Moody's downgrades 30 Spanish banks

24th March 2011, Comments 0 comments

Moody's downgraded the credit ratings of 30 Spanish banks Thursday, warning that Spain's government may not be ready to write a blank cheque for every troubled bank.

New York-based Moody's acted two weeks after cutting Spain's sovereign rating by a notch, casting doubt on its ability to narrow a gaping annual deficit because of banking woes and spendthrift regions.

The three biggest Spanish banks -- Banco Santander, BBVA and La Caixa -- escaped any action.

But the senior debt ratings of 30 others, accounting for most of the country's banks, were cut, including 15 downgrades of two notches and five by a dramatic three or four notches.

And the agency said the outlook for most of the 30 banks was negative, meaning more downgrades were likely.

Spain's savings banks are still struggling under the weight of loans that turned sour after the 2008 property bubble collapse.

Moody's has put the price of recapitalising their weakened balance sheets at 50 billion euros ($71 billion), far more than the Bank of Spain's official estimate of 15.15 billion euros.

The main reasons for the downgrades were the heightened credit pressure on Spain and its "many weak banks," the declining importance of smaller banks and the weakening climate of support for banks in Europe.

Many of the Spanish banks' credit ratings had been supported by the assumption that Madrid would ride to their rescue in case of any trouble, the agency said.

But as the Spanish banking sector consolidated through mergers, and as the government faced its own credit pressures, it seemed less likely that every bank could count on the same level of support.

"It is, in Moody's view, increasingly likely that the sovereign will not be prepared to write all banks a blank cheque," Moody's Investors Service said in a statement.

Another negative factor was the expectation of a weaker support across Europe for banks, especially those that are not in the top ranks of financial institutions, it said.

The Moody's blow fell the day after Portugal's government collapsed after failing to garner opposition support for a new round of stringent cost-cutting to avert the need for a Greek or Irish-style financial rescue.

On March 10 Moody's sliced Spain's long-term credit rating by a notch to "Aa2" and warned it may do so again, pounding financial markets as it raised the alarm over Spanish banking woes and spendthrift regions.

© 2011 AFP

0 Comments To This Article