UniCredit's Potential Acquisition of Commerzbank Could Boost Credit Rating, Moody's Says
In a recent announcement, Moody's hinted at a possible increase in UniCredit's credit rating if the Italian bank proceeds with its acquisition of Commerzbank. Currently, UniCredit holds a 'Baa1' rating for its long-term senior unsecured debt, two notches above Italy's 'Baa3' rating. However, Moody's is considering upgrading UniCredit's standalone assessment to 'baa2' in the event of a deal with Commerzbank.
Analysts believe that Commerzbank's higher credit rating and the opportunity for UniCredit to reduce its exposure to Italian debt are driving forces behind the potential acquisition. An upgrade in UniCredit's standalone assessment could lead to improved ratings for riskier debt instruments, such as senior non-preferred debt, subordinated debts, and Additional Tier 1 bonds (AT1).
UniCredit currently holds a significant stake in Commerzbank and aims to explore a full takeover, pending supervisory approval. While this move has sparked controversy in Germany, Moody's highlights that the success of the acquisition will depend on factors like international diversification, capitalization, asset risk, funding, and liquidity.
If the acquisition goes through, UniCredit's strong capitalization may be diluted in the short term due to restructuring costs. However, in the medium term, the combined entity could benefit from cost synergies in Germany and establish a stronger franchise. Moody's emphasizes the importance of maintaining a minimum CET1 ratio of 12.5%-13% to ensure sound capitalization post-acquisition.
In summary, UniCredit's potential acquisition of Commerzbank could lead to a credit rating upgrade, reduced funding costs, and improved profitability in the long run. Investors should monitor developments closely to assess the impact on their portfolios and financial strategies.