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 (with 1 being the highest). A BICRA reflects our view of the strengths and weaknesses of a country's banking industry. That said, we believe that the UniCredit group's geographic diversity would somewhat soften the effect of the deterioration in Italy's economic and operating environments on the group's financial performance. We are therefore affirming our 'A/A-1'
