Standard & Poor’s cut its credit ratings on Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, Spain’s largest lenders. The shares surged on speculation the country is edging toward a bailout.
Santander’s long-term counterparty credit rating was lowered two levels to BBB with a negative outlook, from A-, and BBVA’s rating was cut to BBB- from BBB+, S&P said in a statement today. The firm also cut the ratings of nine other banks and placed six on creditwatch negative.
Last week’s reduction of Spain’s sovereign debt rating to BBB-/A-3 also affected the assessment of lenders ranked higher than the country and those whose ratings assumed government support, S&P said. Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, said Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, signaling a reversal of Finance Minister Wolfgang Schaeuble’s position.
Santander rose 4.3 percent to 6.06 euros at 5:30 p.m. in Madrid, the biggest gain since Sept. 6. BBVA advanced 6 percent to 6.31 euros. Bankinter SA jumped 7.4 percent to 3.12 euros.
S&P will continue reviewing the sovereign downgrade’s implications, and plans to conclude the process next month, according to the statement.
“For Santander and BBVA, we don’t anticipate that we would lower” the banks’ stand-alone credit profiles by more than two levels, if at all, after the review, S&P said. “The possibility that our long-term ratings on these banks would be affected is therefore remote.”
Spain’s debt rating was cut to one level above junk by S&P, which cited euro-region peers’ backtracking on a pledge to sever the link between the sovereign and its banks as it considers a second bailout. The downgrade came after the government announced a fifth austerity package in less than a year and published details about stress tests of its banks.
“There’s an anticipation that Spain will resort to a bailout and there will be a decline in yields as a result -- the market is trying to price that in,” Carlos Joaquim Peixoto, a banking analyst at Banco BPI SA in Oporto, Portugal, said in a telephone interview. “The bank downgrades were fully expected after the sovereign downgrade.”
Creditworthiness concerns have grown since the government requested as much as 100 billion euros ($130 billion) in European Union aid in June to shore up its lenders and amid signals that the deficit target is in jeopardy. S&P said the government’s action will probably be constrained by a lack of predictability on euro-zone governments’ policies.
Recent statements on the European Stability Mechanism’s involvement in bank recapitalizations put into question the mutualization of loans to Spanish banks among euro-region nations, it said. That possibility had been a key factor in S&P’s decision to affirm Spain’s ratings on Aug. 1.
Other banks downgraded by S&P included CaixaBank SA, cut to BBB- with a negative outlook from BBB, and Banco Popular Espanol SA, reduced to BB from BB+.