Moody’s cuts Spanish banks on sovereign downgrade

New York: Moody’s Investors Service on Monday downgraded the long-term debt and deposit ratings for 28 Spanish banks and two issuer ratings, following on the heels of a cut to Spain’s sovereign rating to just above junk status earlier this month.

The banks have several links to the sovereign, Moody’s said in a statement, and so Spain’s reduced creditworthiness “implies a weaker credit profile for Spanish banks.”

The banks’ exposure to commercial real estate was another factor in the cuts, Moody’s said, because higher losses are likely, “which might increase the likelihood that these banks will require external support.”

Among the downgrades was a cut to Banco Santander’s long-term rating to Baa2 from A3. But the rating is under review for further downgrade, meaning more cuts could be forthcoming to the euro zone’s largest banks.

Still, Monday’s move kept Santander one notch above the sovereign rating of Baa3, the Moody’s release noted, because of the bank’s geographic diversity and manageable exposure to Spanish sovereign debt.

Santander has considerable operations throughout Latin America, including Brazil, the region’s largest economy. Its exposure in emerging markets, many of which are growing, helps offset stagnation in developed economies.

The rating agency also cut Banco Bilbao Vizcaya Argentaria SA to Baa3 from A3 - just barely above junk status. Bankia, which asked for a bailout last month, slid all the way to speculative grade, down to Ba2 from Baa3.

Spain formally requested European aid for its indebted banks earlier on Monday, but the lack of details rekindled investor doubts about the financial sector.

Analysts say the euro zone’s fourth largest economy, which has become the focus of the debt crisis, will struggle to get out of recession unless the banking problems are solved.

Spain’s banks are awash in bad loans after a real estate boom went bust.