S&P downgrades 34 Italian banks (Article in and by Investment Week on 12.02.2012)

13 Feb

UniCredit SpA (UCG), Intesa Sanpaolo SpA and Banca Monte dei Paschi di Siena SpA (BMPS) are among 34 Italian financial firms downgraded by Standard & Poor’s.

The downgrades come after the ratings company reduced the nation’s grade last month to BBB+ from A, reported Bloomberg.

 UniCredit, Italy’s biggest bank, and No. 2 Intesa had their long-term ratings lowered to BBB+ from A. Meanwhile, Monte dei Paschi, the No. 3 bank, was reduced to BBB from BBB+. All three have a negative outlook, S&P said.

S&P also 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.

“We anticipate persistently weak profitability for Italian banks in the next few years,” S&P said.

The extra yield investors demand to hold bonds of UniCredit and for Intesa rather than government debt was 508 basis points on 9 February 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.

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