Brazil's Banks Cut by S&P After Nation's Junk Rating Is Lowered

  • S&P downgrades national scale ratings for 27 financial firms
  • It still has negative outlook on the sovereign credit rating

Banco do Brasil SA, Itau Unibanco Holding SA and Banco Bradesco SA were among more than two dozen Brazilian financial-services firms that had credit grades lowered by Standard & Poor’s because of a downgrade of the government’s debt.

S&P reduced global scale credit ratings on 17 companies and national scale ratings on 27 firms, with some banks affected under both measures, according to a statement Wednesday. Such ratings take into account the strength of a company’s country, triggering reviews and adjustments when sovereign grades move.

S&P lowered Brazil’s long-term foreign-currency rating one level Wednesday to BB, two-steps below investment grade, and said more downgrades are possible. Brazil is in its worst recession in more than a century after commodity prices tumbled, sapping revenue from exports, and China’s economy slowed, eroding demand from Brazil’s biggest trading partner.

The benchmark Ibovespa stock index pared earlier gains after that S&P announcement on Wednesday, ending up 1.7 percent after rising as much as 3.6 percent earlier in the day. Brasilia-based Banco do Brasil, the nation’s largest bank by assets, fell 0.3 percent, after gaining as much as 3 percent before S&P’s move.

Brazil lost its investment-grade rating from S&P in September, and Fitch Ratings cut it to junk in December. Moody’s Investors Service, whose Baa3 rating on Brazil is its lowest investment grade, said in December that it might also cut the country to junk. At the same time, Moody’s placed on review for downgrades its ratings on 17 Brazilian banks.

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