A steady drumbeat of lowered expectations continued Thursday as Standard & Poor’s dropped the ratings of 10 Spanish banks, and warned that they might be lowered further after S&P reviews Spain’s sovereign rating. Also on Thursday, Fitch Ratings lowered the long-term ratings on a total of seven banks in the U.S. and Europe, citing a financial market rife with “increased challenges.”
According to a Reuters report, S&P said that it would announce its decisions on any possible further cuts in the ratings of Spanish banks under review within four weeks of its decision regarding a possible downgrade of Spain’s government debt. Currently Spain itself carries an investment-grade rating of AA- from S&P that signifies a “very strong payment capacity.” On Wednesday, Spain is to swear in its new center-right prime minister Mariano Rajoy, whose incoming government plans to overhaul the country’s banking sector and may also create a holding company for toxic real estate assets.
At the same time, Bloomberg reported that Fitch cut the ratings of both U.S. and European banks. Bank of America Corp., Goldman Sachs Group Inc. and Citigroup all saw their long-term issuer default ratings fall by one notch, from A+ to A, while London-based Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG and BNP Paribas SA also were cut. Barclays and Credit Suisse fell from AA- to A, and BNP Paribas and Deutsche Bank fell from AA- to A+.
In a statement, Fitch said the challenges faced by the banks “result from both economic developments as well as a myriad of regulatory changes.” In the case of Citigroup, in a separate statement, Fitch said its action was due to “policy momentum” against using taxpayer money to support banks during a crisis, according to a Reuters report.