unicredit bank ag · 10/22/2019 · issuer credit rating bbb+/negative/a-2 resolution counterparty...

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

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT OCTOBER 22, 2019 1

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.


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


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.


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.


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.


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


(%) 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


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 --


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


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


(%) 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


UniCredit Bank AG

Table 5

UniCredit Bank AG--Risk Position (cont.)


(%) 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).


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


(%) 2019* 2018 2017 2016 2015

Core deposits/funding base 51.9 51.2 49.6 49.9 48.9


UniCredit Bank AG

Table 6

UniCredit Bank AG--Funding And Liquidity (cont.)


(%) 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.


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


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.


Junior Subordinated BB


UniCredit Bank AG

Ratings Detail (As Of October 22, 2019)*(cont.)

BA-CA Finance (Cayman) Ltd.



HVB Capital LLC I


HVB Capital LLC II


HVB Capital LLC III


HVB Funding Trust I


HVB Funding Trust II


HVB Funding Trust III


UniCredit Bank AO

Issuer Credit Rating BBB-/Stable/A-3

UniCredit Bank Austria AG


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-

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.


UniCredit Bank AG

Additional Contact:

Financial Institutions Ratings Europe; [email protected]


UniCredit Bank AG


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unicredit bank ag · 10/22/2019 · issuer credit rating bbb+/negative/a-2 resolution counterparty...

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