Hopefully all remember my proclamamtions on the FIRE sector and France suffereing from Italian exposure. I also warned on Italy itself, two year ago (subscribers reference Italy public finances projection). Thus, in today's news...
(Reuters) - Moody's lowered the credit rating of three major Italian insurers on Tuesday, piling more pressure on the euro zone's third largest economy after a string of downgrades on Monday and a sovereign downgrade last week.
Italy's largest domestic insurer Generali Assicurazioni and its subsidiaries were lowered to Baa1, while Unipol Assicurazioni, and Allianz Spa had ratings cut by two notches each.
"The downgrade of Generali reflects the insurer's direct exposure to Italian sovereign risk in terms of both investment portfolio and business profile," Moody's said in a statement.
By the end of 2011, Italian government bonds represented 19 percent or 46 billion euros ($56.18 billion) of Generali's total fixed-income portfolio, or 253 percent of shareholders' equity, according to the statement.
Government bonds constituted 47 percent of the fixed income portfolio of Unipol Assicurazioni with 222 percent of shareholders' equity.
All the institutions mentioned in the statement were given negative outlooks.
Included in this group were the insurers that I cautioned on in 2010 (subscribers reference Sovereign Debt Exposure of European Insurers and Reinsurers (439.61 kB 2010-05-19 01:56:52)
My warning on the Italian banks have come to pass (subscribers reference Italian Banking Macro-Fundamental Discussion Note) as Moody's slashes ratings of 13 Italian banks: The move follows a cut in the Italian government's long-term issuer rating last week. Italian banks had previously been downgraded in mid-May, as part of an international bank rating review. Ratings agencies rarely rate banks higher than the country in which they are headquartered, as they assume that if the sovereign goes, so will the bank. Therefore, the downgrades aren't exactly surprising, but could increase pressure on the already troubled lenders.
As a result Italian yields went up a few days ago - Italian Yields Forced Higher on Rating's Cut Ahead of Debt Sale, and went even higher today as Bund yeilds were actually issued with negative yields pushing that spread/gap ever wider... Bunds rise as Germany sells debt at negative yields
Italian 10-year yields were four basis points up at 6.07 percent, with two-year debt underperforming, yielding 8 bps more on the day at 3.96
Mish (Mike Shedlock) adds... Italy GDP expected to contract by 2% globaleconomicanalysis.blogspot.com/.../
So, when are the alarms going to be sounded by anybody other then BoomBustBlog for France??? I have made this quite clear in the past, namely in Watch The Pandemic Bank Flu Spread From Italy To France To ... where I simply quoted the arithmetical obvious, then in French Banks Can Set Off Contagion That Will ... where I basically did the same. Subscribers can reference French Bank Observations & Focus on...(519.21 kB 2012-06-28 08:36:37). Part and parcel to this common sense update is recognition of the fact that Italy will bust French banks, causing France to do the socialist bailout thingy. See this chart from the report...
French bank Italian Exposure: As Italy pops with outrageous funding yields (just like Greece), France will be forced to bailout its banks once again, leaving the socialist country facing the dilemma of potentially having to ask for a bailout itself. As you may know from my previous writings, the French banking system is bigger than France itself so a true bailout cannot practically come from within.
Subscribers, see also
- Sovereign Contagion Model - Retail (961.43 kB 2010-05-04 12:32:46)
- Sovereign Contagion Model - Pro & Institutional
- Irish Bank Strategy Note
- Euro Bank Soveregn Debt Exposure Final -Retail
- Euro Bank Soveregn Debt Exposure Final - Pro & Institutional