UniCredit upgraded to ’A-’ by S&P, one notch above Italy sovereign

Investing.com -- S&P Global Ratings has upgraded UniCredit SpA’s long-term rating to ’A-’ from ’BBB+’ while affirming its ’A-2’ short-term rating, with a stable outlook.

The upgrade places UniCredit one notch above Italy’s sovereign rating, reflecting the bank’s geographic diversification across relatively low-risk economies including Germany and Austria, which supports its creditworthiness.

The rating agency also raised UniCredit’s resolution counterparty ratings to ’A/A-1’ from ’A-/A-2’ while affirming ratings on hybrid instruments, with senior nonpreferred debt at ’BBB’ and dated subordinated debt at ’BBB-’.

S&P noted that UniCredit has successfully transformed its operations and strengthened its financial profile through its "UniCredit Unlocked" strategy implemented over 2022-2024. This has made the 13 banks within the group operate more cohesively, reduced complexity, and boosted the group’s financial position.

The bank’s diverse footprint provides resilience and revenue stability through economic cycles. Italy accounts for less than 40% of the group’s lending, while Germany and Austria represent 30% and 15% respectively, with Central Eastern Europe making up slightly more than 15%.

UniCredit is targeting a return on tangible equity of more than 20% over 2025-2027, which S&P considers feasible. The bank reported its lowest level of nonperforming exposures in years at 2.8% as of June 2025, with comfortable coverage including €1.7 billion in overlays.

The rating agency noted that inorganic growth and shareholder distributions are putting pressure on UniCredit’s capitalization. Through 2025, the bank has built a 26% stake in Germany’s Commerzbank, secured a similar stake in Greece’s Alpha Bank, and fully internalized its life insurance operations.

These transactions, along with shareholder distributions and the assumed eventual write-off of the group’s investment in Russia, will result in a significant capital erosion. S&P expects UniCredit’s risk-adjusted capital ratio to decline to about 6.5% by the end of 2025 from 8.5% at the end of 2024, before moderately recovering to 7%-7.9% over 2026-2027.

Despite reducing its Russian exposure significantly, with total assets in its Russian subsidiary amounting to €6.3 billion or 0.7% of consolidated assets as of June 2025, UniCredit still faces some financial, operational, and reputational risks from its presence there.

S&P considers UniCredit’s additional loss-absorbing capacity buffer strong, comprising €10.1 billion in senior nonpreferred debt and €6.3 billion in subordinated debt as of the end of 2024.

The stable outlook mirrors that of Italy’s sovereign rating. S&P expects UniCredit to continue delivering robust profitability while gradually strengthening its capitalization and maintaining sound asset quality, liquidity, and subordinated bail-inable debt buffers over the next 18-24 months.

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