Italy Downgraded

On 4 Oct., the rating agency Moody’s downgraded Italy’s sovereign debt from Aa2 to A2, with a “negative outlook”, suggesting further downgrades could follow.

In its report, Moody’s said the decision was driven by the debt crisis, which was causing a “sustained and non-cyclical erosion of confidence” in Europe and increasing “long-term funding risks” for Italy.

The downgrade also hit Italian banks, with UniCredit taking the plunge from Aa3 to A2, and its Austrian subsidiary, Bank Austria, previously rated as A1, seeing its debts and deposits downgraded to A2 with a negative outlook.

While the downgrade could make it more expensive for Bank Austria to raise capital in the future, this is mitigated by the bank benefiting from the Aaa rating of the Austrian state, implying that the state could ultimately guarantee the debts of the country’s banks.

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