Fitch continues downgrading spree

Ratings agency Fitch has downgraded Swiss bank UBS while placing French banks BNP Paribas, Credit Agricole, Société Générale and Banque Fédérative du Credit Mutuel as well as a number of global banks on negative watch.

Fitch Ratings has downgraded UBS’s long-term and short-term issuer default ratings as part of Fitch’s broader review of changing sovereign support in developed countries.

Earlier this week the agency downgraded Spanish and Italian debt as well as cutting six Portuguese banks’ viability ratings.

Further downgrades could follow.

In France Fitch has placed the viability ratings of BNP Paribas, Credit Agricole and Société Générale on Rating Watch Negative (RWN). BNP Paribas’s, Credit Agricole’s and Banque Federative du Credit Mutuel’s issuer default ratings have also been put on RWN.

Fitch said that credit risk in the Eurozone and therefore its ratings were affected by a number of factors, including below-trend economic growth prospects, ongoing sovereign risks in peripheral Europe and the costs and ambiguities of additional bank regulation.

Additional reasons include less compelling business models and returns for banks, political pressure to reduce or eliminate implicit state support, the consistent vulnerability of banks to market sentiment and the market’s growing realisation of pricing of these factors, Fitch added.

French banks have the most cross-border sovereign and non-sovereign exposure to Greece, Italy, Ireland, Portugal and Spain (PIIGS), Fitch’s report explained.

While exposure to Greece, Ireland and Portugal is modest, the inclusion of Spain and, in particular Italy, significantly increases the total exposure, it said.

Although Fitch considers that even under a severe stress there will not be a default of the Italian sovereign, as the market is increasingly viewing PIIGS exposures in the aggregate, concerns about overall capital adequacy are being raised.

The agency expects the large French banks’ capital ratios to rise over time as a result of earnings retention and other balance sheet management measures.

However, current and target ratios compare less favourably to benchmarks set by some other major European, the agency said. The banks’ recent announcements on asset reductions may not sufficiently allay concerns, it added.

The French banks were not the only targets of Fitch’s warnings.

In the US Fitch has placed the Goldman Sachs Group long- and short-term issuer default ratings and viability rating on RWN due to the structural challenges it faces given its wholesale funding profile and greater reliance on trading revenues.

Bank of America’s viability rating was placed on RWN as well as Morgan Stanley’s long- and short-term issuer default ratings and viability rating.

In South America Fitch has downgraded Banco Santander Chile’s Foreign and local currency long-term issuer default ratings to A+ from AA- and its foreign and local currency short-term issuer default ratings to F1 from F1+. Its rating outlook is changed to negative from stable.

According to Fitch, the rating action reflects the downgrade of Spain’s Banco Santander announced earlier this week.

Also in Switzerland Credit Suisse’s long-term issuer default rating was placed on RWN as well as its viability rating and short-term issuer default rating. As a result, its subsidiaries’ issuer default ratings have likewise been placed on RWN.

In the Nordic region OP-Pohjola Group’s and Danske Bank’s viability ratings and long-term issuer default ratings were placed on RWN.

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