By Rita Cooper
Standard & Poor downgraded the credit-rating of 34 Italian financial firms, including UniCredit, Intesa Sanpaolo and Banca Monte dei Paschi di Siena, after it cut Italy's grade in January.
S&P cut the long-term ratings of UniCredit and Intesa- the top two Italian banks respectively- to BBB+ from A. The number- 3 bank, Mone dei Paschi, was downgraded from BBB+ to BBB, while all three were assigned a negative outlook, S&P said in a statement on Friday.
S&P cut Italy's credit rating two levels to BBB+ from A on January 13, saying that European leaders struggling to limit the EU's debt crisis would only complicate the nation's efforts to finance borrowings. On Friday, S&P revised its banking industry country risk assessment for Italy to group 4 from group 3, on accounts of increasing risks.
In another statement regarding the country's financial industry, S&P said, "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. We anticipate persistently weak profitability for Italian banks in the next few years."
The Eurozone nations are embroiled in a debt crisis for the third year as they seek to restore budget order and get their financial industry in a better place. In a CNBC interview on Friday, Italian Prime Minister Mario Monti said, "Banks in highly indebted countries have a greater potential vulnerability than in others. By and large, Italian banks have been less hit by the financial crisis than the banks in many other European countries."
The extra yield investors who demanded holding bonds of UniCredit and for Intesa instead of government debt was 508 basis points on Thursday, as against the average 306 basis points in the Bank of America Merrill Lynch Euro Corporates, Banking Index.
Fitch Ratings, in a statement on February 6, downgraded Intesa to A- from A, and Monte dei Paschi to BBB from BBB+, while maintaining UniCredit's A- rating.
In December 2011, the industrial production in Italy increased unexpectedly, in spite of the quarterly data suggesting that the nation may have entered its second recession since 2009 in the wake of tax increases and budget cuts. Output stepped up 1.4 per cent from November- when it surged 0.3 per cent, according to figures released on Friday by the national statistics office Istat in Rome.
In the three months through December from the previous quarter, output fell 2.1 per cent, in an indication that Italy's economy may have declined in the fourth quarter after falling 0.2 per cent in the period from July through September.
On Thursday, Bank of Italy Director General Fabrizio Saccomanni said in Rome that he expects the economy to drop by 1.5 per cent this year.
In a press release on Friday, UniCredit said on its Website that S&P had aligned the bank with Italy's credit rating, maintaining the stand-alone credit rating of the latter at A-. Meanwhile, Intesa's long and short-term ratings are both capped at the same level as Italy's, while the bank's stand-alone credit profile is A-, according to an Intesa statement on Friday.
