Downgrade deepens debt misery for Spanish banks
AFP · 3 Jul 2013, 15:26
Published: 03 Jul 2013 15:26 GMT+02:00
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Moody's Investors Service axed its ratings of Bankia, Catalunya Banc and NovaCaixaGalicia, citing their "very weak" asset quality, poor profits and the major challenges they face in lowering debt, closing branches and cutting staff numbers.
The New York-based assessor of creditworthiness said in a statement late on Tuesday that it had taken account of the large degree of support to the banks from the Spanish government.
But Moody's said it believed the government would find itself "increasingly constrained" if it tried to offer further support to Spanish banks.
The agency said this raised the risk of "burden sharing" -- meaning private investors could have to accept losses.
Last year, the European Union agreed to finance a rescue of up to €100 billion for Spain's banks, swamped in bad loans since a decade-long property bubble imploded in 2008.
Spain has so far drawn €41.3 billion from the European credit line.
The government nationalised four of the weakest banks: Bankia, Catalunya Banc, NovaCaixaGalicia and Banco de Valencia.
As a condition of the eurozone rescue, Spain also set up Sareb, a "bad bank" charged with mopping up bad assets at a discount and then attempting to sell them for a profit.
The Moody's downgrade sent Bankia's rating tumbling two notches to B1 from Ba2 while Catalunya Banc and NovaCaixaGalicia fell two notches to B3 from B1.
All three banks were assigned a negative outlook, meaning they could be downgraded again in the medium term.