Moody's Investors Service warned yesterday that it might downgrade the ratings of 114 European banks and financial groups as concerns linger over the euro-zone debt crisis.
The agency is assessing the long-term ratings and stand-alone credit of an array of lenders including Barclays, BNP Paribas, Crédit Agricole, Deutsche Bank, Société Générale and Unicredit. Moody's said it was also looking at institutions that have global capital market operations, among them UBS, Credit Suisse, Morgan Stanley and Goldman Sachs.
"While there are mitigating factors such as the currently supportive stance of many governments towards their banking systems and accommodative monetary policies, these are overshadowed by the aforementioned pressures," Moody's said in a statement.
The ratings agency "expects that once the reviews announced today are resolved, its EU bank ratings will fully reflect the effects of currently foreseen adverse credit drivers". The potential downgrades would push up borrowing costs for lenders, which are already grappling with expensive funding in a risky environment. The euro declined 0.4 per cent to trade at $1.3014 yesterday morning in Abu Dhabi. It earlier slid to $1.3008, the lowest level since January 25.
Global markets edged lower yesterday amid fears that Greece would default on an upcoming debt payment. The declines, however, were minimal when compared with the sell-offs seen during the August market rout, said Rakan Himadeh,a senior analyst at Al Mal Capital in Dubai.
In Asia, Japan's Nikkei 225 Index closed 0.2 per cent lower at 9,238.10. The Hong Kong Hang Seng Index fell 0.4 per cent to 21,277.28. In Europe, the UK's FTSE 100 Index declined 0.8 per cent to 5,840.27. Germany's DAX Index declined 1.3 per cent to 6,667.26. France's CAC 40 Index fell 0.8 per cent to 5,840.42.
"It's worrying," Mr Himadeh said. "Markets seem a bit complacent in the near term, but it should eventually catch up with them. Yields on Europe's sovereign debt have come off the highs we saw in August last year but are nowhere near the level they should be for a functional bond market."
Moody's on Tuesday downgraded the ratings of Italy and Spain. It kept a negative outlook on both countries. The ratings agency also warned that it might strip Austria, France and the UK of their "AAA" rank.
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