30 Spanish banks downgraded on govt aid doubts

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 were forced to take losses, the firm cut the grades of five lenders and may cut them again.

Wider review
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 in which 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, West Asia and Africa Alastair Wilson said in a telephone interview 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.

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 affirmed its Aa2 rating on the deposit and senior debt ratings of Banco Bilbao Vizcaya Argentaria (BBVA), Banco Santander, the nation’s two biggest banks, and La Caixa, all with a negative outlook.

BBVA fell 0.9 per cent to ¤8.87 at 9.53 am in Madrid, while Santander declined 0.3 per cent to ¤8.46 and Bankinter dropped 0.5 per cent to ¤4.92.