S&P lowered the Spanish rating by one notch from double A to double A minus, its fourth highest investment grade level, bringing it in line with Fitch which cut its rating to the same level earlier this month
Spain’s banks, of which Banco Santander and BBVA are among the largest in Europe by assets, mostly lack significant exposure to other peripheral European country debt but hold large portfolios of Spanish government bonds that would incur billions in losses if a so-called “hair cut” was imposed.
Spain’s socialist government, which is likely to suffer a heavy defeat in next month’s general elections, has been battling to rein in the country’s deficit by imposing a series of austerity measures and economic reforms.
A privatisation programme intended to raise at least €15 billion from selling stakes in the state lottery and airports to reduce Spain’s debts has been scrapped because of market turmoil and after mounting criticism from the political opposition.
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