Fitch sounds alarm on 2 Europe banks


WASHINGTON–Fitch Ratings warned Monday it could lower the triple-A ratings of Europe’s investment and development banks because they rely on support from troubled member countries. Fitch said it had put the top ratings of the European Investment Bank (EIB) and the Council of Europe Development Bank (CEB) on “rating watch negative,” saying they could be downgraded within the next three months. The French ratings agency said it had taken the action after placing six eurozone countries Friday on warning their credit scores could be downgraded. The countries targeted are Belgium, Cyprus, Ireland, Italy, Spain and Slovenia. The credit watches “could lead to a downgrade between one and two notches for these countries, which are all shareholders of CEB and EIB,” the firm said. Fitch said that if its review of the CEB and EIB concludes that a downgrade is warranted, “it is likely be limited to one or two notches.” The European Investment Bank is a long-term lending bank owned by the 27 EU countries. Besides the EU, the bank has business in 150 countries around the world. A downgrade of Spain, one of EIB’s largest shareholders with 9.7 percent of callable capital, would have the strongest impact, because it would affect the bank’s capital ratio, Fitch said. The EIB announced Thursday that it planned to borrow 60 billion euros (US$78 billion) on the markets in 2012, down from 75 billion euros this year. The Council of Europe Development Bank lends funds to support social development projects in Europe. Under a scenario involving a downgrade of Italy, Spain and Cyprus, Fitch said it anticipated a deterioration of the CEB’s asset quality.

Fitch said it had not reviewed the triple-A long-term rating assigned to the debt issues of the European Financial Stability Facility (EFSF), the EU’s rescue fund. “Although its debt is guaranteed by all eurozone countries, the rating is underpinned by the support from ‘AAA’ rated countries only,” the firm said. “Although France’s outlook has been revised to negative, the ‘AAA’ sovereign rating of France has been affirmed.”