Italian Banks Slide After Fitch Downgrades Country’s Debt Rating

Italian banks including UniCredit SpA (UCG) fell in Milan trading after Fitch Ratings cut the country’s credit rating and said some lenders may need extra capital.

UniCredit, Italy’s largest bank, dropped as much as 2.5 percent, and fell 8 cents at 3.87 euros at 10:35 a.m. Intesa Sanpaolo SpA (ISP), the second-biggest lender, declined 1.7 percent to 1.24 euros and Mediobanca SpA slid 3.7 percent to 4.51 euros. The FTSE Italia All-Share Banks Index (ITLMS) dropped 2 percent.

Fitch lowered Italy’s credit rating one level to BBB+ after markets closed last week, saying inconclusive parliamentary elections in February threatened the government’s ability to respond to a recession and the European debt crisis.

“If the recession is deeper and longer than currently anticipated, the risk that the government may be required to make further injections of capital, beyond the Monte dei Paschi recapitalization, cannot be discounted,” Fitch said, referring to Banca Monte dei Paschi di Siena SpA, Italy’s third-biggest lender, which is due to receive a second government bailout.

Banks also declined after Goldman Sachs Group Inc. reduced its price estimates for the lenders. UniCredit was cut to 5.8 euros from 6.33 euros, Intesa to 1.71 euros from 1.8 euros and Monte Paschi to 0.22 euros from 0.32 euros, Goldman said in an e-mailed report today.

Intesa and UniCredit are among Italian banks due to report losses for the fourth quarter this week, as the economic contraction meant more clients failed to repay their debts.

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net Francesca Cinelli in Milan at fcinelli@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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