Fitch downgrades UBS, puts other banks on review (Reuters)

(Reuters) – Fitch Ratings downgraded UBS AG (UBS.N) on Thursday and placed seven other U.S. and European banks on credit watch negative, citing challenges in the economy and financial markets, as well as the impact of new regulations.

The ratings agency lowered UBS's long-term issuer default rating to A from A+.

Fitch is also reviewing ratings for Barclays Bank Plc (BARCBB.UL), BNP Paribas (BNPP.PA), Credit Suisse Group AG (CSGN.VX), Deutsche Bank AG (DBKGn.DE), Societe Generale (SOGNNY.UL), Bank of America Corp (BAC.N), Morgan Stanley (MS.N) and Goldman Sachs Group Inc (GS.N) for further possible downgrades.

The cuts would in most cases be one notch and in some cases two notches, Fitch said. A lower bond rating can make debt more expensive to issue and lead to higher collateral requirements.

Earlier on Thursday, Fitch also lowered its ratings on Royal Bank of Scotland (AAHAUS.UL) and Lloyds Banking Group PLC (LLOY.L) two notches to A from AA-.

Exposure to the European debt crisis and concern about the business model of pure-play investment banks were catalysts for most of the ratings actions, Joo-Yung Lee, a managing director in Fitch's financial institutions group, told Reuters.

"Some of these banks have greater reliance on wholesale funding and greater reliance on what we view as volatile trading earnings," Lee said. "That's particularly true of Goldman Sachs and Morgan Stanley in the U.S. They are less diverse than their global universal bank peers."

In the case of Bank of America, its exposure to mortgage-related litigation was a driver for Fitch's review. Competitors like Wells Fargo & Co (WFC.N) and JPMorgan Chase & Co (JPM.N) were not targeted because they have diverse business models, steady funding streams and no company-specific issues that put them at serious risk, Lee said.

Fitch does not have a specific deadline to finish its review, but Lee said it hopes to resolve the matter quickly to reduce market uncertainty.

(Additional reporting by Herb Lash in New York; Editing by Gary Hill)

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Fitch cuts ratings on European banks (AP)

LONDON – Concerns that governments are less likely to come to the rescue of financial institutions prompted Fitch credit ratings agency to downgrade its outlook for Britain's Royal Bank of Scotland Group PLC, Lloyds Banking Group and Swiss lender UBS AG on Thursday.

Fitch also said it is reviewing the ratings of a host of European lenders, citing ongoing exposure to sovereign-debt in peripheral Europe and sluggish economic growth prospects. The costs of additional bank regulation and political pressure to reduce state support for banks continue to pose challenges to lenders, Fitch said.

Fitch is the second major credit rating agency in less than a week to slash its ratings of Royal Bank of Scotland and Lloyds. Last week, Moody's cut its ratings on the two U.K. banks for the same reason.

"The banking system is not only very large relative to the U.K. economy, but there is also more advanced political will to reduce the implicit support for the country's banks," Fitch said in a statement explaining its downgrade of the British lenders.

It lowered its long-term ratings for the two large bailed-out banks by two notches to A from AA-.

The credit rating agency dropped Swiss lender UBS one notch to A from A+ and Germany's Landesbank one notch to A+ from AA-.

The moves follow similar actions taken against Italian lenders

Fitch also put Barclays on notice for a possible downgrade, but the British arms of HSBC PLC and Spain's Banco Santander SA were unaffected.

France's BNP Paribas and Societe Generale were also put on negative ratings watches, along with Credit Suisse, Deutsche Bank and Rabobank.

U.S.-based Morgan Stanley and Goldman Sachs rounded out the banks put on negative ratings watch.

Fitch said it expects to make a decision on possible ratings downgrades "within a short time frame and take corresponding rating actions where warranted."

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Fitch cuts Italy, Spain ratings; outlook negative (Reuters)

ROME (Reuters) – Fitch Ratings on Friday cut Italy's sovereign credit rating by one notch and Spain's by two, citing a worsening of the euro zone debt crisis and a risk of fiscal slippage in both countries.

The cuts underline the growing vulnerability of the euro zone, which is already struggling to contain the turmoil in the far smaller Greek economy and which would be overwhelmed by a crisis of a similar scale in Italy.

Fitch cut Italy's rating to A+ from AA- and lowered Spain to AA- from AA+.

It kept both countries, respectively the third and fourth largest in the euro zone, on a negative outlook suggesting further downgrades could come in future.

Italy and Spain are embroiled in the region's debt crisis and are reliant on the European Central Bank to buy their government bonds to prevent yields rising to unsustainable levels.

"A credible and comprehensive solution to the (euro zone) crisis is politically and technically complex and will take time to put in place," the ratings agency said in separate statements explaining its downgrades of both countries.

Fitch's rating for Italy is now at the same level as it rates Malta and Slovakia.

After remaining on the fringes of the euro zone crisis until the summer, Italian benchmark 10-year bonds now yield around 5.5 percent, having overtaken Spain's yield of around 5 percent in a sign of markets' increasing unease about Italy.

ECB HELP

Both yields would be higher but for the ECB, which was cited by traders as supporting both countries' bonds in the market again on Friday.

Fitch, the third ratings agency to downgrade Italy in recent weeks following similar moves by Standard & Poor's and Moody's, said market confidence in Italy had been eroded by the government's initially hesitant response to the rise in yields.

The euro fell against the dollar and the yen following the downgrades and U.S. shares fell, but analysts said the move on Italy was largely discounted.

"Fitch's motivations do not differ much from what the other two agencies said. I don't foresee big moves in the markets as a reaction," said BNP Paribas strategist Alessandro Tentori.

ING analyst Paolo Pizzoli said the downgrade should be seen as further pressure on the government to adopt growth enhancing structural reforms which were lacking from a recently approved austerity plan aimed at balancing the budget in 2013.

"There has been a chorus of appeals from the ECB, the EU and the IMF. They have all asked for structural reforms for growth and this (Fitch) is another element in that direction."

Silvio Berlusconi's scandal hit government plans to present a package of measures to help growth later this month but his coalition is so weak and divided that few analysts have any confidence in its ability to adopt the deep reforms required.

Spain's Socialist government has slashed its budget deficit with a series of austerity reforms, although much of the country's debt lies in its autonomous regions which are still implementing cuts.

"LIKE A HERD"

"We respect the decision but we don't agree with it," said a spokesman at Spain's economy ministry.

Italian officials sought to make light of the downgrade. Foreign Minister Franco Frattini said it was fully expected and added dismissively that "markets don't care much about the role of Fitch, Moody's and company."

Fabrizio Saccomanni, deputy governor of the Bank of Italy, said ratings agencies "move like a herd, they all go in the same direction and at the same time." Fitch's move "doesn't change the picture," he added.

Berlusconi flew to Russia on Friday to celebrate Prime Minister Vladimir Putin's birthday, but a statement from his office said Fitch's comments were more positive than the other agencies', and Italy's fiscal efforts were widely appreciated.

Fitch said both Spain and Italy were solvent but pointed to their weakening economic growth prospects and urged Italy, one of the world's most sluggish economies for over a decade, to make "a more radical and sustained economic reform effort."

(Reporting By Gavin Jones, Fiona Ortiz, Catherine Hornby, Nigel Tutt, Francesca Landini and Silvia Aloisi; Writing by Gavin Jones; Editing by Ron Askew and Chizu Nomiyama)

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