Spain’s sovereign credit rating was cut by Egan-Jones Ratings Co. to B from BB- on the country’s deteriorating economic outlook.
The nation’s 9.6 percent budget deficit, 24 percent jobless rate and bank losses of as much as 260 billion euros ($324 billion) weigh on the economy, the ratings company said in an e-mailed statement today.
“Spain will inevitably be faced with payments to support a portion of its banking sector and for its weaker provinces,” the Haverford, Pennsylvania-based company said. “Assets of Spain’s largest two banks exceed its GDP. We are slipping our rating to ‘B’; watch for more requests for support from the banks and money creation.”
Spain is trying to bolster its banks and help cash-strapped regions at a time of surging borrowing costs. The yield difference between Spanish and German 10-year bonds increased yesterday to the highest since the creation of the euro. As Spain’s market access narrows, it depends increasingly on domestic lenders, which in turn are getting cash from the European Central Bank, to buy its debt.
Foreign investors cut their holdings of Spanish debt to 37 percent of the total in circulation in April from 50 percent at the end of last year. Domestic lenders, bolstered by emergency funding from the ECB, have picked up the slack, increasing their share to 29 percent from 17 percent over the same period. At a bond auction on May 17, foreigners took 20 percent to 30 percent of the issue, a government official, who declined to be named, told reporters.