In a move that would make horror movie characters such as Freddie Krueger or Michael Myers proud the credit ratings agency Moody’s has once again embarked on a slashing spree.
This time the agency slashed the credit ratings of up to 13 of Italy’s major banks, including the big players of SanPaolo and Unicredit. They were cut from A3 down to Baa2 with a negative outlook and now match the country’s sovereign rating which was also reduced on Friday. Now the majority of banks are now stuck two notches above junk status.
This latest move by Moody’s follows a year of slashes to virtually every bank and nation on the planet. Over 80 different banks, companies and nations have seen their credit ratings reduced by the agency. Moody’s, along with the other major credit rating agencies, is often the subject of criticism from countries whose public debt is downgraded, generally claiming increased cost of borrowing as a result of the downgrade.
Political leaders such as Italy’s Mario Monti and Spain’s Mariano Rajoy have criticised the moves as unfair and claim that the seemingly indiscriminate cuts are hurting any chance of a global recovery. Once a ratings agency begins to reduce a bank’s or nations credit score the impacts are often felt in the currency and stock markets as investors are given further cause to panic and cut their losses.
In regards to today’s cuts, Moody’s said; “Along with the increase in the risk of sovereign bond defaults, the downgrade of Italy’s long-term ratings to Baa2 also indicates a similarly increased risk that the government might be unable to provide financial support to its banks in financial distress,”
They also cut the ratings for several major utility companies, 23 local government authorities and Italy’s biggest postal service.
Moody’s went on to say that fragile market confidence and financial problems in Greece and Spain have increased the risks Italy faces. Moody’s also said it’s worried about a diminished willingness among overseas investors to buy Italian bonds. The new rating for government bonds – Baa2 – is two notches above junk status.
As the Euro crisis rumbles on we are can be certain that Moody’s and other credit ratings agencies slashing sprees are far from finished.
The Pound to Euro exchange rate is currently trading at 1.271
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