Spanish Treasury Official Says Cut by S&P Unexpected, Negative

The decision by Standard & Poor’s to cut Spain’s credit rating was unexpected and negative for the country, Ignacio Fernandez-Palomero Morales, deputy head of the nation’s Treasury, said at a conference in Tokyo today.

S&P lowered Spain’s rating by two levels to BBB-, one level above junk status, and assigned a negative outlook for its debt. The country’s deepening recession is limiting the government’s policy options and social discontent is likely to intensify, the ratings company said in a statement yesterday.

Moody’s Investors Service on Aug. 30 said Spain’s credit rating remains on review for a possible downgrade from Baa3, the company’s lowest investment grade.

The following are comments made by Fernandez-Palomero today on the sidelines of today’s Euromoney conference in Tokyo.

On the downgrade and statement by S&P:

“On the fundamentals side, they only touch upon the deterioration of the economic cycle, but they touch much more on the European resolution -- clarity, unpredictability impacting on the rating of the sovereign. Our impression is that a two-notch downgrade should be based on a fundamental analysis of the economy. So we do respect the opinion of the rating agencies, but we believe that the fundamental analysis is required in depth to argue on the basis of a ratings adjustment.”

On ratings firms:

“Investors are much less reliant today on ratings than they were several years ago. Rating agencies have been moving their ratings very steeply in a very short period of time, which in our view is not so much related to the fundamentals of the economy, but probably to a different type of assessment of what should be the rating value of the sovereigns. My impression -- and we saw that after several rating downgrades in the past -- is that investors do not rely so much on ratings today.”

On the review by Moody’s:

“The market has been more focused on potential Moody’s action, because there is this ongoing delay by Moody’s that has drawn attention. My impression is that if I was going to make an analysis on the fundamentals of an economy, 15 days of delay do not change the fundamentals of an economy.”

On economic fundamentals:

“If spreads and markets’ reaction were based on fundamentals, probably yields would be different. Probably ratings would also be different for some. It is important now to keep looking at fundamentals of economies and not get driven by short-term analysis.”

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