S&P Downgrades 34 Italian Banks on Risks
UniCredit SpA (UCG), Intesa Sanpaolo SpA and Banca Monte dei Paschi di Siena SpA (BMPS) were among 34 Italian financial firms downgraded by Standard & Poor’s, after the credit-ratings company reduced the nation’s grade last month.
UniCredit, Italy’s biggest bank, and No. 2 Intesa had their long-term ratings lowered to BBB+ from A, S&P said yesterday in a statement. Monte dei Paschi, the No. 3 bank, was reduced to BBB from BBB+. All three have a negative outlook, S&P said.
Italy’s credit rating was cut two levels to BBB+ from A on Jan. 13 as S&P said European leaders’ struggle to contain the region’s debt crisis would complicate the country’s efforts to finance borrowings. S&P yesterday revised its banking industry country risk assessment, known as Bicra, for Italy to group 4 from group 3, citing mounting risks.
“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,” S&P said in a separate statement on the country’s financial industry. “We anticipate persistently weak profitability for Italian banks in the next few years.”
European nations are grappling with a debt crisis now in its third year as they seek to restore budget order and shore up the region’s financial industry. Spreads on some Italian banks are trading as if they were rated at the cusp of investment grade.
“Banks in highly indebted countries have a greater potential vulnerability than in others,” Italian Prime Minister Mario Monti said yesterday in a CNBC interview. “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 demand to hold bonds of UniCredit and for Intesa rather than government debt was 508 basis points on Feb. 9, or 5.08 percentage points, compared with an average 306 basis points in the Bank of America Merrill Lynch Euro Corporates, Banking Index. European BBB ranked bonds are at 381 basis points and BB debt at 664, Bank of America Merrill Lynch index data show.
Fitch Ratings downgraded Intesa to A- from A, and Monte dei Paschi to BBB from BBB+ in a statement on Feb. 6. The credit- ratings company affirmed its A- rating on UniCredit.
S&P downgrades linked to Europe’s debt crisis haven’t necessarily led to shifts in bond prices, as investors anticipated declines in creditworthiness. The French 10-year bond was little changed in the five days after S&P lowered the nation to AA+ from AAA. The response was the same last August, when financial markets dismissed the U.S.’s loss of AAA status by pushing the yield on the 10-year Treasury note to a record low of 1.6714 percent just seven weeks later.
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