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European banks suffer downgrade

Fitch Ratings has downgraded the debt ratings for five major European commercial banks and co-operative banking groups, citing the eurozone crisis and stronger headwinds facing the banking sector.

The ratings firm lowered the long-term issuer default and viability ratings by one notch for French banks Banque Federative du Credit Mutuel and Credit Agricole, Danish lender Danske Bank, Finland's OP Pohjola Group and Holland's Rabobank Group.

The move follows a review by Fitch of large European banks.

Fitch said the downgrades of Danske Bank and Credit Agricole reflect their subsidiaries' exposure to troubled eurozone countries.

The firm said the eurozone crisis also is hurting other lenders indirectly. Capital markets are not functioning effectively and the crisis is driving economic slowdown.

Uncertainty over how the eurozone crisis will be resolved, in addition to austerity measures being taken by some European governments, will affect commercial banking negatively, particularly in southern Europe and Ireland, Fitch said.

European banks are under mounting pressure. The German government announced yesterday that it is reactivating its financial sector rescue fund, and the European Banking Authority said last week that the continent's banks need to raise about 115 billion euro to protect lenders against market turmoil, including bad government debt.

Fitch said that the five lenders have improved their capital and liquidity positions, which is a positive for their credit ratings, and helped keep their viability ratings from dropping by more than one notch, Fitch said. "However, the general developments in the global economy and a notable shift in market confidence towards the banking sector as a whole outweigh the positives and have been the primary drivers of today's downgrades," the firm added.

Fitch lowered the long-term issuer default ratings for Banque Federative du Credit Mutuel, Credit Agricole and OP Pohjola Group to A+ from AA-. It cut Danske Bank to A from A+, and Rabobank Group to AA from AA+.

Concerns that governments are less likely to come to the rescue of financial institutions prompted Fitch to downgrade its outlook and ratings for Royal Bank of Scotland, Lloyds Banking Group and Swiss lender UBS AG in October.

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