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Moody's Downgrades 28 Spanish Banks

Moody's Downgrades 28 Spanish Banks

June 25, 2012, 5:39 P.M. ET
By Michael Aneiro

Moody’s Investors Service is on the bank-downgrade warpath again Monday, this time slashing the ratings of 28 Spanish banks by anywhere from one to four notches.

Moody’s says today’s downgrades follow the weakening of the Spanish government’s creditworthiness (Moody’s downgraded Spain’s government bond ratings to Baa3 from A3 on June 13), and also reflect the lowering of most of these banks’ standalone credit assessments. Specifically, Moody’s said the debt and deposit ratings declined by one notch for three banks, by two notches for 11 banks, by three notches for ten 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. Straight from the Moody’s mouth:

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’ standalone 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 recapitalization on banks’ creditworthiness and bondholders once the final amount, timing and form of funds flowing to each individual bank are known.


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