Moody's Cuts Ratings on Italian Banks

Moody's Investors Service lowered its long-term ratings on 10 Italian banks and its issuer ratings on three Italian financial institutions by one to two notches Monday, following its downgrade of Italy's government bond rating last week.

The ratings firm noted its downgrade of Italy's long-term ratings last week indicates an increased risk that the government might be unable to provide financial support to its banks in financial distress. Moody's also said Italian banks' substantial exposure to the domestic economy, along with its high direct exposure to sovereign debt, have resulted in standalone credit assessments that are no higher than the sovereign rating.

Moody's lowered its long-term ratings on UniCredit (UNCFF, UCG.MI), Intesa Sanpaolo (ISNPY, ISP.MI) and Banca IMI, two notches to Baa2, in line with the Italian sovereign rating. The ratings on Banca Monte Parma, Cassa di Risparmio di Parma e Piacenza, Banca Popolare Friuladria and GE Capital SpA were lowered one notch to Baa2. The ratings on Banca CR Firenze, Cassa Depositi e Prestiti and Istituto Servizi Mercato Agricolo Alimentare were also downgraded to Baa2.

Banca Carige (CRG.MI) and Credito Emiliano's (CE.MI) ratings were lowered by one notch to Baa3. Banca Nazionale del Lavoro's Baa2 rating was affirmed. UniCredit unit UniCredit Leasing's ratings were downgraded one notch to Baa3.

The banks' outlooks are negative.

On Thursday, Moody's cut Italy's government-bond rating to just two notches above junk territory and warned of the possibility of further action, highlighting the challenges the sovereign and the wider region face in escaping the ongoing debt crisis. Moody's rates Italy at Baa2 with a negative outlook.

Moody's downgrade of Italy is the latest illustration of the rapid deterioration in creditworthiness of euro-zone sovereigns and their banks, as the debt crisis drags on the health of the currency bloc as a whole. In January, Standard & Poor's Ratings Services cut Italy's rating by two notches to triple-B-plus, while stripping Austria and France of their triple-A ratings--but sparing Germany--and downgrading six others.

Moody's had downgraded 26 Italian banks in May to reflect the increasingly challenging operating conditions they face as Europe's sovereign-debt crisis continues to drag on the euro zone's third-largest economy.

-Write to Nathalie Tadena at [e-mail]