Moody's cuts Spanish banks on sovereign downgrade

NEW YORK Mon Jun 25, 2012 7:39pm EDT

An elderly man walks past a branch of Spain's lender bank Bankia in Madrid June 25, 2012. REUTERS/Susana Vera

An elderly man walks past a branch of Spain's lender bank Bankia in Madrid June 25, 2012.

Credit: Reuters/Susana Vera

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NEW YORK (Reuters) - Moody's Investors Service on Monday downgraded the long-term debt and deposit ratings for 28 Spanish banks and two issuer ratings, following on the heels of a cut to Spain's sovereign rating to just above junk status earlier this month.

The banks have several links to the sovereign, Moody's said in a statement, and so Spain's reduced creditworthiness "implies a weaker credit profile for Spanish banks."

The banks' exposure to commercial real estate was another factor in the cuts, Moody's said, because higher losses are likely, "which might increase the likelihood that these banks will require external support."

Among the downgrades was a cut to Banco Santander's (SAN.MC) (SAN.N) long-term rating to Baa2 from A3. But the rating is under review for further downgrade, meaning more cuts could be forthcoming to the euro zone's largest banks.

Still, Monday's move kept Santander one notch above the sovereign rating of Baa3, the Moody's release noted, because of the bank's geographic diversity and manageable exposure to Spanish sovereign debt.

Santander has considerable operations throughout Latin America, including Brazil, the region's largest economy. Its exposure in emerging markets, many of which are growing, helps offset stagnation in developed economies.

The rating agency also cut Banco Bilbao Vizcaya Argentaria SA (BBVA.MC) (BBVA.N) to Baa3 from A3 - just barely above junk status. Bankia (BKIA.MC), which asked for a bailout last month, slid all the way to speculative grade, down to Ba2 from Baa3.

Spain formally requested European aid for its indebted banks earlier on Monday, but the lack of details rekindled investor doubts about the financial sector.

Analysts say the euro zone's fourth largest economy, which has become the focus of the debt crisis, will struggle to get out of recession unless the banking problems are solved.

Moody's previously downgraded 16 Spanish banks in May.

Spain's banks are awash in bad loans after a real estate boom went bust.

(Reporting By Daniel Bases and Caryn Trokie; Writing by Luciana Lopez; Editing by Sandra Maler and Jan Paschal)

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Comments (3)
An injection of capital into the Spanish banks won’t materialize soon. Meanwhile, the markets will continue to further discount Spanish debt. Borrowing costs will exceed the “unsustainability” threshold, and the Spanish banking system will be insolvent.

The fictional line separating the credit of the Spanish banks from the Spanish government has disappeared, and all that can happen now is a shutdown or a bailout of… how much? A 100 billion euro loan won’t cover it.

The moment of truth is neigh.

Jun 25, 2012 6:31pm EDT  --  Report as abuse
Harry079 wrote:
“Spain’s banks are awash in bad loans after a real estate boom went bust.”

Hmmmmm isn’t that what happened here?

Or is it the SAME boom that went bust?

Jun 25, 2012 6:42pm EDT  --  Report as abuse
VonHell wrote:
Both Spanish gov and banks are junk since the moment IMF disclosed they needed 40Bi at least and the spanish gov could do nothing about.
The situation in spain is greek for some time now… look at the unemployment… it is just ridiculous high… and the interest over the debt is high for some time too…

That means few risk their money with spanish bonds and only the spanish banks waste the spanish people deposits to keep the gov afloat… but they ran out of money, since they took huge losses with subprime loans…

This bailout is indecent… the gov is asking for a bail for the banks… but ofc in return for money to compensate the losses with the housing bubble, the gov will get some invested in gov bonds… to keep the gov afloat without reforms…
They should take a normal bailout with all the austerity package, as the rest of the PIGS… this is a short term delay, not enough to promote any “growth” and they will need more soon…october , another audition…

Jun 25, 2012 9:58pm EDT  --  Report as abuse
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