Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s largest lenders, were downgraded by Moody’s Investors Service because of the country’s sovereign debt and souring real-estate loans.
While Santander and BBVA remained investment grade, at least a dozen lenders were lowered to junk status, Moody’s said yesterday in a statement. The ratings company downgraded six banks by four levels and 10 by three grades, with the rest getting one- and two-tier declines.
“In Spain you have a combination of a significant sovereign-debt burden coupled with a collapsing real estate market,” said Bruce Simon, chief investment officer at Los Angeles-based City National Bank, which manages $14 billion in client assets and doesn’t own debt issued by the lenders. “That’s doubling the pressure on Spanish banks.”
Moody’s issued a three-step reduction in Spain’s credit grade on June 13, citing the debt, a weakening economy and limited access to capital markets. Spain was lowered to Baa3, the lowest investment-grade rating, from A3 and remains on review for a further cut after announcing plans to borrow 100 billion euros ($125 billion) from European Union rescue funds to recapitalize banks.
Caixabank SA (CABK) fell 1.1 percent at 9:05 a.m. in Madrid, while Bankia SA (BKIA), which was nationalized last month, fell 3 percent, and Banco Popular Espanol SA lost 0.8 percent. Santander, which kept a higher rating than the Spanish sovereign, rose 0.7 percent and BBVA climbed 0.2 percent.
The lenders are facing the “reduced creditworthiness” of the nation as well as the “expectation that exposures to commercial real estate (CRE) will likely cause higher losses, which might increase the likelihood that these banks will require external support,” the ratings firm said in its statement.
Santander had its long-term debt rating cut to Baa2 from A3. That’s one step higher than the sovereign rating because of the Madrid-based lender’s geographical diversification and “manageable” level of direct exposure to Spanish debt, Moody’s said. BBVA, based in Bilbao, is rated Baa3, down from A3. The ratings company, based in New York, also downgraded 16 Spanish banks on May 17, Bloomberg reported.
