(The following statement was released by the rating agency)
FRANKFURT/LONDON, February 13 (Fitch) Fitch Ratings has affirmed
AG's (HVB) Long-Term Issuer Default Rating (IDR) at 'A-' and its
Rating (VR) at 'a-'. The Outlook on the Long-Term IDR is
Negative. A full list
of rating actions is at the end of this commentary.
KEY RATING DRIVERS
IDRS, VR AND SENIOR DEBT
HVB's IDRs and senior debt ratings reflect the bank's standalone
strength, as expressed by its VR. The bank's strong
capitalisation has a high
influence on its VR. Capital ratios remain well above peers even
planned one-off dividend payment to its parent, UniCredit S.p.A.
BBB+/Negative). The VR also reflects HVB's largely wholesale
based on a well-established domestic corporate and investment
its solid asset quality, which benefits from the resilient
German economy and
its moderate profitability with some volatility.
HVB's VR reflects our assumption that UC's strategic plan
announced in December
2016 (see "Fitch Affirms UniCredit at 'BBB+' Negative Outlook"
dated 22 December
2016 on www.fitchratings.com) will not have a material impact on
standalone strength. The measures, which include the payment of
a EUR3bn special
dividend from HVB to UC in May 2017, confirm our expectation
that capital is
increasingly managed across the UC group. However, we expect
capitalisation to remain in line with its VR, which is one notch
above UC's VR.
In Fitch's view, intragroup contagion risk means that a
subsidiary's VR would
not typically be rated more than a notch above its parent's
within the eurozone.
HVB's fully loaded common equity Tier 1 ratio (CET1) is likely
to drop to about
19% at end-2Q17 from 22.3% at end-1H16 as a direct effect of the
dividend payment. Therefore, we expect HVB to remain strongly
comfortably exceed current and future regulatory requirements.
In addition, UC
and HVB have agreed with their respective national regulators
that HVB's own
funds ratio will not fall below 13%.
HVB's relatively stable profits in commercial banking mitigate
its more volatile
earnings from corporate and investment banking (CIB). We expect
disciplined pricing of corporate loans and the cost-cutting
implemented to continue to mitigate the prevailing regulatory
However, low interest rates and intense competition in German
put pressure on interest margins and commission income in all
Moreover, we believe that HVB faces somewhat limited growth
corporate banking and CIB in Germany's saturated market. In
relatively modest contribution of household clients to the
segment's performance reflects the fact that the bank's retail
limited to selected German regions.
HVB's asset quality benefits from its primary focus on Germany,
and to a lesser
extent, on other countries with strong economic environments.
remain low, but we expect a normalisation of risk charges in the
The bank has gradually run down non-performing loans (NPLs),
actively than peers, and it continues to work out higher-risk
assets. While this could trigger a further modest improvement of
its NPL ratio,
HVB remains vulnerable to a deterioration of its sizeable loan
exposure to the
troubled shipping sector.
The Negative Outlook on HVB's Long-Term IDR mirrors that on UC
and reflects the
potential pressure on HVB's capitalisation and financial
flexibility from a
deterioration of UC's financial strength. Such deterioration
could, in our
opinion, result in a need to upstream further capital from HVB
to UC. Moreover,
under its assumed single-point-of-entry resolution model, UC
would continue to
operate under its current parent bank structure. We believe that
fungibility of capital and liquidity within the UC group that
would result from
this approach makes material capital upstreaming more likely.
constrain HVB's financial flexibility.
DERIVATIVE COUNTERPARTY RATING (DCR) AND DEPOSIT RATINGS
HVB's DCR and Deposit Ratings are aligned with its IDRs. The
junior and vanilla senior debt buffers are large, but we believe
sustainability is not yet clear. This is because there are still
uncertainties on the timing of UC's plans to allocate total loss
capacity (TLAC) within the group, which could change HVB's
over the medium term.
HVB's Support Rating (SR) indicates a 'BB' Long-Term rating
floor based on
institutional support. It reflects Fitch's opinion that despite
propensity to support HVB, its constrained ability to do so
results in a
moderate likelihood of extraordinary support. This is because of
solvency support that HVB would be likely to require relative to
available in the rest of the group, given that a large share of
consolidated equity is in HVB. Our view that UC's propensity to
strong is primarily based on HVB's role as the group's
investment banking hub
and sizeable corporate banking operations in Europe's largest
SUBORDINATED DEBT AND HYBRID SECURITIES
HVB's hybrid capital notes issued through HVB Funding Trusts I
and II are rated
four notches below the bank's VR: two notches for loss severity
and two notches
for incremental non-performance risk. While the regulator could
order a coupon
deferral in line with the terms and conditions of these
instruments, we view such intervention as unlikely in light of
standalone financial profile.
IDRS, VR AND SENIOR DEBT
HVB's IDRs and VR are primarily sensitive to a change in UC's
IDRs. A downgrade
of UC's ratings would lead to a downgrade of HVB's ratings
because we believe
that a weakening of UC's financial strength would increase the
upstreaming further capital from HVB.
We could affirm HVB's ratings if UC's ratings are affirmed and
demonstrates that it can maintain strong capitalisation despite
intention to distribute the vast majority of its profits to UC
in the next few
years, which should result in minimal internal capital
generation at HVB. HVB
has considerably reduced its funding exposure to UC group
entities and we
understand that it has no plans for further extraordinary
exceeding HVB's annual profit.
HVB's VR and IDR are also sensitive to rising integration and
capital and funding within the UC group, which we view as likely
European Single Supervision and Single Resolution Mechanisms.
criteria, a highly integrated bank that accounts for a large
share of its
parent's consolidated assets and overall credit profile can be
assigned a common
VR with its parent. Therefore, we would likely assign common VRs
to UC and HVB
if we conclude that lower restrictions to capital movements
within the UC group
make it impossible to separate the credit profiles of its
HVB's VR, and therefore IDR, would then converge toward UC's
ratings, which are
currently a notch below HVB's.
Apart from UC's influence, HVB's VR and IDRs are also sensitive
to a decline in
HVB's recurring operating profitability.
RATING SENSITIVITIES - DCR AND DEPOSIT RATINGS
HVB's DCR and Deposit Ratings are primarily sensitive to changes
in its IDRs.
The DCR and Deposit Ratings could be notched above HVB's IDRs if
that the bank's qualifying junior and vanilla senior debt
sustainably sufficient to restore viability and prevent a
default on derivative
obligations and deposits after a failure. We believe that
further clarity on the
sustainability of these buffers should become available when UC
downstream internal TLAC into HVB.
The DCR and Deposit Ratings are also sensitive to future changes
resolution regime, which may alter the hierarchy of the various
resolution, although this is not our current expectation in
The SR is sensitive to significant changes to UC's ability to
support HVB, which
could be indicated by a change to UC's ratings. It is also
sensitive to any
negative changes to Fitch's view of UC's propensity to provide
support, which we
currently do not expect. We would withdraw HVB's SR if we decide
to assign a
common VR to UC and HVB.
SUBORDINATED DEBT AND HYBRID SECURITIES
HVB's subordinated debt and hybrid securities' ratings are
sensitive to changes
in the bank's VR or to a change in the securities' notching,
which could arise
if we change our assessment of the notes' loss severity or
The rating actions are as follows:
UniCredit Bank AG
Long-Term IDR affirmed at 'A-'; Negative Outlook
Short-Term IDR affirmed at 'F2'
Viability Rating affirmed at 'a-'
Derivative Counterparty Rating affirmed at 'A-(dcr)'
Deposit Ratings affirmed at 'A-'/'F2'
Support Rating affirmed at '3'
Senior unsecured certificates of deposit affirmed at 'F2'
Senior unsecured debt issuance programme affirmed at 'A-'/'F2'
Senior unsecured MTN programme affirmed at 'A-'
Senior unsecured EMTN programme affirmed at 'A-'/'F2'
Senior unsecured notes affirmed at 'A-'
Tier 2 subordinated notes affirmed at 'BBB+'
HVB Funding Trusts I and II hybrid capital notes affirmed at
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Additional information is available on www.fitchratings.com
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