Moody's has stated that Italy's UniCredit (UCG, Financial) could see a one-notch upgrade in its credit rating if its acquisition of Commerzbank is successful. This upgrade would place UniCredit's rating above Italy's sovereign rating, contingent on factors like execution and operational risk management.
UniCredit currently holds nearly 21% of Commerzbank and aims for a full acquisition, pending regulatory approval. This move has upset the German government, and Commerzbank maintains its strategy is based on independence. If successful, this would mark the first major cross-border banking transaction in Europe since the global financial crisis.
Moody's will assess whether UniCredit's current Baa3 rating, aligned with Italy's sovereign rating, warrants an upgrade to Baa2. The rating upgrade depends on the group's international diversification post-merger, exposure to Italian sovereign risk, and post-acquisition capitalization, asset risk, financing, and liquidity.
If the deal goes through, UniCredit would gain greater influence in AAA-rated Germany, with more diversified financing channels and reduced direct exposure to Italian debt relative to its capital, weakening the intrinsic link and correlation with Italy's rating.
Moody's expects that while UniCredit's currently strong capital base may be diluted by the Commerzbank acquisition, it will remain robust, meeting at least the management's announced CET1 target range of 12.5%-13%. Although short-term profitability might decline due to restructuring and other costs, mid-term prospects include higher returns from cost synergies in Germany and a stronger combined franchise.
