Moody’s cuts Italy’s MPS to junk

Rating agency Moody’s has cut to junk the rating of Banca Monte dei Paschi di Siena (MPS), Italy’s third largest lender, decreased to Ba2 from Baa3.

According to Moody’s, there is “material probability that the bank will need to seek further external support.”

MPS’s weak asset quality is also likely to deteriorate further due to Italy’s recession.

“MPS’s weak profitability and fragile asset quality exacerbate its weak funding position, leaving it unable to access capital markets and in consequence making MPS highly reliant on the European Central Bank,” Moody’s said in a statement.

MPS was the only Italian lender to fail stress tests of the European Banking Authority, and is the first among main domestic banks to fall below investment grade.

MPS recently approved a cost reduction plan which included 4,600 job cuts which, according to Moody’s, is subject to significant execution risk.

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