Moody's downgrades 10 German banks

Moody’s has downgraded the credit ratings of 10 German public-sector banks, and taken action against another two, saying there is a lower likelihood the German government will step in with a bailout.

Moody's added the downgrades, which focused on senior debt and deposit ratings of the banks, are due to the support for German public-sector banks becoming less certain.

The downgrades come despite the German government announcing earlier this week it will reactivate its bank-rescue fund, giving the government the capability to recapitalise the country's banking system.

The ratings agency added the strict conditions set out by the European Commission have also played their part in the downgrades, as this makes it difficult for banks to accept state aid.

"The rating actions reflect Moody's assumption that there is now a lower likelihood that these banks would receive external support, if required," said Moody's.

BayernLB, Deutsche Hypo, LBBW, NordLB, NordLB Luxembourg and BremerLB all had their ratings lowered by three notches to Baa1 from A1.

Moody's downgraded Helaba, SaarLB and HSH Nordbank by two notches and Dekabank by one notch.

Meanwhile, US banking shares tumbled in the last hour of yesterday's session following a stark warning from Fitch the outlook for the sector is bleak if the eurozone crisis worsens.

The agency also cast doubt over whether credit default swaps would actually provide an effective hedge in the case of the crisis spreading.

The Dow Jones fell 190 points or 1.6%to 11,905.59, while the S&P 500 index declined 20 points or 1.7% to 1,236.