Investors are re-pricing risk on Italian banks, S&P warns
Pricing of the bonds and credit default swaps of three major Italian banks suggests that investors attach to those assets a higher risk profile than the one assigned by Standard & Poor’s, the rating agency has warned.
In the report “Italian Banks’ Credit Spreads Widen As Eurozone Debt Crisis Continues,” Standard & Poor’s suggests Banca Monte dei Paschi di Siena, Intesa Sanpaolo, and UniCredit are bearing the weight of investors’ concerns over contracting economies elsewhere in Europe, and fears of economic contagion in the rest of the world. This is leading to a re-price in the risk.
Bond yields for the three banks appear high for their rating category but are not unexpected, given the negative outlooks and investor fears of contagion spreading from Greece.
“The three Italian banks already have a negative rating outlook, implying a one-in-three chance that we could lower the ratings in the next two years,” said Standard & Poor’s.
The agency added: “We expect non-performing assets for these three banks to accumulate in 2012 and 2013 at rates above those of the past two years, reflecting the weakening Italian economy. In addition, we expect the noticeably increased cost of funding, as reflected in part by bond yields, and weakened growth prospects across Europe to pressure bank earnings.”