7 Min Read
Overview -- On Aug. 9, 2012, we lowered the ratings on Unipol Gruppo Finanziario SpA (UGF; BB+/Watch Neg/--), and its "core" operating subsidiary Unipol Assicurazioni SpA (BBB/Watch Neg/--) by one notch, reflecting the negative impact on the financial risk profile of the investment in Fondiaria-SAI holding company Premafin. -- We believe that a merger of Unipol Assicurazioni and Fondiaria-SAI (B/Watch Pos/--) could ultimately weaken UGF's capacity to support Unipol Banca. -- We are keeping our 'BB' long-term rating on Unipol Banca on CreditWatch negative, and affirming our 'B' short-term rating on Unipol Banca. -- Our assessment of Unipol Banca's risk position, which we consider as "weak," already takes into account what we view as its vulnerability to a potentially deeper and more prolonged recession than we had originally anticipated in Italy. -- We aim to resolve the CreditWatch on Unipol Banca after resolving the CreditWatch placements on UGF and Unipol Assicurazioni. Rating Action On Aug. 9, 2012, Standard & Poor's Ratings Services kept its 'BB' long-term counterparty credit ratings on Unipol Banca SpA on CreditWatch with negative implications. We originally placed Unipol Banca's ratings on CreditWatch negative on Dec. 7, 2011. We have also affirmed our 'B' short-term counterparty credit rating on Unipol Banca. Rationale The CreditWatch negative status follows that on Unipol Banca's parent company Unipol Gruppo Finanziario SpA (UGF; BB+/Watch Neg/--), and its "core" operating subsidiary Unipol Assicurazioni SpA (BBB/Watch Neg/--) . The downgrade of Unipol Assicurazioni and UGF by one notch reflected our view of the negative impact on the financial risk profile of its investment in Premafin, the holding company of Fondiaria-SAI SpA (B+/Watch Pos/--). At the same time, a downward revision of our assessment of the economic risks for banks in Italy has not affected Unipol Banca's rating (see "BICRA On Italy Maintained At Group '4', Economic Risk Score Revised To '5' On Increased Credit Risk For Italian Banks," published Aug. 3, 2012, on RatingsDirect on the Global Credit Portal). With Italy facing a potentially deeper and more prolonged recession than we had originally anticipated, we think Italian banks' vulnerability to credit risk in the economy is rising. In this context, we believe that the combined effect of mounting problem assets and reduced coverage of loan loss reserves makes banks more vulnerable to the impact of higher credit losses, particularly in the event of deterioration in the collateral values of assets. In our view, our assessment of Unipol Banca's risk position, which we consider "weak," already takes into account a low level of coverage of problem assets. We also base our rating on Unipol Banca on our view of its "weak" business position, "moderate" capital and earnings, "below average" funding, and "adequate" liquidity, as our criteria define these terms. In particular, we expect that Unipol Banca's Standard & Poor's risk-adjusted capital (RAC) ratio will remain close to 5.5% in the coming 24 months, taking into account the potential that Unipol Banca will not post profits in the next two years because of loan loss provisions of about 100 basis points per year. We consider Unipol Banca to be a "strategically important" subsidiary to its parent, UGF. In our view, UGF is strongly committed to financially supporting Unipol Banca, as demonstrated by its past capital injections and guarantee scheme for over EUR500 million of Unipol Banca's nonperforming assets. As a result, according to our group methodology, Unipol Banca's rating benefits from three notches of uplift from its stand-alone credit profile (SACP) for parental support, reflecting our view that UGF would provide additional support, if needed. On July 27, 2012, UGF made a first step in acquiring Italian insurance company Fondiaria-SAI SpA by taking full control of Premafin, which owns 36% of Fondiaria SAI. In our view, a merger of Unipol Assicurazioni and Fondiaria-SAI could materially weaken UGF's current financial profile and its ability to support Unipol Banca. We think there could be less capacity for the merged group to absorb potential extraordinary costs resulting from a sizable and challenging integration with a troubled organization in a difficult macroeconomic and financial environment. CreditWatch Standard & Poor's intends to resolve the CreditWatch on Unipol Banca after resolving the CreditWatch placements on UGF and Unipol Assicurazioni. We could lower our long-term rating on Unipol Banca if we were to take a similar action on UGF. We could also lower the ratings on Unipol Banca if we perceived deterioration of UGF's financial strength and its ability to support its subsidiary. As a result, we could reduce the number of notches we factor into Unipol Banca's long-term rating for parental support. A deterioration of Unipol Banca's capitalization, currently not expected, could also put negative pressure on the ratings. Conversely, if we were to conclude that the integration of Fondiaria-SAI does not significantly reduce the merged group's potential capacity to support Unipol Banca, we could affirm our ratings on the latter. Ratings Score Snapshot Issuer Credit Rating: BB/Watch Neg/B SACP: b Anchor: bbb Business Position: Weak (-2) Capital and Earnings: Moderate (-1) Risk Position: Weak (-2) Funding and Liquidity: Below Average and Adequate (-1) Support: 3 GRE Support: 0 Group Support: 3 Sovereign Support: 0 Additional Factors: 0 Related Criteria And Research -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011 -- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 -- Group Methodology, April 22, 2009 -- Use Of CreditWatch And Outlooks, Sept. 14, 2009 -- BICRA On Italy Maintained At Group '4', Economic Risk Score Revised To '5' On Increased Credit Risk For Italian Banks, Aug. 3, 2012 -- Italy's Unipol Assicurazioni SpA Rating Lowered To 'BBB' On Increased Premafin Commitment; Ratings Remain On Watch Neg, Aug. 9, 2012 Ratings List Ratings Affirmed Unipol Banca SpA Counterparty Credit Rating BB/Watch Neg/B Certificate Of Deposit BB/Watch Neg/B Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.