[table] EU Banking Recapitalization Cost (% of GDP) twitter.com/lemasabachthan…
— lemasabachthani (@lemasabachthani) March 19, 2013
Data released last week showed that customers withdrew €74bn of deposits in July alone – equivalent to 4.7% of total deposits and the biggest monthly outflow since records began. Since June last year, clients have withdrawn €233bn (see chart), or 13% of the total then.
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.
Eurogroup statement on Spain
The Eurogroup supports the efforts of the Spanish authorities to resolutely address the restructuring of its financial sector and it welcomes their intention to seek financial assistance from euro area Member States to this effect.
The Eurogroup has been informed that the Spanish authorities will present a formal request shortly and is willing to respond favourably to such a request. The financial assistance would be provided by the EFSF/ESM for recapitalisation of financial institutions. The loan will be scaled to provide an effective backstop covering for all possible capital requirements estimated by the diagnostic exercise which the Spanish authorities have commissioned to the external evaluators and the international auditors. The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to EUR 100 billion in total.