20 July 2012by Stanislava Pavľáková, JTW
Frankfurt am Main, July 16, 2012: International credit rating agency Moody’s has downgraded by one to two degrees the ratings of thirteen Italian banks. Clearly, it was the subsequent step following its downgrading of Italy's government bond rating to A3 to Baa2. The outlook remains negative.
In the case of the Intesa Sanpaolo and UniCredit Bank, they have both been lowered from A3 to Baa2. Moody’s pointed out their strong dependence on the domestic market and said that banks are normally rated no higher than a government "due to multiple channels of shared exposure and contagion."
Intesa Sanpaolo Group is the seventh largest bank in the euro zone and its international operations are particularly focused on Central, East and South Europe and the Mediterranean basin.
The UniCredit Bank Group operates in 22 European countries and its credit downgrade can partially hit banks in Austria, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Germany, Italy, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Turkey, Ukraine and Hungary.
In the case of the downgrading of Italy's rating, Moody’s noted two main factors, which are:
1. Italy is more likely to experience a further sharp increase in its funding costs or the loss of market access than at the time of our rating action five months ago due to increasingly fragile market confidence, contagion risk emanating from Greece and Spain and signs of an eroding non-domestic investor base.
2. Italy's near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets which could weaken market confidence further, raising the risk of a sudden stop in market funding.
Gianfranco Polillo, State Secretary of the Italian Ministry of Finance, found the rating downgrade to be inconceivable. He stressed that Rome will respect the commitment achieving a structural budget surplus even if the economic outlook worsened.
Not only the Italian Ministry of Finance, but also the head of Italian business association Confindustria Giorgio Squinz was surprised by the decision, saying that Italy is much stronger than Moody´s Investors Service has indicated.