(Correction: An earlier version of this story erroneously indicated that Banco Santander's UK business was downgraded along with the Spanish bank. Santander UK PLC is a standalone company and its credit rating was not lowered.)
Moody's Investors Service on Monday downgraded the long-term debt and deposit ratings for 28 of the 33 rated Spanish banks and two issuer ratings. The ratings agency attributed the downgrades to the reduced creditworthiness of the Spanish sovereign, and the expectation that the banks' exposures to commercial real estate would likely cause higher losses.
This action comes close on the heels of the lowering of the credit ratings of the nation's sovereign debt by three notches on June 13 to Baa3, just a notch above junk, with initiation of a review for further downgrade. Moody's rating of Spain is the lowest given by the three major ratings agencies.
Moody's had earlier in mid-May downgraded 16 Spanish banks by one to three notches, citing rising loan defaults and a renewed recession.
The Spanish government earlier in the day officially asked the European Union for a bailout, of reportedly up to 100 billion euros or $125 billion, to shore up its ailing banking sector, with the hope of finalizing the deal by July 9. This will further increase the country's debt burden, which has risen dramatically since the onset of the financial crisis.
Moody's said "today's downgrades of the long-term debt and deposit ratings also reflect the lowering of most of these banks' standalone credit assessments."
The 28 banks' long-term debt and deposit ratings, including that of Spain's two largest banks Banco Santander SA (STD) and Banco Bilbao Vizcaya Argentaria SA (BBVA: Quote), were downgraded by one to four notches, with one notch down for three banks.
The decline was by two notches for 11 banks, by three notches for ten banks and by four notches for six banks. All the ratings are under review for a possible further downgrade.
The short-term ratings for 19 banks have also been downgraded between one and two notches, triggered by the long-term ratings changes.
Banco Santander their long-term senior debt rating lowered to Baa2 from A3. However, Moody's kept Banco Santander one notch above Spain's sovereign rating in light of its geographical diversification when measured by lending activities, revenues, and earnings.
Santander's UK-based subsidiary Santander UK PLC was not downgraded.
Banco Bilbao's long-term senior debt rating was downgraded to Baa3 from A3. Meanwhile, the long-term debt rating of Bankia, which requested a bailout last month, was lowered to junk status at Ba2 from Baa3.
Moody's began the year by downgrading the sovereign credit ratings of Eurozone countries Italy, Spain, Malta, Portugal, Slovakia and Slovenia with a 'negative' outlook in mid-February. It then cut Greek sovereign debt rating in early March, and downgraded the credit ratings of 16 Spanish banks in mid-May.
Additionally, Moody's also downgraded six German banks and three Austrian banks, lowered the sovereign credit ratings of Spain and Cyprus as well as downgraded five Dutch banks, including ING Groep NV (ING), earlier in the month.
Further, it downgraded on Thursday the credit ratings of 15 major banks and securities firms that have operations in the global capital markets, including U.S. banks Citigroup, Inc. (C), Bank of America Corp. (BAC), Morgan Stanley (MS), Goldman Sachs Group, Inc. (GS), and JPMorgan Chase & Co. (JPM).
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by RTT Staff Writer
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