some funding support. However, we consider this to be
a constraining factor to the German subsidiary's funding assessment.
UniCredit Bank does not disclose information about its upstream exposures to its parent, which have materially
reduced in recent years but in our view remain substantial. Some of this exposure arises from the strategic orientation
of UniCredit Bank as the group-wide center of competence for the financial markets, the investment-banking business
of UniCredit, and other business activities (such as export finance and guarantees).
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UniCredit Bank AG
Chart 3
Overall, UniCredit Bank has made continuous improvements in its stable funding ratio to reach about 109% in recent
years, which we now consider comfortable compared with its main peers (see chart 3).
Liquidity remains adequate, in our view. Long-term wholesale funding accounts for about 25% of total funding
followed by short-term wholesale funding with 23%. This continues to represent a high share of the bank's total
funding, based on June 30, 2019, data.
On the positive side, we expect liquidity management to remain prudent, and acknowledge that the relatively high
share of short-term wholesale funding (in total wholesale funding) is also mitigated by a comfortable liquid asset pool.
In detail, we calculate sound coverage of short-term wholesale funding by broad liquid assets of about 1.4x. In
contrast, placements of excess liquidity with UniCredit are limited. We expect UniCredit Bank could operate for more
than six months without access to market funding in an adverse scenario.
Table 6
UniCredit Bank AG--Funding And Liquidity
--Year ended Dec. 31--
(%) 2019* 2018 2017 2016 2015
Core deposits/funding base 51.9 51.2 49.6 49.9 48.9
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UniCredit Bank AG
Table 6
UniCredit Bank AG--Funding And Liquidity (cont.)
--Year ended Dec. 31--
(%) 2019* 2018 2017 2016 2015
Customer loans (net)/customer deposits 116.4 113.1 103.5 110.6 109.8
Long-term funding ratio 78.6 76.4 70.6 66.6 66.0
Stable funding ratio 109.8 109.4 108.8 91.5 93.6
Short-term wholesale funding/funding base 23.1 25.4 31.8 36.5 37.3
Broad liquid assets/short-term wholesale funding (x) 1.4 1.4 1.3 0.9 1.0
Net broad liquid assets/short-term customer deposits 18.1 18.0 17.5 (4.6) (1.8)
Short-term wholesale funding/total wholesale funding 47.9 52.0 63.0 73.0 73.0
Narrow liquid assets/3-month wholesale funding (x) 1.6 1.6 1.5 1.1 1.1
*Data as of June 30.
External Support: No additional uplift for ALAC or for government support, despite high systemicimportance in Germany
We continue to believe that UniCredit Bank has high systemic importance in Germany. However, in our view, the
prospect of extraordinary government support for the German banking sector is uncertain following the full
implementation of the EU's bank recovery and resolution directive, including bail-in powers, in January 2015. We
therefore classify German government support to private sector commercial banks as uncertain.
We consider UniCredit Bank a prudently regulated subsidiary and we expect the SRB would, at this time, employ a
separate resolution process for the bank, which supports a higher rating on the subsidiary relative to the parent.
Accordingly, we base our rating on UniCredit Bank on its 'bbb+' SACP, which is higher than our 'bbb' GCP for
UniCredit Group.
In our assessment of ALAC, we include total-adjusted capital that exceeds the 10% threshold, all junior instruments
issued or guaranteed by UniCredit Bank and certain long-term vanilla senior unsecured bonds that turned into
subordinated instruments in resolution and liquidation, in light of a German law change. On this basis, we calculate
that ALAC remains at close to 5% of S&P Global Ratings' risk-weighted assets at year-end 2018.
However, we have not added additional uplift to the long-term rating on UniCredit Bank because it remains uncertain
whether this ratio will stay above our 5% threshold for a one-notch uplift over the next two years. Moreover, we lack
visibility about how the SRB will determine the resolution strategy for the internationally active, cross-border
UniCredit banking group. The implementation of a unified resolution process covering the whole group would likely
lead us to equalize our ratings on UniCredit Bank with those on UniCredit SpA. This is because we would expect
UniCredit Bank's prospects to be strongly linked to the effectiveness of any resolution process at the parent level.
Conversely, clarification that the SRB would likely employ a separate resolution process for UniCredit Bank and would
allow us to continue rating the bank above its parent.
Senior subordinated debt
The 'BBB' issue rating on UniCredit Bank's senior subordinated debt is one notch below our 'bbb+' SACP. We notch
down due to the debt's contractual subordination to senior obligations, in line with our hybrid capital criteria.
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UniCredit Bank AG
Nondeferrable senior subordinated debt
The 'BBB-' issue rating on UniCredit Bank's nondeferrable senior subordinated debt is two notches below our SACP.
One notch because the debt is contractually subordinated; and one notch due to the principal write-down. Even in
cases where this is not contractually documented, the relevant regulatory and legal frameworks in Germany create the
equivalent of such a clause and we expect regulators to enforce this.
Junior subordinated debt
We deduct two further notches in our rating on junior subordinated instruments for a total of four notches. The 'BB'
issue rating on the legacy Additional Tier 1 capital instruments, issued by funding vehicles, reflects their status as tier 1
regulatory capital at the UniCredit Group level.
Resolution counterparty ratings (RCRs)
We set the RCR on UniCredit Bank at 'A-', one notch above the 'BBB+' long-term ICR.
For European entities, the RCRs are one notch above the long-term ICR, reflecting our jurisdiction assessments for
these countries. An RCR is a forward-looking opinion of the relative default risk of certain senior liabilities that may be
protected from default through an effective bail-in resolution process for the issuing financial institutions. RCRs apply
to issuers in jurisdictions where we assess the resolution regime to be effective and we consider the issuer likely to be
subject to a resolution that entails a bail-in if it reaches nonviability.
Related Criteria
• General Criteria: Hybrid Capital: Methodology And Assumptions, July 1, 2019
• General Criteria: Group Rating Methodology, July 1, 2019
• Criteria | Financial Institutions | General: Methodology For Assigning Financial Institution Resolution Counterparty
Ratings, April 19, 2018
• Criteria | Financial Institutions | General: Risk-Adjusted Capital Framework Methodology, July 20, 2017
• General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
• Criteria | Financial Institutions | Banks: Bank Rating Methodology And Assumptions: Additional Loss-Absorbing
Capacity, April 27, 2015
• Criteria | Financial Institutions | Banks: Quantitative Metrics For Rating Banks Globally: Methodology And
Assumptions, July 17, 2013
• Criteria | Financial Institutions | Banks: Banking Industry Country Risk Assessment Methodology And
Assumptions, Nov. 9, 2011
• Criteria | Financial Institutions | Banks: Banks: Rating Methodology And Assumptions, Nov. 9, 2011
• General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
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UniCredit Bank AG
Related Research
• Banking Industry Country Risk Assessment: Germany, Oct. 1, 2019
• Outlooks On Various German Banks Revised To Negative On Rising Banking Sector Risks; Ratings Affirmed, Sept.
18, 2019
• UniCredit SpA, Sept. 12, 2019
Anchor Matrix
Industry
Risk
Economic Risk
1 2 3 4 5 6 7 8 9 10
1 a a a- bbb+ bbb+ bbb - - - -
2 a a- a- bbb+ bbb bbb bbb- - - -
3 a- a- bbb+ bbb+ bbb bbb- bbb- bb+ - -
4 bbb+ bbb+ bbb+ bbb bbb bbb- bb+ bb bb -
5 bbb+ bbb bbb bbb bbb- bbb- bb+ bb bb- b+
6 bbb bbb bbb- bbb- bbb- bb+ bb bb bb- b+
7 - bbb- bbb- bb+ bb+ bb bb bb- b+ b+
8 - - bb+ bb bb bb bb- bb- b+ b
9 - - - bb bb- bb- b+ b+ b+ b
10 - - - - b+ b+ b+ b b b-
Ratings Detail (As Of October 22, 2019)*
UniCredit Bank AG
Issuer Credit Rating BBB+/Negative/A-2
Resolution Counterparty Rating A-/--/A-2
Senior Subordinated BBB
Senior Unsecured BBB+
Issuer Credit Ratings History
06-Nov-2018 BBB+/Negative/A-2
03-Nov-2017 BBB+/Developing/A-2
28-Mar-2017 BBB/Developing/A-2
15-Dec-2016 BBB/Watch Pos/A-2
09-Jun-2015 BBB/Negative/A-2
03-Feb-2015 A-/Watch Neg/A-2
Sovereign Rating
Germany AAA/Stable/A-1+
Related Entities
BA-CA Finance (Cayman) (2) Ltd.
Issuer Credit Rating BBB+/Negative/A-2
Junior Subordinated BB
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UniCredit Bank AG
Ratings Detail (As Of October 22, 2019)*(cont.)
BA-CA Finance (Cayman) Ltd.
Issuer Credit Rating BBB+/Negative/A-2
Junior Subordinated BB
HVB Capital LLC I
Junior Subordinated BB
HVB Capital LLC II
Junior Subordinated BB
HVB Capital LLC III
Junior Subordinated BB
HVB Funding Trust I
Junior Subordinated BB
HVB Funding Trust II
Junior Subordinated BB
HVB Funding Trust III
Junior Subordinated BB
UniCredit Bank AO
Issuer Credit Rating BBB-/Stable/A-3
UniCredit Bank Austria AG
Issuer Credit Rating BBB+/Negative/A-2
Resolution Counterparty Rating A-/--/A-2
Senior Unsecured BBB+
Short-Term Debt A-2
Subordinated BBB-
UniCredit SpA
Issuer Credit Rating BBB/Stable/A-2
Resolution Counterparty Rating BBB+/--/A-2
Certificate Of Deposit
Foreign Currency A-2
Commercial Paper
Local Currency A-2
Junior Subordinated BB
Junior Subordinated BB-
Senior Secured AA-/Negative
Senior Subordinated BBB-
Senior Unsecured BBB
Subordinated BB+
Yapi ve Kredi Bankasi A.S.
Issuer Credit Rating B+/Stable/B
Turkey National Scale trA+/--/trA-1
Zagrebacka banka dd
Issuer Credit Rating BBB-/Stable/--
Resolution Counterparty Rating BBB-/--/--
*Unless otherwise noted, all ratings in this report are global scale ratings. S&P Global Ratings’ credit ratings on the global scale are comparable
across countries. S&P Global Ratings’ credit ratings on a national scale are relative to obligors or obligations within that specific country. Issue and
debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees.
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UniCredit Bank AG
Additional Contact:
Financial Institutions Ratings Europe; [email protected]
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UniCredit Bank AG
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