Moody's downgrades ratings of Spanish banks

[March 24, 2011]  MADRID (AP) -- Moody's downgraded the debt of 30 Spanish banks Thursday but left untouched the ratings of the country's three largest banks, highlighting the weaknesses in Spain's financial system a day after the government in neighboring Portugal fell.

The ratings agency acted two weeks after downgrading Spanish government debt one notch to Aa2. Then, it cited worries over the cost of the banking sector's restructuring, the government's ability to reach its borrowing reduction targets and the country's grim economic growth prospects.

Moody's said its reasons for downgrading banks' senior debt Thursday included higher pressure on Spanish sovereign debt and many weak banks, a declining role within the banking system for smaller and regional banks as the sector consolidates, and what it called a weakening future support environment for banks across Europe.

The fall of Portugal's government on Wednesday pushed that debt-laden country closer to needing a bailout like Greece and Ireland got last year, and almost inevitably shined a spotlight on the much bigger Spain, a bailout of which would be devastating for the 17-nation euro zone.

Moody's Investors Service confirmed the ratings of big banks Santander and BBVA and savings bank La Caixa, although with a negative outlook.

But it downgraded the deposit and/or senior debt ratings of 30 Spanish banks by one or more notches. It said this includes downgrades of 15 banks by two notches and five banks by three or four notches.

Spanish stocks opened about 1 percent lower Thursday after the collapse of the government in neighboring Portugal but later recovered and was virtually unchanged from Wednesday's close.

The yield on Spanish 10-year government bonds was also virtually unchanged early Thursday at 5.18 percent.

Spanish Finance Minister Elena Salgado, asked about how the events in Portugal would affect her country, said: "We have to keep doing what we have been doing so far -- continue to enact reforms, live up to our commitments, strengthen our economy."

She was referring to austerity measures that Spain has taken to chip away at its bloated deficit and other measures designed to stimulate an economy that is struggling to overcome nearly two years of recession triggered by the collapse of a real estate bubble.

Salgado declined to comment on Thursday's bank rating downgrade by Moody's.

[Associated Press; By DANIEL WOOLLS]

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