The ratings on Italy-based UniCredit SpA reflect the bank's solid franchise in Italy, the German State of Bavaria, the Republic of Austria, and Central and Eastern Europe (CEE). They also reflect its strong business and geographic diversification, diversified earnings sources, and good integration track record. The ratings are constrained, however, by the complexity of managing banks operating in various regulatory and economic environments, exposure to geographies prone to material credit risk levels, and exposure to financial deterioration of the CEE business. More severe macroeconomic conditions across the board are challenging UniCredit's historically good profitability. Management has had to revise profitability targets for 2008. Even though UniCredit will launch actions to contain costs, earnings will remain under pressure in 2009, due
