TEXT-Fitch maintains Unicaja's 'BBB-' IDR on RWN

Mon Oct 22, 2012 7:03am EDT

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(The following statement was released by the rating agency)

Oct 22 - Fitch Ratings has maintained Unicaja Banco S.A.U.'s (Unicaja) 'BBB-' Long-term Issuer Default Rating (IDR), 'F3' Short-term IDR and 'bbb-' Viability Rating (VR) on Rating Watch Negative (RWN). At the same time the agency has affirmed Unicaja's Support Rating at '3' and Support Rating Floor (SRF) at 'BB+'.

RATING ACTION RATIONALE AND DRIVERS - VR and IDR

The maintained RWN reflects that Unicaja is still in in merger talks with a much weaker financial institution that has high exposure to the Spanish real estate sector, Banco Caja de Espana de Inversiones de Salamanca y Soria (Banco CEISS), and that the final terms are yet to be agreed.

Unicaja's Long-term IDR is based on its intrinsic financial strength as reflected by its VR. Unicaja's VR is based on its solid regional franchise, robust capital base with a Fitch core capital ratio of 12.9%, acceptable operating profitability, good coverage of real estate exposures including foreclosed assets, real estate exposure that is lower than its peers and proactive management. The ratings also consider the recessionary environment in Spain and the collapse of the property sector.

Unicaja's risk profile from lending activities is moderate and well diversified, with 60% of lending being to individuals (largely mortgages). Asset quality has deteriorated amidst Spain's economic and property market downturn (impaired/total loans ratio of 6.9%, and 10.7% with foreclosed assets). Impaired loans are 49% covered with loan impairment allowances, the coverage increases to 59% for impaired real estate exposures. Unicaja's, real estate exposure, although significant at 18% of aggregate lending and foreclosed assets. is lower than its peers.

RATING SENSITIVITIES - VR and IDR

Unicaja's VR and IDRs are sensitive to an even more protracted and deeper recessionary environment in Spain than currently assumed, which could further affect profitability and asset quality, or an unanticipated liquidity shock.

The RWN on Unicaja's Long and Short-term IDRs and VR reflects the integration risks, the higher risk profile of Banco CEISS with larger real estate exposures and the relatively large size of the bank with EUR42bn in assets at end-2011. Fitch expects to resolve the RWN on completion of the merger, which could take place in more than six months, or if the merger plans are abandoned.

RATING SENSITIVITIES: SUPPORT RATING AND SRF

These ratings are sensitive to any change in Fitch's assumptions around the level of support available to the bank . Fitch assumes a moderate probability of support for Unicaja if needed as reflected in its '3' Support Rating and 'BB+' SRF. In the context of the current crisis Fitch's support ratings assume continued support for many eurozone banks in the near term, and actions to date by policymakers and regulators have proven to be consistent with that view.

The Support Rating and SRF are sensitive to a potential downgrade of the Spanish sovereign ratings or to a change in Fitch's assumptions regarding the authorities' propensity to support Unicaja.

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