December 15, 2017 / 4:52 PM / a year ago

Fitch Affirms UniCredit Bank Austria at 'BBB+'/Negative; Withdraws Ratings

(The following statement was released by the rating agency) LONDON, December 15 (Fitch) Fitch Ratings has affirmed UniCredit Bank Austria AG's (Bank Austria) Long-Term Issuer Default Rating (IDR) at 'BBB+' with a Negative Outlook. Fitch has simultaneously withdrawn Bank Austria's ratings for commercial reasons. A full list of rating actions is at the end of this rating action commentary. Fitch will no longer provide ratings or analytical coverage of Bank Austria. KEY RATING DRIVERS IDRS, VR AND SENIOR DEBT The IDRs, VR and senior unsecured debt ratings of Bank Austria reflect its strong capitalisation metrics and conservative risk profile as well as our expectation, supported by strong profits in 1H17, that the bank will be able to generate sufficient earnings as a domestically-focussed bank. Bank Austria transferred its subsidiaries in central and eastern Europe (CEE) and its 41% stake in its Turkish unit to UniCredit S.p.A (UC; BBB/Stable) in 4Q16. The downsized bank benefits from its focus on domestic assets in light of a solid operating environment in Austria, which is considerably more developed and resilient than most of the CEE economies in which the bank had been operating. Asset quality has also benefitted from the shift in focus to the benign domestic market as well as the ongoing restructuring of the bank's retail banking operations. We expect the bank's performance to be more stable due to Bank Austria's narrowed domestic focus but internal capital generation will likely be weaker given low margins in the Austrian market. Profit generation is now dominated by Bank Austria's domestic corporate activities, which we expect to remain moderately profitable across the cycle. Profitability in the low-margin and high-cost Austrian retail segment is weaker but will benefit from the bank's ongoing restructuring and cost-efficiency measures. Cost pressure in Austria will also remain high due to high, albeit declining, regulatory costs and investment needs - in common with peers - to adapt to the changing competitive landscape and customer behaviour. Bank Austria's consolidated transitional common equity Tier 1 (CET1) ratio was a strong 19.5% at end-1H17, supporting the bank's current VR at one notch above UC's VR. UC has so far refrained from upstreaming capital from its Austrian subsidiary and intends to maintain this approach, and we expect UC to remain committed to maintaining high regulatory capital ratios at its Austrian subsidiary. The Negative Outlook on Bank Austria's Long-Term IDR reflects our expectation that the fungibility of capital within the UC group will increase and that Bank Austria's capitalisation and financial flexibility could decline given the group's single-point-of-entry resolution plan. We believe that the higher fungibility of capital and liquidity within the UC group that would result from this approach makes material capital upstreaming more likely as capital is increasingly managed across the UC group. We believe that this is likely under the Single Supervision Mechanism (SSM) with the European Central Bank (ECB) as regulator. DERIVATIVE COUNTERPARTY RATING (DCR) The bank's DCR is equalised with the Long-Term IDR because derivative counterparties in Austria have no definitive preferential status over other senior obligations in a resolution scenario. SUPPORT RATING Bank Austria's Support Rating indicates a 'BBB' long-term rating floor based on institutional support. It reflects Fitch's opinion that UC would have a high propensity to support its Austrian subsidiary in case of need. In our opinion, Bank Austria's size no longer constrains UC's ability to support it following the transfer of the CEE operations. RATING SENSITIVITIES Not applicable as the rating has been withdrawn. The rating actions are as follows: Long-Term IDR: affirmed at 'BBB+'; Outlook Negative and withdrawn Short-Term IDR: affirmed at 'F2' and withdrawn Viability Rating: affirmed at 'bbb+' and withdrawn Support Rating: affirmed at '2' and withdrawn Derivative Counterparty Rating: affirmed at 'BBB+(dcr)' and withdrawn Senior unsecured notes: affirmed at 'BBB+' and withdrawn EMTN programme: affirmed at 'BBB+'/'F2' and withdrawn Contact: Primary Analyst Krista Davies Director +44 20 3530 1579 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Maria Shishkina Associate Director +44 20 3530 1379 Committee Chairperson Christian Scarafia Senior Director +44 20 3530 1012 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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