S&P downgrades 34 Italian banks including UniCredit and Intesa Sanpaolo

11 Feb 2012

Standard & Poor's, downgraded 34 Italian banks yesterday, including heavyweights UniCredit and Intesa Sanpaolo, citing reduced ability to roll over their wholesale debt and expected weak profitability.

The rating agency's move comes with it downgrading Italy's sovereign rating last month to BBB+, as part of a mass downgrade of nine euro zone countries.

S&P said in a statement that its so-called Banking Industry Country Risk Assessment was down to group 4 from group 3 -- out of 10 groups as it reflected a more negative view on Italy's banking system.

"Italy's vulnerability to external financing risks has increased, given its high external public debt, resulting in Italian banks' significantly diminished ability to roll over their wholesale debt," it said.

"We anticipate persistently weak profitability for Italian banks in the next few years, and a risk-adjusted return on core banking products that may not be sufficient for banks to meet their cost of capital… We believe this may be negative for the Italian banking industry's stability."

Italian banks have taken the brunt of a sell-off in Italian assets as the euro zone's third-largest economy slid into the single currency bloc's debt crisis last summer.