Spanish Bank Ratings Cut at Moody’s After Nation Downgraded
Thirty of Spain’s smaller banks had their senior debt and deposit ratings downgraded, as Moody’s Investors Service reviews whether governments are willing to support all their lenders in a crisis.
Citing heightened financial pressure on the country’s sovereign rating and “many weak banks,” the New York-based ratings firm cut 15 lenders by two levels and five by three or four, according to a statement today. The outlook on most banks’ senior and deposit ratings remains negative, Moody’s said.
“It seems increasingly plausible that hard choices will need to be made at some point over the rating horizon, balancing the sovereign’s incentive to support the banks with the need to protect its own balance sheet,” Moody’s said in the statement. “It is, in Moody’s view, increasingly likely that the sovereign will not be prepared to write all banks a blank check.”
Governments are seeking to guarantee taxpayers don’t have to step in to support lenders in distress by ensuring creditors bear losses, prompting Moody’s to reconsider the state support it factors into its ratings. In Denmark, where senior bondholders of Amagerbanken A/S were forced to take losses, the firm cut the grades of five lenders and may cut them again.
Pressure on senior creditors of banks is growing. Moody’s has acted on the ratings of Irish banks, reflecting politicians’ remarks about their willingness to support the senior creditors of the nation’s lenders. The European Commission recently closed the comment period on its proposals to change the way member states shore up banks.
“This is the first step in a wider review of the systemic support available to smaller institutions, institutions we think it unlikely would be considered to be systemic,” Moody’s chief credit officer for Europe, the Middle East and Africa, Alastair Wilson, said by phone today. “We’re going to carry out a series of country-by-country reviews of banking systems.”
He declined to say which countries would be examined next.
Banco Pastor SA had its long-term rating cut four levels to Ba1, below investment grade, from A3. The outlook remains negative. Moody’s imposed a similar downgrade on CatalunyaCaixa, a grouping of savings banks. Ratings at Banco Popular Espanol SA (POP) and Banco Espanol de Credito SA (BTO), a unit of Banco Santander SA (SAN), were lowered to A2 from Aa3, with a negative outlook, a two- level downgrade. The rating at Santander Consumer Finance was cut two steps to Baa1 from A2. Caja Madrid had its rating cut to Baa1 from A1, a three-level reduction.
“We strongly disagree with this downgrade,” said Susana Quintas, deputy general manager at Pastor, in a phone interview with Bloomberg Television. “It is driven basically by Moody’s perception of the Spanish economy.”
Banks of a size to make them central to the smooth running of the financial system are still likely to receive support, Wilson said. Moody’s confirmed its Aa2 rating on the deposit and senior debt ratings of Banco Bilbao Vizcaya Argentaria SA (BBVA) and Banco Santander SA, the nation’s two biggest banks, as well as La Caixa, all with a negative outlook.
BBVA rose 1.2 percent to 9.059 euros at close in Madrid trading, reversing earlier declines of as much as 2 percent, while Santander gained 1.4 percent to 8.57 euros after earlier declining as much as 1.8 percent.
“That certain lenders have problems is well-known and can’t be denied,” said Pablo Garcia, head of equities at Oddo Sociedad de Valores in Madrid. “But in our opinion, at least 70 percent of the Spanish financial system is highly solvent.”
Spain’s credit rating was cut to Aa2 on March 10 by Moody’s, which said the cost of shoring up the banking industry will eclipse government estimates. The ratings company said then that Spanish lenders may need as much as 50 billion euros ($70.3 billion) to meet new capital requirements, a figure that compares with the Bank of Spain’s estimate that 12 lenders will need 15.2 billion euros.
Senior unsecured bonds of Spanish lenders slipped after the sovereign was cut. Today, the 900 million euros of floating-rate bonds due 2013 issued by Bankinter SA rose to 97.72 cents from 97.4 cents yesterday, Bloomberg pricing data show. Banco de Sabadell SA’s 4.375 percent notes gained to 100.62 from 100.30 to yield 3.8 percent, the prices show.
Credit default swaps protecting Spanish government debt were little changed at 222.5 basis points, according to CMA, compared with Nov. 30’s all-time high of 368.
Spanish lenders that are short of capital have until March 28 to tell the Bank of Spain how and by when they will raise the resources they need to meet the new requirements. The Bank of Spain then has until April 14 to approve the plans.
Lenders including Bankia, the bank emerging from the merger of Caja Madrid, Bancaja and five other savings banks, and Banca Civica, have said they will raise money through share listings.
“The Moody’s actions today are as a direct consequence of the sovereign downgrade and are normal,” said Inigo Lecubarri, who helps manage about $200 million at Abaco Financials Fund in London.