Moody's threatens to lower ratings of four Spanish banks

29th July 2011, Comments 0 comments

Moody's threatened Friday to lower the ratings of four Spanish banks, including the eurozone's largest Santander, as well as the country's confederation of savings banks.

The three other banks concerned are BBVA, CaixaBank and La Caixa.

Moody's said the decision is the result of its plan announced earlier Friday to downgrade Spain's debt rating, currently at "Aa2", due to the country's budget problems.

Moody's said it had placed the five institutions "on review for downgrade the debt and deposit ratings...

"Moody's bank rating reviews have been prompted by its concurrent review of the Spanish government's bond ratings, which, in the absence of any unexpected negative developments during the review process, is most likely to be limited to one notch.

"When a sovereign's credit worthiness diminishes, Moody's reassesses the capacity of the sovereign to provide systemic support to domestic banks.

"In this case, a potential downgrade of the Spanish government rating would affect only the debt and deposit ratings of banks that have high standalone ratings and that Moody's believes benefit from high levels of systemic support."

These are Banco Santander, BBVA, Caixabank, the three largest listed Spanish banks, and the Spanish Confederation of Savings Banks (CECA).

"The A1 debt ratings of La Caixa, Caixabank's holding company, are notched off the long-term debt rating of Caixabank and would therefore be affected by any downgrade of Caixabank; they have therefore also been placed on review for possible downgrade.

It said the ratings of other banks would not be affected.

Moody's said the pressure on Madrid could be exacerbated by fears over the new European deal to rescue Greece which had "created a precedent" by involving the private sector and signaled a growing risk for investors holding bonds in the fragile countries of the eurozone.

Spain, with an economy the size of the Greek, Irish and Portuguese economies combined, has been battling to convince markets that it should not be lumped together with the three lame ducks now under EU and IMF rescue programmes.

But it continues to suffer from the risk of contagion from the crisis.

Official data released Friday showed Spain's unemployment rate had eased slightly in the second quarter to 20.89 percent, but remains the highest in the industrialised world.

© 2011 AFP

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