S&P downgrades 34 Italian banks

MILAN Sat Feb 11, 2012 1:31am IST

A women walk past a Unicredit bank in Rome November 14, 2011. REUTERS/Stefano Rellandini/Files

A women walk past a Unicredit bank in Rome November 14, 2011.

Credit: Reuters/Stefano Rellandini/Files

Related Topics

Stocks

   
Coal Mining In The Punjab

Coal Mining In The Punjab

In Choa Saidan Shah miners dig coal with crude pick axes and load it onto donkeys to be transported to the surface earning a team of 4 workers around $10 to be split between them.  Slideshow 

MILAN (Reuters) - Rating agency Standard & Poor's downgraded 34 Italian banks on Friday, including heavyweights UniCredit (CRDI.MI) and Intesa Sanpaolo (ISP.MI), citing a reduced ability to roll over their wholesale debt and expected weak profitability.

The move follows S&P's downgrade of Italy's sovereign rating last month to BBB+, part of a mass downgrade of nine euro zone countries.

In a statement, S&P said its so-called Banking Industry Country Risk Assessment had worsened to group 4 from group 3 -- out of 10 groups -- reflecting its more negative view on Italy's banking system.

"Italy's vulnerability to external financing risks has increased, given its high external public debt, resulting in Italian banks' significantly diminished ability to roll over their wholesale debt," it said.

"We anticipate persistently weak profitability for Italian banks in the next few years, and a risk-adjusted return on core banking products that may not be sufficient for banks to meet their cost of capital.

We believe this may be negative for the Italian banking industry's stability."

Italian banks have borne the brunt of a sell-off in Italian assets since the euro zone's third-largest economy was dragged into the single currency bloc's debt crisis last summer.

Because of their vast holdings of domestic government bonds, Italy's top five banks have been asked to find some 15 billion euros by June to meet tougher capital requirements set by the European Banking Authority.

Lenders have also been effectively shut out of wholesale debt markets and have increased their reliance on cheap funds from the European Central Bank.

Italian banks tapped a whopping 116 billion euros of nearly 500 billion euros of three-year funds offered by the ECB last December, easing funding strains.

A similar operation will be held at the end of February and analysts expect Italian banks to further increase their borrowing from the ECB.

S&P said weak profitability and increased cost of capital could lead Italian banks to write down a large part of the goodwill they booked during a wave of industry consolidation over the past decade.

Such writedowns forced UniCredit, Italy's biggest bank by assets, to announce a 10.6 billion euro loss in the third quarter of 2011.

Among the banks downgraded, Banca Monte dei Paschi di Siena (BMPS.MI) and Banco Popolare (BAPO.MI) had their rating cut below that of Italy's sovereign debt.

(Reporting By Silvia Aloisi, editing by Dave Zimmerman)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Kerry Meets Jaitley

Kerry Meets Jaitley

U.S. raises WTO during Kerry's talks with Jaitley  Full Article 

WTO Row

WTO Row

Some WTO members discussing customs deal without India - sources  Full Article 

Fed Policy

Fed Policy

Fed presses forward with bond buying, cites uptick in inflation.  Full Article 

Q2 Profit Slips

Q2 Profit Slips

Samsung sees tough second half  Full Article 

Chinese Economy

Chinese Economy

China should set lower 2015 GDP growth target of 6.5-7 percent - IMF  Full Article 

Default Imminent

Default Imminent

Argentina fails to reach debt agreement   Full Article 

Economy Reboots

Economy Reboots

U.S. economy back on track with strong second-quarter rebound  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage