S&P Downgrades Over 20 Italian Banks, Says Difficult Climate Is Neither "Transitory" Nor "Easily Reversed"

Tyler Durden's picture

Another day, another pervasive downgrade action by S&P.

Tougher Economic Prospects And Rising Sovereign Risk Prompt Negative Rating Actions On Italian Banks

  • Renewed market tensions in the eurozone's periphery, particularly in Italy, and dimming growth prospects have in our view led to further deterioration in the operating environment for Italy's banks.
  • We think funding costs for the banks will increase noticeably because of higher yields on Italian sovereign debt. Furthermore, higher funding costs for both the banking and corporate sectors are likely to result in tighter credit conditions and weaker economic activity in the short-to-medium term.
  • We are revising downward our Banking Industry Country Risk Assessment (BICRA) on the Republic of Italy (unsolicited ratings, A/Negative/A-1) to Group 3 from Group 2, and lowering the economic risk score, a subcomponent of the BICRA, to 3 from 2.
  • We are taking negative rating actions on 24 banks and financial institutions and affirming our ratings on 19 banks.

MILAN (Standard & Poor's) Oct. 18, 2011--Standard & Poor's Ratings Services said today that it revised the ratings on multiple Italian financial institutions (see list below).

Today's rating actions result from our review of the implications of a tougher-than-previously-anticipated macroeconomic and financial environment
for the Italian banks.

In our opinion, renewed market tensions in the eurozone's periphery, particularly in Italy, and dimming growth prospects have led to further deterioration in the operating environment for Italian banks. We also think the cost of funding for Italian banks will increase noticeably because of higher yields on Italian sovereign debt. Furthermore, we expect the higher funding costs for both banks and corporates to result in tighter credit conditions and weaker economic activity in the short-to-medium term.

We do not believe that this difficult operating climate is transitory or that it will be easily reversed. In our view, funding costs for Italian banks and corporates will remain noticeably higher than those in other eurozone countries unless the Italian government implements workable growth-enhancing measures and achieves a faster reduction in the public sector debt burden. Consequently, we envisage a situation where the Italian banks may well be operating with a competitive disadvantage versus their peers in other eurozone countries. At the same time, we think all banking systems across the eurozone, including Italy, may raise their commitment to reinforcing banks' capitalization.

In our view, these developments are significantly different from the expectations we had previously factored into our ratings on Italian banks (see "Italian Banks Are Facing A Tricky Recovery," published April 14, 2011 on RatingsDirect on the Global Credit Portal). In our view, Italian banks' profitability could decline in the next couple of years, given the likely sizable increase in their funding costs, volatility in the capital markets, and reduced prospects for credit growth. We are also of the view that Italy's slowing economic growth in 2012 could impede improvements in Italian banks' asset quality and further strain their creditworthiness.

We have also revised our Banking Industry Country Risk Assessment (BICRA) on the Republic of Italy's banking system to Group 3 from Group 2 (see "Italy Banking Industry Country Risk Assessment Revised Down To 3 From 2 On Heightened Economic Risk," published today). Our BICRA rankings integrate our view of the strengths and weaknesses of a country's banking system compared with those of other countries. The BICRA change reflects our view of the increased economic and industry risks that Italy is facing and their impact on its banking system. The change incorporates the revision of our economic risk score, a subcomponent of the BICRA, for Italy to '3' from '2'.

Today's rating actions follow our previous downgrades of other Italian banks in September 2011, after we lowered our sovereign ratings on Italy (see "Italy Unsolicited Ratings Lowered To 'A/A-1' On Weaker Growth Prospects, Uncertain Policy Environment; Outlook Negative", published Sept. 19, 2011, and "Seven Downgrades And Eight Outlook Revisions To Negative On Italian Banks After Sovereign Downgrade," published Sept. 21, 2011).

As of today, our ratings on 22 out of 43 Italian financial institutions carry negative outlooks. These reflect the negative outlook on the Republic of Italy and/or the potential for downside risk in our current expectations, either because the macroeconomic environment could deteriorate or because the effect on an individual bank's financial profile under our baseline scenario could be greater than expected.

RATINGS LIST

                                
Downgraded                                                    To                   From
Banca Monte dei Paschi di Siena SpA
Counterparty Credit Rating
                                                            BBB+/Stable/A-2      A-/Stable/A-2
Banco Popolare Societa Cooperativa SCRL
Credito Bergamasco
Banca Aletti & C. SpA
                                                            BBB/Stable/A-2       A-/Negative/A-2
Unione di Banche Italiane Scpa
                                                              A-/Stable/A-2        A/Negative/A-1
Banca Popolare dell'Emilia Romagna S.C.
                                                          BBB+/Stable/A-2      A-/Stable/A-2
Banca Popolare di Milano SCRL
Banca Akros SpA
                                                        BBB+/Negative/A-2    A-/Stable/A-2
Banca Carige SpA                               BBB+/Negative/A-2    A-/Negative/A-2
Banca Popolare di Vicenza ScpA
                                                        BBB/Stable/A-2       BBB+/Stable/A-2
Credito Emiliano SpA                           BBB+/Stable/A-2      A-/Stable/A-2
Veneto Banca SCPA                            BBB/Negative/A-2     BBB+/Negative/A-2
Cassa di Risparmio della Provincia di Teramo SpA
                                                        BB+/Negative/B       BBB/Negative/A-2
Cassa di Risparmio di Cento SpA
                                                        BB+/Stable/B         BBB-/Stable/A-3
Banca Popolare dell'Alto Adige
                                                        BBB+/Stable/A-2      A-/Stable/A-2
Banca di Bologna                               BB+/Stable/B         BBB-/Stable/A-3
Iccrea Holding SpA
Iccrea Banca SpA
Iccrea BancaImpresa SpA
                                                       BBB+/Stable/A-2      A-/Negative/A-2
Agos-Ducato SpA                               A-/Negative/A-2      A/Negative/A-1
Farmafactoring SpA                          BBB-/Stable/A-3      BBB/Stable/A-2
Banca Mediocredito del Friuli-Venezia Giulia SpA
                                                      BBB+/Stable/A-2      A-/Negative/A-2
BancaSai SpA                                   BB/Negative/B        BB+/Negative/B

Outlook Revised
                       To                   From
Banca di Credito Cooperativo San Marzano di San Giuseppe S.c.r.l.
                                                     BBB-/Negative/A-3    BBB-/Stable/A-3

CreditWatch Status Revised To Negative
                       To                   From
Dexia Crediop SpA                          BBB+/Watch Neg/A-2   BBB+/Watch Dev/A-2