SP Downgrades 15 Italian Financial Institutions

Standard & Poor’s Ratings Services today said it has taken rating actions on 32 Italian financial institutions.

These include affirming our counterparty credit ratings on 15 entities, lowering our ratings on 15, removing the ratings on four from CreditWatch negative, and revising the outlook on one.

The rating actions reflect our view of increased credit risk for the Italian economy and its banks. They follow our revision of our economic risk score for Italy, one of the main components of our Banking Industry Country Risk Assessment (BICRA), to ’5′ from ’4′. We have maintained our BICRA for Italy at group ’4′ and our industry risk score at ’4′ (see “BICRA On Italy Maintained At Group ’4′, Economic Risk Score Revised To ’5′ On Increased Credit Risk For Italian Banks,” published Aug. 3, 2012, on RatingsDirect on the Global Credit Portal).

With Italy facing a potentially deeper and more prolonged recession than we had originally anticipated, we think Italian banks’ vulnerability to credit risk in the economy is rising. In this context, the combined effect of mounting problem assets and reduced coverage of loan loss reserves makes banks more vulnerable to the impact of higher credit losses particularly in the event of deterioration in the collateral values of assets.

In our opinion, a more severe recession will likely push up the stock of Italian banks’ problem assets in 2012 and 2013 to levels higher than we previously expected and high relative to the stocks in other banking systems in Europe. At the same time, the banks’ coverage of problem assets through provisioning, which was already low by international standards because of the banks’ extensive use of tangible collateral in their assessment of provisioning needs, has fallen further over the past few years.

We will publish individual research updates on the banks identified below, including a list of ratings on affiliated entities, as well as the ratings by debt type senior, subordinated, junior subordinated, and preferred stock.

See the list below for the rating actions on the financial institutions and their relevant subsidiaries.

Fitch affirms Italy at “A-”

Fitch Ratings has affirmed Italy’s Long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘A-’ with a Negative Outlook.

The short-term foreign currency rating is affirmed at ‘F2′ and the country ceiling at ‘AAA’. In affirming Italy’s sovereign ratings Fitch has sought to look beyond current economic and financial conditions and take into account recent and prospective structural reforms that would enhance the growth potential of the economy as well as its assessment that debt stabilisation and reduction is within reach.

In addition, the affirmation reflects the demonstrated commitment of the government to reducing the budget deficit and public debt, as well as parliament’s adoption of a balanced budget amendment to the Constitution and ratification of the Fiscal Compact. The affirmation of Italy’s sovereign ratings’ is based on the following key factors and judgements.

[text] Moody’s downgrades #Italy’s government bond rating to Baa2 from A3, maintains negative outlook

Moody’s downgrades Italy’s government bond rating to Baa2 from A3, maintains negative outlook

Frankfurt am Main, July 13, 2012. Moody’s Investors Service has today downgraded Italy’s government bond rating to Baa2 from A3. The outlook remains negative. Italy’s Prime-2 short-term rating has not changed.

The decision to downgrade Italy’s rating reflects the following key factors:

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. The risk of a Greek exit from the euro has risen, the Spanish banking system will experience greater credit losses than anticipated, and Spain’s own funding challenges are greater than previously recognized.

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. Failure to meet fiscal targets in turn could weaken market confidence further, raising the risk of a sudden stop in market funding.

Tuttobene. The Italian attitude explained

 

 

 

 

 

 

 

 

 

 

 

This could be the best text of resignation for the Italian Government. Just perfect! A2

1) The fragile market sentiment that continues to surround euro area sovereigns with high levels of debt implies materially increased financing costs and funding risks for Italy. The country is a frequent issuer with refinancing needs of more than EUR200 billion in 2012. Although future policy actions within the euro area could reduce investors’ concerns and stabilise funding markets, the opposite is also increasingly possible. Even if policy actions were to succeed in the short term in returning some degree of normality to euro area sovereign debt markets, the underlying fragility and loss of confidence is deep and likely to be sustained. As indicated by the A2 rating, the risk of default by Italy remains remote. Nonetheless, Moody’s believes that the structural shift in sentiment in the euro area funding market implies increased vulnerability of this country to loss of market access at affordable rates that is incompatible with a ‘Aa’ rating. Moreover, the preponderance of downside risks and the potential for rapid rating transition which those risks imply are not compatible with a rating at the top end of the ‘A’ range. The repositioning of Italy’s government bond rating to A2 reflects Moody’s judgment of the balance of long-term risks facing the Italian sovereign. It is consistent with Moody’s broader reassessment of sovereign risk in the euro area, focusing on member countries that are more susceptible to confidence-related shocks due to high public debt exposure and/or large fiscal imbalances.

2) The Italian economy continues to face significant challenges due to structural economic weaknesses. These problems — mainly low productivity and important labour and product market rigidities — have been an impediment to the achievement of higher potential growth rates over the past decade and continue to hinder the economy’s recovery from the severe recession it experienced in 2009. These structural impediments to economic growth cannot be removed quickly. The government’s reform plans have only just started to address some of these structural challenges, and they need to be implemented efficiently. Moreover, moderate medium-term growth prospects for the Italian economy have been further revised downwards due to potential adverse effects of a weakening European and global growth outlook. Economic growth will be a crucial factor determining the government’s revenues, the achievement of fiscal consolidation targets and, ultimately, its debt trajectory.

3) Finally, there is increasing uncertainty for the government to achieve fiscal consolidation targets. Since more than half of the consolidation measures are based on government revenue growth, the plans are vulnerable to the high level of uncertainty around economic growth in Italy and elsewhere in the EU. Moreover, political consensus on additional expenditure cuts can be difficult to achieve. As a consequence, the government may find it challenging to generate the primary surpluses that are needed to place the public debt-to-GDP ratio and the interest burden on a solid downward trend. Moody’s expects Italy’s public debt-to-GDP ratio to reach 120% at the end of this year, up from 104% at the start of the global crisis. As well as posing a risk to Italy’s financial strength, which is a key consideration under Moody’s sovereign methodology, failure to achieve fiscal and debt targets could increase the country’s susceptibility to financial market shocks.

(Moody’s)