S&P and Fitch downgrade a slew of Spanish banks as Europe talks EuroTARP

Last week Moody’s cut the ratings of 12 British lenders, including Royal Bank of Scotland and Lloyds Banking Group. This week the other two ratings agencies, S&P and Fitch cut the ratings of 10 Spanish lenders, including BBVA and Santander.

S&P made the following downgrades:

  • Santander (including subsidiaries Banesto, SCF, and Santander UK, formerly Alliance & Leicester) and BBVA from AA a AA-.
  • CECA, Ibercaja, Kutxa, BBK, Sabadell and Bankinter from A a A-.
  • Bankia and Caixabank were downgraded to credit watch negative from credit watch stable.
  • Banco Popular to credit watch negative after its planned acquisition of Banco Pastor.

Fitch made the following downgrades:

  • Santander (and its subsidiary Banesto) from AA a AA-
  • BBVA from AA- to A+
  • Caixabank from A+ a A
  • Banco Popular and Sabadell from A- a BBB+.

Spanish daily El Pais reports that:

In the case of Fitch, the reduction is due mainly to the one made last week to Spanish debt. In this regard, the agency notes that, in general, banks should have a better rating than the State in which they are domiciled.

Given the market stress, Dexia bailout and downgrades in European banking, the European regulator is looking to recapitalise the banks. El Pais reports that the European banking supervisor is studying mandating a rise from 5% to 7% in minimum required Tier 1 capital via new emergency stress tests.

As I indicated in my last post, it is not clear how this capital will be raised because the French and the Germans in particular are at odds over how to do this. Some have mooted the possibility of using the EFSF as a EuroTARP to do this much as Timothy Geithner suggested a few weeks ago. My understanding is that the French are more favourable to this idea and the Germans are more opposed.


1 Comment
  1. David Lazarus says

    Even 7% Tier one capital is insufficient considering the crisis. Most banks have relied on hot money to keep them afloat, so really should be raising a lot more to eliminate the need for access to the interbank markets. Such funding should be a way of banks getting rid of small daily surplus funds or raising it not a way of running a bank.

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