DBRS Morningstar Confirms UBI Banca at BBB/R-2 (high); Trend Remains Stable

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings of Unione di Banche Italiane SpA (UBI Banca, UBI or the Bank), including the Long-Term Issuer Rating of BBB and the Short-Term Issuer Rating of R-2 (high). The Bank’s Deposit ratings were confirmed at BBB (high)/R-1 (low), one notch above the IA, reflecting the legal framework in place in Italy which has full depositor preference in bank insolvency and resolution proceedings. The trend on all ratings remains Stable. DBRS Morningstar has also maintained the Bank’s Intrinsic Assessment (IA) at BBB and support assessment at SA3. A full list of rating actions is included at the end of this press release.

KEY RATING CONSIDERATIONS

In confirming the ratings of UBI Banca with a Stable Trend, DBRS Morningstar considers that although the Bank will be affected by the economic disruption resulting from the coronavirus (COVID-19) pandemic, the Bank’s ratings are sufficiently well positioned to incorporate this period of significant uncertainty.

UBI has a robust funding profile underpinned by its large deposit base and limited refinancing risks. The Bank’s funding plan for 2020 was largely completed before the increase in market volatility and disruption related to the outbreak. In January 2020, the Bank placed its inaugural Additional Tier 1 bond. In addition, UBI has made significant progress in reducing its large stock of non-performing loans while maintaining adequate capital buffers.

Nonetheless, the wide and growing scale of the economic disruption from the COVID-19 poses significant operational challenges and will likely put pressure on the Bank’s revenues, profits and balance sheet in 2020. Some key parts of the Bank’s franchise, in particular the cities of Bergamo and Brescia are amongst the hardest-hit provinces by the pandemic in Italy. Following the start of the outbreak, the Group has put in place several measures to preserve its business continuity. The use of technology and digital channels are helping the reduced activity of the branches.

We will continue to monitor the performance of the Bank during this period of stress, its contingency plan and all measures to support its franchise and customer base, including the debt moratorium measures. At the same time, we will assess the impact of unprecedented support measures announced by the Italian government, as well as several other international authorities and central banks, to contain the economic fallout.

In addition, we will continue to follow any development surrounding the potential acquisition of UBI by Intesa Sanpaolo following the voluntary public exchange offer made by Intesa Sanpaolo in February 2020. If the acquisition goes ahead, DBRS Morningstar anticipates UBI’s ratings would be aligned with Intesa Sanpaolo (rated at BBB (high)/R-1 (low), Stable Trend).

RATING DRIVERS

Given the current situation and the implications from the global pandemic, an upgrade is unlikely in the short-term. An upgrade would require significant improvements in profitability and further progress in reducing NPEs. A rating upgrade will be considered if the acquisition by Intesa Sanpaolo goes ahead.

A downgrade could result from a material weakening of the loan book, particularly across the corporate and SME sectors, or should the bank face a material deterioration in revenues, provisioning costs or capital buffers.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792

The Grid Summary Grades for Unione di Banche Italiane SpA are as follows: Franchise Strength – Good; Earnings – Moderate; Risk Profile – Moderate; Funding & Liquidity – Good; Capitalisation – Moderate.

Notes:
All figures are in EUR unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (11 June 2019). https://www.dbrsmorningstar.com/research/346375/global-methodology-for-rating-banks-and-banking-organisations

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883

The sources of information used for this rating include UBI 2019 Annual Report, UBI 2019 Results Presentation, UBI Press Releases and Presentations, and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/359180

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Nicola De Caro, Senior Vice President, Credit Ratings
Rating Committee Chair: Elisabeth Rudman, Managing Director, Credit Ratings
Initial Rating Date: November 25, 2015
Last Rating Date: November 20, 2019

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