In our view, the domestic environment for Italian banks has worsened since July 2011 owing to weaker economic prospects and the higher cost of funding resulting from increasing yields on Italy's sovereign debt. As a result, we have revised down our Banking Industry Country Risk Assessment (BICRA) on the Republic of Italy to Group 3 from Group 2 on a scale of 1 to 10 (1 being the highest). A BICRA reflects our view of the strengths and weaknesses of a country's banking industry. In our view, Unione di Banche Italiane's (UBI's) financial profile will be weakened by deterioration in Italy's domestic economic environment and heightened economic risk. We are therefore lowering our long- and short-term counterparty credit ratings on
