Chillin' out till it needs to be funded
Despite multiple actions on banks near or around the sovereign downgrades of last month, the sovereign downgrades to A+ for Itaaly and Junk for Portugal have not been factored into the banks’ ratings. S&P has S&P followed thexplicitly factorised the last mile for bank ratings as the strength of their connection with their governments, the last cycle of downgrades penalising those who were unlikely to get further support from their governments. After the Italian downgrade of last month, as many as 34 Italan Banks have consequently been downgraded, though the markets would hav elikely priced it in and no accidental run on margin revaluation is yet expected on Monday.
Italy’s high external public debt has also recently increased from an increasingly tentative UK government and that is another factor for S&P to strengthen on the Italian rating around but this downgrade means that the new package by Super Mario removing the pain of austerity has not cleared Italian external risks and thence further financing is unlikely to be easy as S&P notes on “external financing risks”
S&P cleared the decks for further ratings deluge throughout 2011, as I analyse it as it comments on the likely falling behind of Italian Banks’ prpfitability behind their borrowing costs. Negatve outlook has been maintained on the ratings wwith Unicredit and Intesa, the two As dropped to BBB+ And Banca Monte de Paschi to BBB from BBB+ and Banca Carige coming in arung lower as well
According to the FT, Italian Banks have recovered 64% from early January as auctions failed initially after the EUR 489 bln LTRO made most auctions on the continent highly liquid before and after the event when Unicredit rights devolved on the frsh underwriting by US banks after a long hiatus from Europe in November
Now that the French downgrade has been done by s&P, Fitch ( with HQ in France) wen t back aheadof S&P with downgrades for Italians last week. The italian $80 bln facility from UK could well be lost in intractable budget measures signed on reform that may not fructify, a buffer Greece does no thave and is unable oto make good in its ambition to lead to 120% of GDP from Eur 371 bln odd right now.
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