Italian banking sector hits back at Moody’s

ROME/MILAN - Reuters

People walk past the building of Italian leading bank Unicredit. Moody’s has slashed its credit ratings of 26 Italian banks including UniCredit. AFP photo

Italy’s banking and business leaders has attacked Moody’s mass downgrade of Italian banks, branding the move as an irresponsible blow to the economically-strapped country while it battles eurozone debt woes and economic recession.

Moody’s downgrade of 26 Italian banks is the first round of a wave of credit rating cuts that is expected to hit dozens of euro zone lenders, adding to their difficulties in raising funds and exacerbating an existing credit crunch.

The move, which Moody’s pinned on a weakening operating environment made worse by Prime Minister Mario Monti’s tough austerity cure, came amid growing calls within the eurozone for a shift towards growth after months of strict fiscal discipline.

Pro-growth French President Francois Hollande is likely to press for a counterweight to austerity when he meets German Chancellor Angela Merkel on May 15 against a backdrop of Greek political instability and a deepening of Spain’s banking troubles.

“Moody’s decision is an assault against Italy, its companies, its families,” said Italian banking lobby ABI. “Once more rating agencies turn out to be a destabilizing factor for financial markets with their partial and contradictory statements.”

‘Attack against Italy’

Big business lobby chief Emma Marcegalia said she was concerned by such an “attack against Italy” and ABI head Giuseppe Mussari asked the European Central Bank and other European institutions to ignore the downgrade to avoid heightened funding strains and spiralling sovereign debt woes.

Italian market watchdog Consob, whose chairman has been critical of ratings agencies and of the importance attached to their rating decisions, summoned Moody’s in the next few days for questioning on the downgrade.

Moody’s move, following its February downgrade of Italy’s sovereign rating to A3 from A2, makes the ratings of Italian banks among the weakest in western Europe. Spanish banks, seen as one of the eurozone’s weakest links, are next on a hit list that will also reach Germany and France.

While large groups such as Intesa Sanpaolo and UniCredit have enough international reach and capital to absorb the Moody’s downgrade, this is more problematic for smaller lenders such as Banca Monte dei Paschi di Siena , which now stands just above “junk” or non-investment grade status. Intesa Sanpaolo, which said on May 15 that it had boosted first-quarter bad loan provisions by 43 percent from a year ago, said it would have to increase by 2 billion euros the collateral it has to provide in returns for ECB funds.

Italy’s business community and some regulators have been at the forefront of criticism of the three top agencies: Standard & Poor’s and Fitch as well as Moody’s. Italian prosecutors have also opened a probe into the three for possible market rigging.

Meanwhile, Moody’s is also set to ‘significantly’ downgrade 21 Spanish banks within a week, following a cut of credit ratings on Italian banks, the Spanish economic daily Expansion said yesterday.