Just three days after it downgraded the country's sovereign credit rating by two notches, rating agency Moody's Investors Service on Monday lowered the long-term debt and deposit ratings of ten Italian banks and the issuer ratings for three Italian financial institutions by one to two notches. Meanwhile, the ratings of one bank were affirmed.
All of the banks and financial institutions affected by the ratings cut have a 'negative' outlook, which may increase the likelihood of future downgrades. The outlook reflects the negative outlook on the Italian government bond rating.
The move was prompted by Friday's downgrade of Italy's sovereign bond rating by two notches to Baa2 from A3, maintaining a negative outlook on the rating, citing contagion risk from Greece and Spain, higher funding costs and a deteriorating economic outlook.
The sovereign downgrade indicates the increased risk that the government might be unable to provide financial support to its banks in financial distress. This has also led to the current downgrade of the thirteen institutions.
The ratings agency today downgraded the credit ratings of seven institutions by one notch and the remaining six institutions by two notches. The short-term ratings for three banks have also been downgraded by one notch, triggered by the long-term ratings changes.
The lenders being affected by today's downgrades primarily include UniCredit SpA (UNCFF.PK) and Intesa Sanpaolo SpA (IITSF.PK), which together account for almost one third of the Italian market by assets.
Today's actions did not include the third-largest bank Banca Monte Dei Paschi, the fourth-largest bank Banco Popolare, and the fifth-largest bank Unione di Banche Italiane.
UniCredit, the country's largest bank by assets, and Intesa Sanpaolo, the second-largest bank, had their long-term deposit and debt ratings lowered by two notches to Baa2 from A3, with a negative outlook. The rating is in line with Italy's sovereign bond rating, and just two notches above junk status.
The long-term deposit rating of GE Capital SpA, a unit of General Electric Capital Corp., which is a unit of U.S.-based General Electric Co. (GE) was downgraded by a notch to Baa2 from Baa1.
Further, government-related issuers Cassa Depositi e Prestiti and Istituto Servizi Mercato Agricolo Alimentare or ISMEA, also had their debt and issuer ratings lowered to Baa2 given their high default correlation with the Italian government.
Meanwhile, the long-term deposit rating of Banca Nazionale del Lavoro was affirmed at Baa2.
Moody's had in mid-May downgraded 26 Italian banks, with a negative outlook, after lowering the credit ratings of the country by a notch in mid-February. The ratings for Italian banks were at that time amongst the lowest in advanced European countries, primarily amid Italy's double-dip recession since early 2012.
UniCredit closed Monday's regular trading session in Milan at 2.64 euros, down 0.06 euros or 2.22% on a volume of 65.65 million shares, and Intesa Sanpaolo closed at 1.01 euros, down 0.01 euros or 1.37% on a volume of 77.59 million shares.
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by RTT Staff Writer
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