March 24, 2011

Moody’s Downgrades Spanish Banks

Ratings agency acted two weeks after downgrading Spanish government debt

Moody's downgraded the debt of 30 Spanish banks Thursday but left untouched the ratings of the country's three largest banks, highlighting the weaknesses in Spain's financial system a day after the government in neighboring Portugal fell.

Associated Press reports the ratings agency acted two weeks after downgrading Spanish government debt one notch to Aa2. Then, it cited worries over the cost of the banking sector's restructuring, the government's ability to reach its borrowing reduction targets and the country's grim economic growth prospects.

Moody's said its reasons for downgrading banks' senior debt Thursday included higher pressure on Spanish sovereign debt and many weak banks, a declining role within the banking system for smaller and regional banks as the sector consolidates, and what it called a weakening future support environment for banks across Europe.

According to the wire service, the fall of Portugal's government on Wednesday pushed that debt-laden country closer to needing a bailout like Greece and Ireland got last year, and almost inevitably shined a spotlight on the much bigger Spain, a bailout of which would be devastating for the 17-nation euro zone.

Moody's Investors Service confirmed the ratings of big banks Santander and BBVA and savings bank La Caixa, although with a negative outlook.

But it downgraded the deposit and/or senior debt ratings of 30 Spanish banks by one or more notches. It said this includes downgrades of 15 banks by two notches and five banks by three or four notches.

AP reports Spanish stocks opened about 1%lower Thursday after the collapse of the government in neighboring Portugal but closed 1.1% up compared to Wednesday's closing position.

The yield on Spanish 10-year government bonds was also virtually unchanged early Thursday at 5.18%.

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