Tuesday, February 14th 2012 - 20:57 UTC

S&P and Fitch downgrade Spain’s top banks: Santander and BBVA

Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA were among 15 Spain-based financial firms downgraded by Standard & Poor's after the credit-ratings company reduced the nation's grade last month.

The Spanish downgrade follows a similar decision regarding Italy’s two main banks

Santander, Spain's biggest bank was lowered to A+ from AA-, and BBVA was reduced to A from A+, S&P said on Monday in a statement. Both have a negative outlook, the ratings firm said.

Spain's long-term debt was lowered to A from AA- on Jan. 13, as S&P said European leaders' struggle to contain the region's debt crisis would complicate the country's efforts to finance borrowings. S&P revised its banking industry country risk assessment, known as Bicra, for Spain to group 5 from group 4, citing mounting risks.

“We expect Spanish banks' profitability to remain below the historical average over the medium term, owing to high credit provisions,” S&P said in the statement. “We believe this could impair the Spanish banking system's competitive dynamics and have therefore revised our assessment to 'intermediate risk.'”

In a separate announcement today, Fitch Ratings downgraded Santander long-term debt to A from AA-, BBVA to A from A+ and Spain to A from AA- on Jan. 27.

“The rating actions on Santander largely reflect Fitch's downgrade of the Spanish sovereign,” Fitch said in a statement. “Banks tend to own large portfolios of domestic sovereign debt and are highly exposed to domestic counterparties, meaning profitability and asset quality are vulnerable to adverse macroeconomic and market trends.”

European nations are grappling with a debt crisis now in its third year as they seek to restore budget order and shore up the region's financial industry. Spreads on some Spain-based banks are trading as if they were rated at the cusp of investment grade.

The Spanish banks were downgraded after UniCredit SpA, Italy's biggest lender, and No. 2 Intesa Sanpaolo SpA were among 34 Italian financial firms downgraded by S&P on Feb. 10.

“Banks in highly indebted countries have a greater potential vulnerability than in others,” Italian Prime Minister Mario Monti said in a CNBC interview on Feb. 10. “By and large, Italian banks have been less hit by the financial crisis than the banks in many other European countries.”

S&P also lowered its assessment of system-wide funding in Spain to “high risk,” as banks' access to funding markets has been limited since mid-2011, when the sovereign-debt crisis intensified.
 

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