NEW YORK (Reuters) - Ratings agency Standard & Poor's on Friday downgraded a broad swath of Italian banks, citing worries that the recession in the euro zone's third-largest economy could mean mounting losses for the country's lenders.
Among the banks cut were giant Monte dei Paschi di Siena SpA
Monte Paschi, which has laid out a tough restructuring plan, is regarded as the weakest among Italy's top banks and was forced to ask state aid in June to boost its weak capital base.
A Monte dei Paschi spokesman declined to comment.
Italian banks are under pressure because of the widening euro zone debt crisis and are seen as vulnerable because of their vast holdings in Italian government bonds.
In its Friday actions, including cuts to 15 financial institutions, S&P noted worries about Italy's shrinking economy.
"With Italy facing a potentially deeper and more prolonged recession than we had originally anticipated, we think Italian banks' vulnerability to credit risk in the economy is rising," S&P said in a statement.
"In this context, the combined effect of mounting problem assets and reduced coverage of loan loss reserves makes banks more vulnerable to the impact of higher credit losses particularly in the event of deterioration in the collateral values of assets," it said.
Unione di Banche Italiane Scpa, Italy's fifth largest bank, was cut to BBB from BBB-plus, also still investment grade.
But Banca Carige SpA
S&P also cut Dexia Crediop SpA, the Italian public financing arm of bailed-out Franco-Belgian bank Dexia
Other banks saw their ratings affirmed, including Mediobanca SpA
Italy said earlier this week it was premature to say if they will seek the activation of EU mechanisms to buy their debt and bring down their borrowing costs.
Italian 10-year bond yields have risen in recent weeks as investors worry the euro zone's third-largest economy could find its debt loan unsustainable.
Italy has been one of the euro zone's most sluggish economies for over a decade. Analysts say radical reforms of the labor market, taxation and bureaucracy, as well as investment in education and infrastructures are needed for it to increase its potential.
(Reporting by Danilo Masoni, Caryn Trokie and Tiziana Barghini; Writing by Luciana Lopez; Editing by M.D. Golan)
