Moody's Begins Euro-Bank Downgrade Tour With Italy

NEW YORK (TheStreet) - Over two dozen Italian banks were downgraded by Moody's Investors Services Monday as the rating agency kicked off a promised multi-week revision of its assessment of Western-European financials.

The downgrades ranged from one to four notches, with banks such as Cassa di Risparmio di Ferrara scraping the ratings basement with a D- and Intesa Sanpaolo SpA hitting the top of the range with a C+. UniCredit SpA -- one of the country's largest institutions -- had its rating cut to C-.

Overall 26 banks were cut, with ratings declining by one notch for 10 banks, two notches for eight banks, three notches for six banks and four notches for two banks, Moody's said.

The cut makes Italian banks among the lowest-rated banks within Western Europe,. Moody's view is that the country's recession and government austerity, rising problem loans and restricted access to market funding have hobbled Italy's financial industry.

"[Given] already elevated problem loan levels and weakened profitability, Italian banks are particularly vulnerable to adverse operating conditions, which are likely to cause further asset quality deterioration, earnings pressure, and restricted market funding access," the agency's statement said. "These risks are exacerbated by investor concerns over the sustainability of the Italian government's debt burden, which has contributed to the difficult wholesale funding conditions faced by Italian banks."

The downgrade parade is far from over for European banks. Moody's announced in April that it plans review the creditworthiness of all Western European banks beginning this month and ending in June.

Next up are Spanish banks, according to the Moody's, although the agency says that, "The timetable is contingent upon timely completion of internal due processes and could be delayed by external events outside Moody's control."

--Written by Christopher Westfall in New York.