Moody's Downgrades Spanish Banking Sector By 1-4 Notches

Tyler Durden's picture

The long anticipated downgrade of the recently bailed out Spanish banking sector has arrived. Moody's just brought the hammer down on 28 Spanish banks. Also apparently in Spain banks are now more stable than the country: "The ratings of both Banco Santander and Santander Consumer Finance are one notch higher than the sovereign's rating, due to the high degree of geographical diversification of their balance sheet and income sources, and a manageable level of direct exposure to Spanish sovereign debt relative to their Tier 1 capital, including under stress scenarios. All the rest of the affected banks' standalone ratings are now at or below Spain's Baa3 rating." Can Spain borrow from Santander then? They don't need the ECB.

Full Spanish Bank downgrade Matrix (pdf source):

From Moody's:

Moody's downgrades Spanish banks

Actions follow Spain's downgrade to Baa3, on review for downgrade

Madrid, June 25, 2012 -- Moody's Investors Service has today downgraded by one to four notches the long-term debt and deposit ratings for 28 Spanish banks and two issuer ratings.

Today's actions follow the weakening of the Spanish government's creditworthiness, as captured by Moody's downgrade of Spain's government bond ratings to Baa3 from A3 on 13 June 2012, and the initiation of a review for further downgrade. For more details on the rationale for the sovereign downgrade, please refer to the press release (

Moody's adds that today's downgrades of the long-term debt and deposit ratings also reflect the lowering of most of these banks' standalone credit assessments.

The debt and deposit ratings declined by one notch for three banks, by two notches for 11 banks, by three notches for ten banks and by four notches for six banks. The short-term ratings for 19 banks have also been downgraded between one and two notches, triggered by the long-term ratings changes.

Today's actions reflect, to various degrees across these banks, two main drivers:

(i) Moody's assessment of the reduced creditworthiness of the Spanish sovereign, which not only affects the government's ability to support the banks, but also weighs on banks' standalone credit profiles, and

(ii) Moody's expectation that the banks' exposures to commercial real estate (CRE) will likely cause higher losses, which might increase the likelihood that these banks will require external support.

This notwithstanding, Moody's views positively the broad based support measures being introduced by the Spanish government to support the Spanish banking system as a whole. Moody's will assess the impact of the upcoming recapitalization on banks' creditworthiness and bondholders once the final amount, timing and form of funds flowing to each individual bank are known.

The ratings of both Banco Santander and Santander Consumer Finance are one notch higher than the sovereign's rating, due to the high degree of geographical diversification of their balance sheet and income sources, and a manageable level of direct exposure to Spanish sovereign debt relative to their Tier 1 capital, including under stress scenarios. All the rest of the affected banks' standalone ratings are now at or below Spain's Baa3 rating.

In addition, Moody's has also downgraded (i) the ratings for senior subordinated debt and hybrid instruments of affected entities; (ii) all rated government-backed debt issuances from Spanish banks; and (iii) the long-term debt ratings of Instituto de Credito Oficial (ICO), which are based on an unconditional and irrevocable guarantee from the Spanish Government.

Please click this link for the list of Affected Credit Ratings. This list is an integral part of this press release and identifies each affected issuer. For additional information on bank ratings, please refer to the webpage containing Moody's related announcements:


Moody's has today downgraded the standalone BFSRs of 25 Spanish banks out of a total of 33 rated institutions, three BFSRs were maintained, and five institutions do not have a BFSR assigned to them.


Moody's said that the reduced creditworthiness of the Spanish sovereign, as captured by the agency's three-notch downgrade of Spain's government bond rating, implies a weaker credit profile for Spanish banks. This results from the banks' multiple linkages with the sovereign, including (i) the impact of the government's financial position on the domestic economy; and (ii) the large exposures of most banks to their domestic government and to other counterparties that depend on the credit strength of the government.

After today's rating actions, only the standalone ratings of Banco Santander and Santander Consumer Finance are higher than Spain's Baa3 rating in light of their geographical diversification when measured by lending activities, revenues, and earnings. In addition, Moody's believes that Banco Santander's Tier 1 capital ratio would be resilient to applying conservative haircuts to not only the sovereign exposures but also loans to sub-sovereigns. Santander Consumer Finance does not hold any domestic government securities on its books. Moody's believes that the very diversified portfolios of these entities reduce their direct linkage to the sovereign risk profile, and they are therefore rated one notch above the sovereign (see Moody's Sector Comment "How Sovereign Credit Quality May Affect Other Ratings" published 13 February, 2012).


Several Spanish banks' balance-sheet clean-up exercises have illustrated the difficulties involved with establishing credible CRE asset valuations, because of the lack of market liquidity. Furthermore, the required extended period of fiscal consolidation, both at central and regional government levels, is likely to maintain negative pressure on banks' balance sheets. As such, Moody's stressed loss assumptions on the banks' CRE exposures as well as its other credit exposures now anticipate outcomes ranging from its more adverse scenario to more highly stressed scenarios typical of countries that have experienced severe market disruptions in their CRE sectors (e.g., Ireland). Many banks don't have sufficient shock absorbers (earnings and capital) to withstand such potential stresses. The downgrade of the banks' standalone credit assessments and their new levels mostly in sub-investment grade directly reflect the banks' relative vulnerability in such a stress scenario as well as the heightened likelihood that they may need further external support.

Nevertheless, Moody's views positively the Spanish government's efforts to stabilize the entire banking system as well as Bankia (Ba2, b2, all ratings under review with uncertain direction), which have culminated with the announcement made on 9 June to seek financial assistance from euro area Member States of up to EUR 100 billion to recapitalize Spanish banks. The support will be provided by the EFSF or ESM in the form of a loan granted to the FROB. This amount is intended to cover the capital needs that will be revealed by the two valuation processes currently underway plus an additional "safety margin". The Spanish government has not revealed yet the amount that will be finally requested and individual capital needs will be made public once the last phase of the valuation is completed.

Moody's will assess the impact of such support on banks' creditworthiness and on bondholders - including the conditionalities that are likely to be imposed on restructured or recapitalized banks along the EU framework for banks' bailouts -- once the amount, timing and form of funds flowing to each individual bank are known. Moody's will also assess to what extent the funding of Spanish government debt by the banks may be curbed to reduce the risk of contagion between the banks and the government.

With regards to Bankia, the b2 standalone credit assessment and the three notch uplift for its debt and deposit ratings to Ba2 incorporate the expectation of significant capital inflows along the lines of the government's announcements dated 25 May 2012; at the same time, the ratings reflect, among considerations, the uncertainty about the exact form of the capital injection, as well as the conditionalities that may be imposed by the EU in return for the receipt of state aid.

For the three other banks that are currently under administration of the FROB, NCG Banco and Catalunya Banc (both rated B1/b2/Not Prime) and Banco de Valencia (B3/caa1), in Moody's view these banks may be the most likely next recipients of further capital in addition to any capital they have already received. However, since the FROB's approach up to now had been to sell these banks via auction processes, there is no clarity yet about any further capital injections in the event that these auctions are not successful. Therefore, the ratings do not yet reflect the potential for further capital injections.

A primary driver of the rating actions on CECA, Banco Cooperativo Español and Ahorro Corporacion is the rating adjustment applied to their main counterparts (i.e., Spanish savings banks and rural credit cooperatives).

Moody's has maintained the standalone ratings of Banco Pastor and Banco CAM at current levels, based on the fact that these banks are already fully-owned by Banco Popular and Banco Sabadell, respectively, and that they will cease to exist as independent legal entities by year--end 2012.

Furthermore, in the specific case of Banco Sabadell, which has recently acquired Banco CAM, Moody's has factored in the more ample risk-absorption capacity of the combined entity as a consequence of the acquisition and the way it was structured, which has limited the magnitude of the downgrade of Banco Sabadell's standalone BFSR.

The review status and outlooks of the standalone BFSRs of 28 affected banks are as follows:

--- 16 standalone ratings remain on review for downgrade reflecting the continuing review for downgrade of the Spanish government's Baa3 bond rating.

--- The ratings of nine institutions that are involved in merger transactions are also on review, as Moody's continues to assess the impact of such transactions on their credit profiles. This explains the review status of CaixaBank, Unicaja and Banco Ceiss, Banco Popular and Banco Pastor, Banco Sabadell and Banco CAM, and Ibercaja Banco and Liberbank. In all these cases, the standalone ratings are on review for downgrade, with the exception of those of Banco CEISS (E+/b2) and Banco CAM (E+/b3) that are on review with direction uncertain. These review placements reflect the likelihood that the rating of the resultant combined entity might be higher than their current ratings.

--- Bankia's (E+/b2) standalone ratings remain on review with direction uncertain, given the uncertainties regarding the impact on its credit profile of any conditionality that may accompany its' recapitalisation, the terms and conditions of instruments that will be used to recapitalise the bank, and the precise timing of its recapitalisation.

--- The remaining two banks (Banco de Valencia and Dexia Sabadell) have stable outlooks assigned to their E BFSRs. However, the corresponding standalone credit assessments could face some pressure to be remapped to a lower level within the E BFSR category from the current caa1 level.


Today's downgrades of 28 debt and deposit ratings reflect both (i) Moody's assessment that the ability of the Spanish government to provide future support to Spanish banks has declined; and (ii) the banks' reduced standalone credit profiles. The downgrades of 19 banks' short-term ratings followed the downgrades of their long-term ratings, consistent with Moody's standard mapping of short-term to long-term ratings.

Moody's has also lowered its systemic support assessment for NCG Banco, Catalunya Banco and Banco de Valencia to levels that are consistent with their nationwide market shares, in line with the criteria applied to the rest of the banking system as per Moody's methodology (see "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: Global Methodology" published on 30 March, 2012).

Moody's had increased the uplift factored into the senior debt ratings of these three banks as a result of their ownership by FROB (Fondo de Restructuracion Ordenada Bancaria). These banks were intended to benefit from an Asset Protection Scheme by the Deposit Guarantee Fund -- which is funded by annual contributions from member banks. However, Moody's assigns a very low probability to the completion of a swift auction process, given the system-wide pressures and the uncertainties regarding the size, terms and schedule of the recapitalisation of the system by the EFSF or ESM.

Furthermore, Moody's has downgraded the issuer ratings of La Caixa and Banco Financiero y de Ahorro (BFA), triggered by the downgrade of the debt ratings of their operating companies, CaixaBank and Bankia, respectively. The issuer ratings of La Caixa and BFA are positioned two and three notches, respectively, below the long-term ratings of their operating companies. The issuer rating of La Caixa is on review for downgrade, whilst BFA's is on review direction uncertain. Both outlooks reflect the outlooks on their operating companies' ratings.

Moody's has maintained the debt and deposit ratings of three entities at their current levels (Banco Pastor, Banco CAM and Lico Leasing). The debt ratings of Banco Pastor and Banco CAM incorporate their full ownership by Banco Popular and Banco Sabadell, respectively, and our expectation that their debt will be legally assumed by their owners during the current year as they will cease to exist as independent legal entities. To reflect this situation, Moody's has assigned a very high probability of parental support to these banks' debt ratings.

The review status and outlooks on the debt and deposit ratings of 33 publicly rated institutions are as follows:

--- 30 are on review for downgrade, reflecting the review for downgrade of the Spanish government's Baa3 bond rating and the review for downgrade on the banks' standalone BFSRs.

--- The debt and deposit ratings of Banco CEISS and Bankia are on review with direction uncertain, reflecting the review with direction uncertain of these banks' standalone BFSRs.

--- The issuer rating of BFA is on review with direction uncertain reflecting the review with direction uncertain of Bankia's standalone BFSR


Moody's has downgraded the senior subordinated debt and hybrid ratings of 24 Spanish banks in line with the lowering of their standalone credit assessments. Moody's had previously removed government support assumptions from its ratings of subordinated debt and hybrid instruments of Spanish banks on 12 December 2011, see "Rating Action: Moody's reviews Spanish banks' ratings for downgrade; removes systemic support for subordinated debt" (


Following the downgrade of the Spanish government's bond rating, Moody's has also downgraded to Baa3, on review for downgrade, from A3, and with a negative outlook the backed senior debt of 17 institutions. The backed-Baa3 ratings assigned are based on the unconditional guarantee, which directly links these ratings to the Spanish government. (See "Moody's to assign backed Aaa ratings to new euro-denominated long-term debt securities covered by Spanish government's guarantee," published on 22 January 2009.)


Moody's has downgraded to Baa3, on review for downgrade, from A3 (negative outlook) all of ICO's rated debt. Since ICO's liabilities are explicitly, irrevocably, directly and unconditionally guaranteed by the government of Spain, the rating action on ICO is triggered by the three-notch downgrade of the sovereign's ratings.


Downward pressure on Spanish banks' ratings primarily arises from the current review for downgrade process of the Spanish sovereign rating, given the negative implications of the weaker creditworthiness of the sovereign on banks' credit risk profiles. Further downward pressure on the banks' ratings might in addition develop if (i) operating conditions worsen beyond Moody's current expectations; (ii) asset-quality deterioration exceeds Moody's current expectations; and/or (iii) pressures on market-funding intensify.

Upward pressure on the ratings may arise upon the implementation of the government's plan to stabilize the banking system, to the extent that banks' resilience to the challenging prevailing conditions improve. Likewise, any improvement in the standalone strength of banks arising from stronger earnings, improved funding conditions or the work-out of asset-quality challenges could result in rating upgrades.

The methodologies used in these ratings were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: Global Methodology published in March 2012. Please see the Credit Policy page on for a copy of these methodologies.

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bnbdnb's picture

Ouch. Ahh who cares. EU won't use them anyways...Oh wait...nevermind.

slaughterer's picture

Should have done this downgrade years ago.  Now it is too late.  Now the equities of these banks will pop on this.  

BlandJoe24's picture

EURUSD not budging (yet)

seems perfectly rational and logical and sensical for it to tank.  which may be a sign that it'll rally





TrainWreck1's picture

NATO must respond to this downgrading of a member state by attacking Moody's.

sablya's picture

The banker chosen to be Greece's next finance minister resigned for health reasons Monday, three days after he was rushed to the hospital, while the country's prime minister was confined to his home, recovering from serious eye surgery.


el Gallinazo's picture

Exactly.  Spain as a NATO member has invoked the hostile action rule against Moody's.  NATO obligated to carpet bomb their home office and try to avoid a collateral damage spill over to S&P and Fitch.  Egan-Jones to be accidentally nuked by a stray tactical originally launched toward Tehran.  Hitlary will send in friendly al Qaeda commados to finish off the Moody risk desk.

old naughty's picture

Wow, such violent actions against Mood-y...

Guess Uncle Warren was sound in sleep all thru this Spanish banks down-grading thingy.

He will soon wake up to "ISSUE" a statement. so all these "CHANGES" could be co-ordinated.



Oh sh't, I am confused with the Immig article.


ZeroPower's picture

Rumors started from Asian desks overnight and official news was out around mid-day Ldn time, so yes, EURUSD did budge on this.  

stocktivity's picture

The bank runs won't start until the stupid soccer ends. Then it's back to the real world.

ghengis86's picture

Wake me up when all US banks get put on the hooks. Until then, SSDD.

mrkolice's picture

true. unicredit and intesa halted today. panic in milan. no one reporting.

Conman's picture

Yup suprised thsi is nto gettign any play whatsover.

On Monday, Italy's deputy economy minister, Vittorio Grilli, said he did not rule out buying bonds issued by distressed domestic banks.

Oh ya that'll do wonders , italy on its way to 7% yeilds.

financial apocalyptic contagion's picture

how in the world were these banker assholes able to burn through billions in free LTRO moneezz is beyond me and now these greedy cunts are back for more goddamn debt in less than a quarter of a year

Nid's picture

Let me guess: Not too bad...Could have been worse....Only 4 notches, not 7...Already baked in.... No impact on operations....etc etc ....

S&Ps Limit Up.

rsnoble's picture

I'd like to downgrade Moody's to junk status as most of us already know all these banks are completely insolvent and the gazillions of dollars a few select 'experts' make by issuing these calls could be put to good use feeding all the poor all this greed has created.

Captain Benny's picture

Hey bankers, you should answer that ringing phone... Collateral margin call - bitches

bdc63's picture

Meaningless.  The ratings agencies lost ALL credibility in 2008.  I honestly can't believe they still exist.

President Palin's picture

Bullish.  +1000 points for the DOW

Freewheelin Franklin's picture

As I am reading this, I can hear Melissa Francis on the TV in the other room talking about it. Melissa is hawt.She's pretty good, too. She got Barney Frank all riled up the other day. He was fumin'.


Just thought I'd share that.

slaughterer's picture

Melissa Francis is a rose above all suspicion,

we all cave in to her TV ads without asking permission


el Gallinazo's picture

Any woman thst can get Barney hot got some serious mojo.

stocktivity's picture

Smartest thing she did was leave that cesspool CNBC. At least Fox Business let's her report and not cheerlead

sitenine's picture

We don't need ratings - if it's paper, it's junk.
If you still have 'money', buy physical assets.

LawsofPhysics's picture

You are correct, plus one for you sir.  nothing else needs to be said.

Impotent_Smurf's picture

I'd really like to see a well formed barter system come out of all of this. It's the most honest form of trade if you think about it. You either have the shit to trade or you don't. None of this complex bullshit we have now with all its leverage and highly convoluted laws in the mix. Straight up, motherfucker!

dwdollar's picture

I have wondered whether money itself is becoming obsolete. Is it really that hard to find someone willing to trade "straight up" in the age of computers and the Internet?

CH1's picture

And don't forget about digital gold.

sitenine's picture

I'm sorry, you lost me.  What good is digital gold when you can't hold it?  You remind me of another phrase that was going around the blogoshere recently, "if you don't hold it, you don't own it."  Take it to heart - 1s and 0s are equivalent to paper, and remember that paper burns at only 451F.

BlandJoe24's picture

"if it's paper, it's junk.
If you still have 'money', buy physical assets."


Unless we have a deep deflationary period before hyperinflation, in which case you will really miss that cash, not just because it'll get you necessities (most important), but it'll also buy you way more physical assets than it does now.

Since severe deflation before hyperinflation is a possibility, it would be better preparation to diversify and keep some cash in addition to physical assets (especially physical necessities and items that you can barter with). 

Look around you at the real world of the 99%.  What - financially speaking - are most people sorely needing more of, right now, in their real actual lives? Cash.  If they followed your advice and got rid of all their cash right now, they might be happy about it, or they might find themselves in a very bad fix.

The current fiat system will die eventually, likely within several months or a year or two or three, but right now it is still kicking, and it can kick people in the teeth, hard (as most of us have noticed on a daily basis).  And it can kick even harder if we have a severe deflationary depression.  For most people, cash is their only way to get  food, heat, electricity, water.  A year or two with no money in a deflationary depression (where cash is extremely scarce and where most hard assets are worth much less than they are now) is an extreme challenge we should try and prevent, not facilitate.

I'm sure you're trying to be helpful.  But I think there's a serious responsibility in going beyond just sharing what you are doing or thinking, to actually making recommendations about what other people should do about potentially very serious matters.


Rainman's picture

+1 on deep deflation preceding inflation.

sitenine's picture

...we should try and prevent, not facilitate.

Good luck with that.

I'm sure you're trying to be helpful.  But I think there's a serious responsibility in going beyond just sharing what you are doing or thinking, to actually making recommendations about what other people should do about potentially very serious matters.

FYI BlandJoe24 - I'm speaking to people WITH money, so please don't be sanctimonious with me.  If deflation hits harder (if indeed it gets a chance to hit harder before it fails - we don't know exactly how long this has to play out, do we?), then we will buy 10X more assets than we are buying now because, frankly, you'd be an idiot not to hold onto some cash for just that purpose - I hope that's understood now.

To quote a phrase going around the blogosphere lately, "I'd rather be a year early than a day late."

BlandJoe24's picture

Clearer with the explanation. It wasn't clear from your original post that your advice was meant for the "investor class".  Good advice for the investor class may be bad advice for the 99%.  Your post would have sat well with me if it said something like:  "if you still have extra money after stowing away cash reserves, building up store of necessities and tradeables, buy physical assets".

I try and keep in mind that there is a wide diversity of audiences reading ZH.  Some (many?) people reading ZH do not have extra money.   They are feeling vulnerable, they can tell some major instability is potential real soon, and they want to be smart about what to do with very limited resources as protection in coming hard times.   I'm one of those people.

The "imminent HI/fiat collapse/cash is worthless/gold is the messiah" meme is all over ZH.  Just look at how many "+'s" your comment got.  If followed exclusively it will lead some people to make choices (like accumulating debt because they think it'll inflate away, or getting rid of cash) they will sorely regret if there's a severe deflationary period first.  As a balance to what I've learned on ZH, I'm very grateful I learned about the possibility of a deflationary depression and how to prepare for it the from sites like (see esp:

Better to be prepared for a variety of outcomes.

sitenine's picture

Thanks for the shout back, and I do clearly see your point and your concern - the pain coming our way is difficult to adequately describe on a broad demographic basis in any one comment.  Yes, of course everyone has to prepare in whatever way suits their circumstances - I thank you for your thoughtfulness, and I apologize if I unduly snapped at you.  Cheers mate!

BlandJoe24's picture

Thanks for saying - appreciated. Cheers to you too :-)

By the way, is there a way that the ZH website automatically notifies (email?) us if there's a reply to our comment or is the only way to keep reloading the page and re-checking?

BlandJoe24's picture

It might also be worth pointing out a potential risk of buying hard assets now - "even" gold.  Many hard assets purchased now will depreciate significantly if we go a lot further into a deflationary depression.  Because of a scarcity of cash (and inability to borrow), in a deflationary depression many people will be forced to sell their hard assets just to meet basic needs.  The market is then flooded with sellers and the prices go down.  Of course, the market for basic necessities (food, etc.) should be relatively stable.

BattlegroundEurope2011's picture

Hey at least their Soccer teams doing well ;)



The Swedish Chef's picture

The kicker here is how heavily the downgrade relies on commercial real estate. The economy is sinking fast in Spain and, barred residential real estate, there can´t be an asset class losing value as fast as commercial real estate. 


As more and more companies go out of business, more and more unsellable real estate will sit on these banks books. It will be impossible to mark to market as there will be no market. The value will be zero for anyone with a speck of accounting honesty.

slewie the pi-rat's picture

well, i'm glad they got that stuff all cleared up

pssst:  wanna buy a bank...? 

MsCreant's picture

Pssst, fuu, not worth it, buy silver with that.

fuu's picture

I was just trying to get long spiderman.

slaughterer's picture

flashing and slashing away,

I see Moody's begging for a commission in 20 years time

AssFire's picture
Moody's Downgrades Spanish Banking Sector... Expects it to survive only 1-4  mas' Noches
q99x2's picture

Germans have no reason not to help now that they are sure to get paid back. Although, I think the Spainish brought the Indians of South America blankets with smallpox. Maybe they slipped Moody's a few bucks on the side for this one.