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Moody's cuts ratings of 26 Italian banks

The banks include the country’s two largest banks, with one third of the market – while 10 banks are now ‘junk’.

Image: Yves Logghe/AP

THE RATINGS AGENCY Moody’s has cut the credit ratings of 26 Italian banks, including its largest, in a move that will come as a blow to efforts to reinforce the reputation of the EU’s banking system.

Moody’s said it had made the decision because the national economy was shrinking, while the government was continuing to push forward measures which would cut the size of its public sector and therefore reduce jobs.

“The ratings for Italian banks are now amongst the lowest within advanced European countries, reflecting these banks’ susceptibility to the adverse operating environments in Italy and Europe,” the agency said.

“Furthermore, recent events highlight the risks for creditors from potential weaknesses in governance, controls and risk management, especially at some smaller, privately-held banks.”

The country’s two largest banks, UniCredit and Intesa Sanpaolo – which between them account for around a third of Italy’s banking market – were downgraded from A2 to A3.

No fewer than ten banks have been downgraded to junk status or lower – with 15 of the country’s 41 banks now falling under that threshold.

The moves also mean that none of its banks hold any of the top five ratings given by the agency: four banks hold the A2 rating, the sixth-highest that Moody’s gives.

While many analysts had predicted a further wave of ratings cuts for Italy, the timing will come as a blow to European ministers as they try to restore Europe’s reputation amid the ongoing political turmoil Greece, as well as the change of regimes in the Netherlands and France.

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The eurozone’s finance ministers met in Brussels last night, and will be joined this morning by the finance ministers from the 10 EU countries who do not use the euro.

Bloomberg said Italian banks had picked up around a quarter of the €1 trillion injected into the European banking system by the ECB in two sets of three-year loans, using this money to buy Italian government bonds.

Explainer: After the global financial crisis, why are rating agencies still trusted?

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Gavan Reilly

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