S&P Lowers Rating on Monte Paschi, 23 Other Italian Lenders

Standard and Poor’s lowered its rating on Italy’s banking industry and downgraded 24 lenders including Banca Monte dei Paschi di Siena SpA (BMPS), saying fallout from the sovereign debt crisis would boost their borrowing costs.

“We think funding costs for the banks will increase noticeably because of higher yields on Italian sovereign debt,” S&P said in e-mailed press release. “Furthermore, higher funding costs for both the banking and corporate sectors are likely to result in tighter credit conditions and weaker economic activity in the short-to-medium term.”

Italy’s 10-year bond yield rose 7 basis points to 5.867 percent today, the highest close since before the European Central Bank began buying Italian bonds on Aug. 8 to try to stop a surge in borrowing costs.

S&P lowered Monte Paschi’s rating one level to BBB+. It also cut its Banking Industry Country Risk Assessment for Italy to Group 3 from Group 2. S&P affirmed its ratings on 19 banks, including UniCredit SpA (UCG), the country’s biggest lender.

UniCredit is the only large bank that hasn’t been cut since S&P lowered Italy’s sovereign rating by one level on Sept. 19. The rating company downgraded Italy for the first time in five years on concern that weakening economic growth and a “fragile” government mean the nation will struggle to reduce the euro-region’s second-largest debt burden.

“Funding costs for Italian banks and corporates will remain noticeably higher than those in other euro zone countries unless the Italian government implements workable growth enhancing measures and achieves a faster reduction in the public-sector debt burden,” S&P said today.

S&P lowered Italy’s sovereign rating last month to A from A+ with a negative outlook four months after the company warned of the risk of a downgrade.

To contact the reporter on this story: Chiara Vasarri in Rome at cvasarri@bloomberg.net

To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net.

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