Bonds of Spanish banks fell after Moody’s Investors Service downgraded 16 of the nation’s lenders and said it may cut seven of them again because of the state of the economy and the government’s deteriorating credit.
The yield premium investors demand to hold the 1 billion euros ($1.23 billion) of senior unsecured 4 percent bonds due 2017 of Banco Santander SA (SAN), whose rating was cut three levels to A3 to match the sovereign, rose to 503 basis points more than similar-maturity German debt, according to Bloomberg Bond Trader. The spread demanded over the benchmark swap rate, 250 basis points when the notes were issued in March, rose to 392 basis points, the prices show.
The Spanish economy, which fell back into recession in the first quarter of 2012, is still reeling from the 2008 implosion of the nation’s real-estate bubble. The weakening economy is reflected in banks’ poorer asset quality, with Moody’s expecting delinquencies to increase in coming quarters and lenders’ access to capital markets restricted.
“The bank downgrades in effect follow the cut to the sovereign rating in February, as well as the wider economic problems,” said John Raymond, an analyst at CreditSights Inc. in London. “Given the circumstances, Moody’s timing wasn’t very good, either.”
Bankia SA (BKIA), the publicly traded arm of the banking group taken over by the Spanish government last week, wasn’t affected by the ratings review. The lender, whose shares fell as much as 29 percent yesterday after a report depositors were withdrawing their money, is rated Baa3, one level above junk, at Moody’s.
“Potential fallout from the Greek situation, added to reports of deposit flight and the economic problems, are more important than the Moody’s downgrades,” said Raymond. “Bankia, which is at the center of it all, wasn’t even affected.”
The yield premium on the 500 million euros of 4.875 percent bonds due 2016 issued by Banco Bilbao Vizcaya Argentaria SA (BBVA) increased to 473 basis points, the widest since Jan. 2, Bloomberg data show. The Bilbao, Spain-based lender’s rating was reduced three levels to A3.
The lender’s 645 million euros of undated 8.5 percent preferred securities held at a record 78 cents on the euro, giving a yield of more than 20 percent, based on the bank repurchasing them in 2014, according to Jefferies International prices.
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