More talk of bank downgrades

Ratings agency Moody’s said yesterday it may downgrade some lenders with units in Eastern Europe, sending spreads on European bonds – including Greece’s – wider and bank stocks tumbling on the Athens bourse. The difference between what Germany and Austria pay to borrow for 10 years widened to a record, while the gap between Greek and German 10-year yields increased to 303 basis points. The figure stood at 35 basis points at the beginning of February last year. Lenders from Austria, Italy, France, Belgium, Germany and Sweden account for 84 percent of Western European bank loans in Eastern Europe, Moody’s said. Greek banks have also been expanding into neighboring countries such as Bulgaria and Romania in recent years in a bid to tap strong growing markets. Exposure to emerging markets has increased the risk profile of Greek lenders, as local economies deteriorate and weigh on company fundamentals. East European banks, which are mainly subsidiaries of financial institutions, such as Austria’s Raiffeisen Zentralbank, Italy’s UniCredit and Paris-based Societe Generale, are likely to come under «downward pressure,» which may also weaken their parent companies, Moody’s said in the report yesterday. «These spreads levels are being determined by issuer quality and default risk,» Marius Daheim, a senior fixed-income strategist in Munich at Bayerische Landesbank, told Bloomberg. «Spread levels are returning to euro-entry levels, which possibly signifies how little these countries have moved toward convergence. The fear of default is overblown though.» Meanwhile, bank shares on the Athens bourse lost 6.4 percent yesterday. National Bank, Greece’s largest lender, underperformed, ending 9.38 percent down at 11.40 euros. Other losers included Alpha and Eurobank, which fell 5.83 and 3.86 percent respectively.

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