Moody's Downgrades Spain To Aa2, Outlook Negative

Tyler Durden's picture

As expected, after hitting a simply ridiculous level of over 1.40, the EURUSD has started to materially roll over, and is now down to 1.383, with a first interim target in the mid 1.20s. The reason, in addition the billions in debt rollover this month (see Portugal's very weak auction yesterday), is the realization that the banking system in a Europe which is allegedly poised on the edge of tightening, is as weak as ever, and will have to take another dose of stress test placebos which will do nothing to assuage skepticism as spreads hit another day of record levels. Today, Moody's added insult to injury after downgrading Spain for the second time in 3 months, from Aa1 to Aa2, with a second level of insult arising from Moody's assessment that Spain may also suffer due to the recent surge in oil and see further downgrades as the oil rise would have Spain credit implications, adding that Spanish government has little control over region's spending.

From Bloomberg:

 Spain’s rating was downgraded to Aa2 by Moody’s Investors Service, which said the cost of shoring up the banking industry would be more than the government expects.

The “eventual cost of bank restructuring will exceed the government’s current assumptions” of 20 billion euros ($28 billion), the company said, costing 40 to 50 billion euros, while the risks to government finances remain “skewed to the downside,” the company said in a statement today. The outlook is “negative.”

The Bank of Spain is due to announce later today the capital shortfalls of lenders under new banking rules, after saying the total capital hole won’t exceed 20 billion euros. As Spain tries to convince investors that struggling savings bank won’t overburden its public finances, European leaders have set a March 25 deadline to approve a “comprehensive” package of measures to end the sovereign debt crisis.

Moody’s put the rating on review on Dec. 15, after lowering its credit grade to Aa1 from Aaa in September. Fitch Ratings, which rates Spain AA+, changed the outlook to “negative” on March 4, while Standard & Poor’s rates the nation AA, after stripping it of its top AAA grade in January 2009.


And while nobody cares what Moody's or S&P has to say any more, this downgrade, together with that of Greece yesterday reaffirms that the world is, albeit with a 2 month delay, gradually waking up to the European "bull in the room" problem, which suddenly everyone realizes has yet to be addressed.

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99er's picture

This Time It's Different

While the Dollar has caught a bid, the commodities complex (including precious metals) is taking a beating. /ES is poised to fall out of its Diamond Top and the long-standing up channel soon. This may well prove to be "Bloody Thursday." Take a look....

Ferg .'s picture

It has that feel about it . I certainly hope stocks head lower but in any case the range is tightening and soon we'll have a violent breakout in some direction .

whopper's picture

Today on CNBS Europe, they were trying to put lipstick on the pig saying that the debt is managable, Spain wasn't as bad as Greece and that this was "better than expected".  I can't wait for the whole shithouse to explode, I am so sick of the BS.

Dick Darlington's picture

Debt looks like manageable when one looks just the polished surface enabled by Maastricht criteria. But the problem with Spain is the huge private sector debt and the debt loads of government which are outside the reach of the ridiculous Maastricht criteria ie off balance sheet. Edward Hugh has written abt these problems in his "Spain economy watch" -blog.

Oh regional Indian's picture

Santandar...... ftw!

but again, a quick look at the Axis of Evil-doings sez Spain is the bomb. Greeceet. al. are side-shows.

And spain is the leap into Sud America.

Leaping flames....



Meme Iamfurst's picture

can someone explain why the Euro is not par with the dollar.  Just one good reason will do.

Josephine29's picture

This is a problem because government bond yields have been rising again in the Euro zone which has not been reported in many other places apart from ZH. I notice that the economist Shaun Richards has been pointing out the problems that Spain and Italy face which would open a new much larger front in this crisis. Here are his thoughts on the problems of controlling public expenditure in Spain.

Moving onto the Spanish government it has a record throughout the crisis of always doing the minimum possible apart from hyperbole where the Finance Minister Elena Salgado has usually done the maximum possible! But whilst its position and authority has weakened even in Spain there is a deeper problem. It only represents about 25% of Spain’s public expenditure with the rest mostly spent by the 17 regional governments. Of these very few publish accounts at all leading to concerns about overspending.


He poses a worrying problem/issue for Italy too...

THE DORK OF CORK's picture

With China going into deficit and Germany's surplus declining - we could soon be in the absurd postion of tiny Ireland providing a trade surplus to the entire world.

However to achieve this Great Maoist goal   we must instigate a second Great Famine in the spud country.

You cannot make this stuff up, well yes you can - you just need a farcical FX / Fiat / Corporate globalist soup kitchen.


Ferg .'s picture

Promising development for Euro bears . The combination of that Spanish downgrade , weakness in futures and pessimistic statements from Nouriel Roubini this morning have set the stage for a fairly decent decline . 1.3750 would be a fair target for today ( and a level at which I'd expect buyers to come back into the market ) .

All depends on equities though , we've got clear triangles on the Dow and S&P ( bottoms of both are currently being tested ) . If we break lower then I'd expect a vicious rally in the USD .

jesse livermoore's picture

Shouldn't gold be exploding up on all this news?????????????

whopper's picture

that is what scares me these days. Seems like PM's sell off on bullish news.

zaknick's picture

Moody bitches wouldn't be doing this if the US wasn't about to collapse. Allies, bitches. Lay down with dogs....

overmedicatedundersexed's picture

unless taxes world wide go up to economy stopping levels ..Moody's ain't got enough staff to down grade each nation's debt tsunami..

EU should be at junk, US at junk, now.

Ben will be forced to QE III and more but Moody will find no problem keeping us AAA.

Moody will be last to see the ben has no clothes.

Pegasus Muse's picture

"Moody will be last to see the ben has no clothes."

That's what they get paid to do.

Buck Johnson's picture

Spain is an inch from the cliff and everybody knows it.  What should also be looked into is Italy and it's finances, it can't be good that Lybia isn't supplying it with the oil it needs and that much investments come from Italy.