S&P cuts, affirms Italian banks in sweeping changes

Fri Aug 3, 2012 5:49pm EDT
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MILAN/NEW YORK (Reuters) - Ratings agency Standard & Poor's on Friday downgraded a broad swath of Italian banks, citing worries that the recession in the euro zone's third-largest economy could mean mounting losses for the country's lenders.

Among the banks cut were giant Monte dei Paschi di Siena SpA (BMPS.MI: Quote). The bank stayed within the investment grade category - but only barely, slipping to BBB-minus from BBB.

Monte Paschi, which has laid out a tough restructuring plan, is regarded as the weakest among Italy's top banks and was forced to request state aid in June to boost its weak capital base.

A Monte dei Paschi spokesman declined to comment.

Italy's economy slid further into recession in the first three months of this year, the third consecutive quarterly decline in activity and the steepest economic contraction in three years.

In addition to its shrinking economy, Italy has been struggling to convince investors that its debt load is sustainable in an effort to keep from being the next economy - and the largest yet - in the euro zone to ask for a bailout.

Italian banks are under pressure because of the widening euro zone debt crisis and are seen as vulnerable because of their vast holdings in Italian government bonds.

In Friday's actions, including cuts to 15 financial institutions, S&P noted worries about Italy's shrinking economy.

"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," S&P said in a statement.   Continued...

A woman strolls in front of Monte dei Paschi bank headquarters in Siena June 27, 2012. REUTERS/Stefano Rellandini