Italian Banks Downgraded

UniCredit, Intesa Sanpaolo and Banca Monte dei Paschi di Siena were among 34 Italian financial firms downgraded by Standard & Poor’s on Friday after the credit ratings firm reduced the nation’s grade last month.

Long-term ratings on UniCredit, Italy’s biggest bank, and Intesa, its second largest, were lowered to BBB+ from A, S.& P. said in a statement. Monte dei Paschi, the No. 3 bank, was reduced to BBB from BBB+. All three have a negative outlook, the agency said.

Italy’s credit rating was cut two levels, to BBB+ from A on Jan. 13 after S.& P. said European leaders’ struggle to contain the region’s debt crisis would complicate the country’s efforts to finance borrowings. S.& P. 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.

The extra yield investors demand to hold bonds of UniCredit and for Intesa rather than government debt was 508 basis points on Thursday, 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 have not 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. on Jan. 13 lowered the nation to AA+ from AAA.

UniCredit, Intesa and Monte dei Paschi did not respond to e-mails seeking comment.

NY Times