25 June 2012

Moody's downgrades Spanish banks

Moody's adds that today's downgrades of the long-term debt and deposit ratings also reflect the lowering of most of these banks' stand-alone credit assessments.

The debt and deposit ratings declined by one notch for three banks, by two notches for 11 banks, by three notches for 10 banks and by four notches for six banks. The short-term ratings for 19 banks have also been downgraded between one and two notches, triggered by the long-term ratings changes.

Today's actions reflect, to various degrees across these banks, two main drivers:

(i) Moody's assessment of the reduced creditworthiness of the Spanish sovereign, which not only affects the government's ability to support the banks, but also weighs on banks' stand-alone credit profiles; and

(ii) Moody's expectation that the banks' exposures to commercial real estate (CRE) will likely cause higher losses, which might increase the likelihood that these banks will require external support.

This notwithstanding, Moody's views positively the broad-based support measures being introduced by the Spanish government to support the Spanish banking system as a whole. Moody's will assess the impact of the upcoming recapitalisation on banks' creditworthiness and bondholders once the final amount, timing and form of funds flowing to each individual bank are known.

The ratings of both Banco Santander and Santander Consumer Finance are one notch higher than the sovereign's rating, due to the high degree of geographical diversification of their balance sheet and income sources, and a manageable level of direct exposure to Spanish sovereign debt relative to their Tier 1 capital, including under stress scenarios. All the rest of the affected banks' stand-alone ratings are now at or below Spain's Baa3 rating.

Full press release

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