Downgrade increases Italian banks' woes

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Downgrade increases Italian banks' woes

Downgrade increases Italian banks' woes
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Italian banks have suffered another blow with a mass downgrade by rating agency Moody’s.

They were already struggling with shrinking demand and soaring bad loans in austerity-hit Italy.

The 26 large and medium-sized Italian banks that have had their ratings cut will find it more difficult to borrow money.

The downgrades came as new figures show Italy’s economy slid further into recession in the first three months of this year.

The Italian economy contracted by a larger-than-expected 0.8 percent quarter-on-quarter in the first three months of 2012.

Moody’s action makes the ratings of Italian banks among the lowest of comparable European countries, with Banca Monte dei Paschi di Siena just above “junk” or non-investment grade status.

The move adds to funding difficulties stemming from the eurozone sovereign debt crisis and is expected to make it more costly for already hard-pressed Italian banks to finance their needs, increasing their reliance on European Central Bank funds.

Sharp reaction

The European Central Bank should disregard Moody’s decision to downgrade 26 Italian banks in its own relations with local lenders, the head of the Italian banking association ABI said.

“We forcefully ask that the ECB and European institutions disregard these judgements, otherwise it will create a short circuit we will never be able to get out of,” ABI head Giuseppe Mussari told a conference in southern Italy

The move was criticised as part of a “never-ending attack” on Italy by the head of Italian employers lobby Confindustria.

“These judgements should be made with more care, the situation is delicate and there is a never-ending attack that worries us,” Confindustria president Emma Marcegaglia said.