Ratings agency Standard & Poor's on Friday downgraded a broad swath of Italian banks, citing worries that the recession in the euro zone's third-largest economy could mean mounting losses for the country's lenders.
Among the banks cut were giant Monte dei Paschi di Siena SpA <BMPS.MI>. The bank stayed within the investment grade category - but only barely, slipping to BBB-minus from BBB.
Monte Paschi, which has laid out a tough restructuring plan, is regarded as the weakest among Italy's top banks and was forced to request state aid in June to boost its weak capital base.
A Monte dei Paschi spokesman declined to comment.
Italy's economy slid further into recession in the first three months of this year, the third consecutive quarterly decline in activity and the steepest economic contraction in three years.
In addition to its shrinking economy, Italy has been struggling to convince investors that its debt load is sustainable in an effort to keep from being the next economy - and the largest yet - in the euro zone to ask for a bailout.
Italian banks are under pressure because of the widening euro zone debt crisis and are seen as vulnerable because of their vast holdings in Italian government bonds.
In Friday's actions, including cuts to 15 financial institutions, S&P noted worries about Italy's shrinking economy.
"With Italy facing a potentially deeper and more prolonged recession than we had originally anticipated, we think Italian banks' vulnerability to credit risk in the economy is rising," S&P said in a statement.
"In this context, the combined effect of mounting problem assets and reduced coverage of loan loss reserves makes banks more vulnerable to the impact of higher credit losses particularly in the event of deterioration in the collateral values of assets," it said.
Unione di Banche Italiane Scpa, Italy's fifth-largest bank, was cut to BBB from BBB-plus, still investment grade.
But Banca Carige SpA <CRGI.MI> lost its BBB-minus investment grade rating in a cut to BB-plus.
S&P also cut Dexia Crediop SpA, the Italian public financing arm of bailed-out Franco-Belgian bank Dexia <DEXI.BR>, to B-plus from BB-minus.
Other banks' ratings were affirmed, including Mediobanca SpA <MDBI.MI>, Intesa Sanpaolo SpA <ISP.MI> and UniCredit SpA <CRDI.MI> at BBB-plus, all still investment grade.
Italy said earlier this week it was premature to say if the banks will seek the activation of EU mechanisms to buy their debt and bring down their borrowing costs.
Italian 10-year bond yields have risen in recent weeks as investors worry the country could find its debt loan unsustainable.
Italy has been one of the euro zone's most sluggish economies for over a decade. Analysts say radical reforms of the labor market, taxation and bureaucracy, as well as investment in education and infrastructure, are needed for it to increase its potential.
Previous downgrades by rating agencies of Italy and its financial institutions have fueled criticism and prompted judicial investigations.
A downgrade of Italy by Moody's in July fueled angry reactions, with Italian Industry Minister Corrado Passera calling it "altogether unjustified and misleading."
A mass downgrade of banks by Moody's in May was branded by local banking and business leaders as an irresponsible blow to the economically-strapped country while it battles euro zone debt woes and economic recession.
The three global rating agencies, S&P, Fitch and Moody's, are under investigation by prosecutors from Trani, a small town in southern Italy, for a raft of downgrades between 2010 and 2012 that triggered a sell-off of Italian assets.