Downgrade of Italy’s debt causes banks to decline

flag of ItalyFitch Ratings recently downgraded Italy’s credit rating to BBB+, citing capital concerns and the potential inability of the government to respond to another financial crisis, which contributed to a trading decline for Italian banks.

UniCredit, the largest bank in Italy, fell by as much as 2.5 percent, while Intesa Sanpaolo SpA, the nation’s second-largest bank, fell 1.7 percent, Bloomberg reports.

“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, which is poised to receive a second government bailout, according to Bloomberg.

Banks also slid after Goldman Sachs cut its price estimates for lenders. UniCredit fell from 6.33 euros to 5.8 euros, Intesa fell from 1.8 euros to 1.71 euros and Monte Paschi fell from 0.32 euros to 0.22 euros.

Investors sold off Italian bank stocks amid concerns that lenders would be required to provision against bad loans. Italian stocks saw some of the largest losses and gains in the euro-zone.

“Non-performing loans continue to rise and coverage ratios continue to drop—the pressure to provision is mounting,” Goldman Sachs analysts said, Financial Times reports.

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