Moody’s Says UniCredit’s Junior Debt Rating Could Surpass Italy’s If It Acquires Commerzbank

Milan (Reuters) – Moody’s is considering potentially raising UniCredit’s junior credit rating one notch above Italy’s sovereign rating if the bank proceeds with the acquisition of Commerzbank, contingent on several factors including the management of execution and operational risks, according to the ratings agency.

Italy’s UniCredit has secured nearly a 21% stake in Commerzbank, awaiting supervisory approval, and is eager to pursue a full takeover. This interest has caused concern among German officials, as Commerzbank has stated that its strategy focuses on maintaining independence. If completed, this acquisition would mark the first major cross-border banking deal in Europe since the global financial crisis.

Moody’s indicated that it would evaluate whether UniCredit’s current standalone rating of ‘Baa3’, which aligns with Italy’s own rating, could be elevated to ‘Baa2’ if a deal occurs. Such an upgrade would also positively affect UniCredit’s junior unsecured debt rating.

The agency emphasized that any potential upgrade "would depend upon the combined group’s degree of international diversification, exposure to Italian sovereign risk, and its post-acquisition capitalization, asset risk, funding, and liquidity." Italy’s weak credit rating has historically posed challenges for its banks trying to expand internationally.

Prior to its interest in Commerzbank, UniCredit underwent a lengthy restructuring, accumulating billions in capital beyond its minimum requirements. Should the acquisition proceed, a strengthened presence in Germany—where the rating is triple-A—along with more diversified funding sources, would reduce direct exposure to Italy’s debt relative to capital and "loosen the intrinsic links and correlation" between UniCredit’s ratings and those of Italy.

Moody’s noted that while UniCredit’s currently robust capitalization would likely be diluted in the event of acquiring Commerzbank, it would still be sound and consistent with management’s target minimum CET1 capital ratio of 12.5%-13%, a crucial measure of financial strength.

The ratings agency added that while any acquisition might initially lower profitability due to restructuring and other associated costs, it could lead to higher returns over the medium term through cost synergies in Germany and a stronger combined franchise.

At the same time, Moody’s reaffirmed UniCredit’s ratings with a stable outlook.