Twenty-Six Italian Banks Downgraded

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(The Blaze/AP) -- Moody's Investors Service downgraded 26 Italian banks Monday as they struggled with that nation's weak economy and with government austerity measures dampening demand for loans.

The firm said it based the new ratings on a number of criteria and separated the banks into four groups.

1. Two banks, UniCredit and Intesa Sanpaolo, together account for almost one-third of the Italian market. All their Moody's ratings remain at investment grade, and their assets are stronger, thanks to more solid, diversified business.

2. Next are six banks with ratings at the lower end of investment grade, "Baa3" or higher. They are better positioned than most of their peers to cope with the recession. This group includes the country's fifth-largest bank, Unione de Banche Italiane.

3. Seven banks with credit assessments at the high end of junk territory, "Ba1," face more significant challenges. This can include a combination of weak capital, insufficient internal capital and funding constraints.

4. The final group includes 11 banks with standalone credit assessments below "Ba1." They face more substantial challenges, often due to asset quality, capital or funding issues. This group includes the country's third-largest bank Bankca Monte Dei Paschi.

That news comes as Europe is facing a turnover of the elected officials who have held the Eurozone together. Both German Chancellor Angela Merkel and French President Nicholas Sarkozy faced defeats recently.

But Merkel is insisting that a heavy state election defeat for her party in Germany's most populous region won't weaken her as she grapples with a deepening European debt crisis.

Merkel also said Monday that she is "very relaxed" about national elections due in late 2013.

On Sunday, Merkel's conservative Christian Democrats slumped to their worst election result in North Rhine-Westphalia state since World War II, while voters strengthened a regional government that the party had portrayed as irresponsibly spendthrift. The outcome gave new confidence to Germany's center-left opposition.

But Merkel - insisting the election results were not about her record - said that her "work in Europe is not affected" by what she conceded was "a bitter, painful defeat."

Sarkozy loss to proud Socialist Francois Hollande.

For more must-read financial news from Europe, check out Tuesday's Morning Market Roundup.