This time it’s the turn of 25 Spanish banks, all of whose senior ratings were on Monday downgraded by Moody’s. Banco Santander, of “we’re so strong we’re actually going to expand through the crisis” fame, meanwhile, remains under review for possible downgrade.
Here are extracts from the very long Moody’s statement (our emphasis):
Moody’s Investors Service today downgraded the senior unsecured debt and deposit ratings of 25 Spanish banks – 18 by one notch and seven institutions by two notches. At the same time, Moody’s downgraded the Bank Financial Strength Ratings of 30 banks. Among these banks, the rating agency downgraded the dated subordinated debt of 17 institutions, the junior subordinated debt of eight institutions, and the preference shares of 14 banks.
“The rising pressure that many Spanish banks face from a sharp deterioration of their asset quality is reflected in their stand-alone financial strength ratings, a third of which now fall at a “D-” level or lower,” said Maria Cabanyes, a Senior Vice President at Moody’s. “However, the moderate downgrade of these banks’ senior ratings reflects our expectation that government support would be forthcoming for these institutions should such support become necessary.”
This rating action concludes the review initiated on May 19, 2009. Eight banks however, continue to have some or all of their ratings under review for further possible downgrade, as outlined in the ratings list below.
DOWNGRADE OF THE BANK FINANCIAL STRENGTH RATING
The Bank Financial Strength Ratings (BFSR) of 30 banks have been downgraded, with six institutions downgraded by one notch, eight by two notches, eight by three notches and eight by four notches. The downgrades are driven by the speed and depth of the deterioration of the Spanish economy and the impact on banks’ balance sheets. Spanish GDP has declined by 3% in the first quarter of 2009.
The unemployment rate stood at 17.4% at the end of the first quarter up from 8.6% at the end of 2007 and is expected to be close to 19% by the end of this year. In concert with these broader economic pressures, the banks’ asset quality indicators continue to point towards a further significant deterioration. The system-wide non-performing loan rate has deteriorated to 4.27% at end of the first quarter of 2009, up from 0.9% in December 2007 and 3.37% in December 2008.
“The extra cushion (i.e. the anti-cyclical provisions) that banks had built up over the years against such risks — which has so far protected their earnings and capital bases — is becoming increasingly thin,” said Maria Jose Mori, Assistant Vice President and lead analyst for some of the affected banks. While some banks have initiated capital boosting measures, such as through issuance of preference shares or divestment of some of their investment portfolios, Moody’s remains concerned that the overall pressure on capital has so far not been sufficiently addressed and resolved by the Spanish banks.
“Unless some supportive measures are taken by third parties — by owners, or likely by the government — some banks’ capital cushions will soon be affected by asset impairments and provisioning requirements,” Moody’s Mori added. Of those 30 affected banks, only 4 have remained rated at C or above, whereas 17 are now rated between C- and D, and nine are rated D- or E+. Banks with a BFSR of C or above are generally expected to be resilient against even a stress scenario.
Banks rated between C- and the higher end of D+ are generally expected to withstand reasonably well Moody’s anticipated case loss assumptions, but could come under material pressure in a more severe scenario. Banks rated between the lower end of D+ and E+ levels display more modest fundamentals in the anticipated scenario and are highly sensitive to a more stressed scenario, resulting in an increased likelihood that third-party support would be required.
Moreover, while Moody’s loss estimates often indicate a similar magnitude of potential capital shortfalls for D- and E+ rated banks, those banks rated D- seem to have a more robust business model and overall stronger risk profile, which Moody’s would expect to emerge from any restructuring or recapitalisation with less structural changes required. The outlook on all BFSRs is negative, reflecting primarily the vulnerability of these banks to a further deterioration of the operating environment.
However, Moody’s also noted that a significant government capital injection - which apparently has been discussed for some time now by the Spanish government and the banking sector — could prompt subsequent upgrades of some BFSRs. The conditions under which such a support package is extended would need to be closely examined, Moody’s added.
Senior debt and deposit ratings remain unchanged thanks to sovereign backing:
DOWNGRADE OF LONG-TERM DEBT AND DEPOSIT RATINGS Due to a heightened likelihood of systemic support in this crisis, the impact of the BFSR downgrades has not translated into a similar downgrade of the banks’ senior debt and deposit ratings. Eighteen institutions have been downgraded by one notch, and seven institutions have been downgraded by two notches. Moody’s explained that the expectation of support from the highly-rated Spanish government underpins the investment-grade ratings of these banks.
Not so for subordinated debt ratings though:
DOWNGRADE OF SUBORDINATED DEBT AND HYBRID RATINGS
The downgrade of the dated subordinated debt instruments of these institutions is driven by the same factors considered in the downgrade of the senior unsecured debt. These dated subordinated debt instruments continue to be rated one notch lower than the senior debt instruments of the same bank based on subordination.
Moody’s sees the risk on the junior subordinated debt instruments in the unlikely event of liquidation as slightly higher than that of dated subordinated debt. The risk of coupon deferral and of loss absorption under a going concern-assumption is more limited than for preference shares given the junior subordinateds’ perpetual, cumulative and optional deferral triggers. Nevertheless, the risk of such losses has increased. These two considerations have led to the downgrade of these instruments, which are now rated one notch lower than dated subordinated debt for banks with a BFSR of at least C-, and two notches lower for banks with a BFSR of D+ and below.
The risk profile for the preference shares is different than that of the subordinated instruments. The coupons are non-cumulative and have a mandatory deferral trigger, which is a P&L loss (or regulatory capital shortfall). Given the heightened possibility of a net loss for many of these banks, Moody’s has applied an Expected Loss analysis to these instruments to capture the higher risk of coupon deferral, with the probability of a coupon deferral being linked to the strength of the bank as reflected in its BFSR.
The affected institutions:
1) Banca March S.A. BFSR downgraded to C- (mapping to a BCA of Baa1) from C, outlook changed to negative; Long-term debt and deposit rating affirmed at A2 with a negative outlook; Short-term debt and deposit rating affirmed at P-1.
2) Banco Bilbao Vizcaya Argentaria, S.A. BFSR of B remains under review for possible downgrade; Long-term debt and deposit rating remains at Aa1 under review for downgrade; Senior subordinated debt remains at Aa2 under review for downgrade; Junior subordinated debt remains at Aa2 under review for downgrade; Hybrid securities remain at Aa3 under review for downgrade; Short-term debt and deposit rating affirmed at P-1. The potential impact on the ratings of BBVA’s rated foreign subsidiaries will be covered in a separate Press Release.
3) Banco Cooperativo Espanol, S.A. BFSR of C+ remains under review for possible downgrade; Long-term debt and deposit rating remains at A1 under review for downgrade; Senior subordinated debt remains at A2 under review for downgrade; Short-term debt and deposit rating affirmed at P-1.
4) Banco de Credito Local de Espana, S.A. BFSR of B remains under review for possible downgrade; Long-term debt and deposit rating remains at Aa1 under review for downgrade; Short-term debt and deposit rating affirmed at P-1.
5) Banco De Valencia S.A BFSR downgraded to D- from C- (mapping to a BCA of Baa1), outlook changed to negative; Long-term debt and deposit rating downgraded to Baa1 from A3, outlook changed to negative; Senior subordinated debt downgraded to Baa2 from Baa1, outlook changed to negative; Hybrid securities downgraded to B1 from Baa2, outlook changed to negative; Short-term debt and deposit rating affirmed at P-2.
6) Banco Espanol de Credito, S.A. (Banesto) BFSR downgraded to C- (mapping to a BCA of Baa2) from B-, outlook changed to negative; Long-term debt and deposit rating remains at Aa2 under review for downgrade; Senior subordinated debt remains at Aa3 under review for downgrade; Junior subordinated debt remains at Aa3 under review for downgrade; Hybrid securities remain at A1 under review for downgrade; Short-term debt and deposit rating affirmed at P-1.
7) Banco Guipuzcoano BFSR downgraded to D+ (mapping to a BCA of Baa3) from C- (mapping to a BCA of Baa2), outlook changed to negative; Long-term debt and deposit rating affirmed at Baa1 with a negative outlook; Short-term debt and deposit rating affirmed at P-2.
8) Banco Pastor, S.A. BFSR downgraded to D from C, outlook changed to negative; Long-term debt and deposit rating downgraded to A3 from A2, outlook changed to negative; Senior subordinated debt downgraded to Baa1 from A3, outlook changed to negative; Junior subordinated debt under downgraded to Baa3 from A3, outlook changed to negative; Hybrid securities downgraded to Ba3 from Baa1, outlook changed to negative; Short-term debt and deposit rating downgraded to P-2 from P-1.
9) Banco Popular Espanol, S.A. BFSR to C- (mapping to a BCA of Baa1) from B, outlook changed to negative; Long-term debt and deposit rating downgraded to Aa3 from Aa2, outlook changed to negative; Senior subordinated debt downgraded to A1 from Aa3, outlook changed to negative; Hybrid securities downgraded to Baa2 from A1, outlook changed to negative; Short-term debt and deposit rating affirmed at P-1.
10) Banco Sabadell, S.A. BFSR downgraded to C- (mapping to a BCA of Baa2) from B- under, outlook changed to negative; Long-term debt and deposit rating downgraded to A2 from Aa3, outlook changed to negative; Senior subordinated debt downgraded to A3 from A1, outlook changed to negative; Junior subordinated debt under downgraded to Baa1 from A1, outlook changed to negative; Hybrid securities downgraded to Baa3 from A2, outlook changed to negative; Short-term debt and deposit rating affirmed at P-1.
11) Banco Santander S.A. (Spain) BFSR of B remains under review for possible downgrade; Long-term debt and deposit rating remains at Aa1 under review for downgrade; Senior subordinated debt remains at Aa2 under review for downgrade; Junior subordinated debt remains at Aa2 under review for downgrade; Hybrid securities remain at Aa3 under review for downgrade; Short-term debt and deposit rating affirmed at P-1. The potential impact on the ratings of Banco Santander’s rated foreign subsidiaries will be covered in a separate Press Release.
12) Bankinter, S.A. BFSR downgraded to C from B-, outlook changed to negative; Long-term debt and deposit rating downgraded to A1 from Aa3, outlook changed to negative; Senior subordinated debt downgraded to A2 from A1, outlook changed to negative; Hybrid securities downgraded to Baa1 from A2, outlook changed to negative; Short-term debt and deposit rating affirmed at P-1.
13) Caixa Catalunya BFSR downgraded to D- from C, outlook changed to negative; Long-term debt and deposit rating downgraded to A3 from A2, outlook changed to negative; Senior subordinated debt downgraded to Baa1 from A3, outlook changed to negative; Hybrid securities downgraded to B1 from Baa1, outlook changed to negative; Short-term debt and deposit rating downgraded to P-2 from P-1.
14) Caixa d’Estalvis de Manresa (Caixa Manresa) BFSR downgraded to D+ (mapping to a BCA of Baa3) from C, outlook changed to negative; Long-term debt and deposit rating downgraded to Baa1 from A2, outlook changed to negative; Senior subordinated debt downgraded to Baa2 from A3, outlook changed to negative; Short-term debt and deposit rating downgraded to P-2 from P-1.
15) Caixa d’Estalvis de Terrassa BFSR downgraded to D from C- (mapping to a BCA of Baa1), outlook changed to negative; Long-term debt and deposit rating downgraded to Baa2 from A3, outlook changed to negative; Senior subordinated debt downgraded to Baa3 from Baa1, outlook changed to negative; Junior subordinated debt under downgraded to Ba2 from Baa1, outlook changed to negative; Short-term debt and deposit rating affirmed at P-2.
16) Caixa Galicia BFSR downgraded to D from C, outlook changed to negative; Long-term debt and deposit rating downgraded to A3 from A2, outlook changed to negative; Senior subordinated debt downgraded to Baa1 from A3, outlook changed to negative; Junior subordinated debt under downgraded to Baa3 from A3, outlook changed to negative; Hybrid securities downgraded to Ba3 from Baa1, outlook changed to negative; Short-term debt and deposit rating downgraded to P-2 from P-1.
17) Caja de Ahorros de La Rioja (Caja Rioja) BFSR downgraded to D+ (mapping to a BCA of Baa3) from C- (mapping to a BCA of Baa1), outlook changed to negative; Long-term debt and deposit rating downgraded to A3 from A2, outlook changed to negative; Short-term debt and deposit rating downgraded to P-2 from P-1.
18) Caja de Ahorros de Salamanca y Soria (Caja Duero) BFSR downgraded to D+ (mapping to a BCA of Ba1) from C, outlook changed to negative; Long-term debt and deposit rating downgraded to A3 from A2, outlook changed to negative; Senior subordinated debt downgraded to Baa1 from A3, outlook changed to negative; Hybrid securities downgraded to Ba2 from Baa1, outlook changed to negative; Short-term debt and deposit rating downgraded to P-2 from P-1
19) Caja de Ahorros de Santander y Cantabria (Caja Cantabria) BFSR downgraded to D- from C- (mapping to a BCA of Baa2) , outlook changed to negative; Long-term debt and deposit rating confirmed at A3, outlook changed to negative; Senior subordinated debt confirmed at Baa1, outlook changed to negative; Hybrid securities downgraded to B1 from Baa2, outlook changed to negative; Short-term debt and deposit rating affirmed at P-2
20) Caja de Ahorros de Valencia, C y A. (Bancaja) BFSR downgraded to D- from C, outlook changed to negative; Long-term debt and deposit rating downgraded to A3 from A2, outlook changed to negative; Senior subordinated debt downgraded to Baa1 from A3, outlook changed to negative; Junior subordinated debt under downgraded to Baa3 from A3, outlook changed to negative; Hybrid securities downgraded to B1 from Baa1, outlook changed to negative; Short-term debt and deposit rating downgraded to P-2 from P-1
21) Caja de Ahorros de Vigo, Ourense y Pontevedra (Caixanova) BFSR downgraded to D from C+, outlook changed to negative; Long-term debt and deposit rating downgraded to A3 from A1, outlook changed to negative; Short-term debt and deposit rating downgraded to P-2 from P-1
22) Caja de Ahorros de Vitoria y Álava (Caja Vital) BFSR downgraded to C from C+, outlook changed to negative; Long-term debt and deposit rating downgraded to A2 from A1, outlook changed to negative; Short-term debt and deposit rating affirmed at P-1
23) Caja de Ahorros del Mediterraneo (CAM) BFSR downgraded to D- from C , outlook changed to negative; Long-term debt and deposit rating downgraded to A3 from A2, outlook changed to negative; Senior subordinated debt downgraded to Baa1 from A3, outlook changed to negative; Short-term debt and deposit rating downgraded to P-2 from P-1
24) Caja de Ahorros Municipal de Burgos BFSR downgraded to D from C- (mapping to a BCA of Baa1), outlook changed to negative; Long-term debt and deposit rating downgraded to Baa1 from A3, outlook changed to negative; Short-term debt and deposit rating affirmed at P-2
25) Caja de Ahorros y Monte de Piedad de Ávila BFSR downgraded to E+ (mapping to a BCA of B1) from C- (mapping to a BCA of Baa2), outlook changed to negative; Long-term debt and deposit rating downgraded to Baa3 from Baa1, outlook changed to stable; Short-term debt and deposit rating downgraded to P-3 from P-2
26) Caja de Ahorros y Monte de Piedad de Madrid (Caja Madrid) BFSR downgraded to D+ (mapping to a BCA of Ba1) from C+, outlook changed to negative; Long-term debt and deposit rating downgraded to A1 from Aa3, outlook changed to negative; Senior subordinated debt downgraded to A2 from A1, outlook changed to negative; Junior subordinated debt under downgraded to Baa1 from A1, outlook changed to negative; Hybrid securities downgraded to Ba2 from A2, outlook changed to negative; Short-term debt and deposit rating affirmed at P-1
27) Caja de Ahorros y Monte de Piedad de Segovia BFSR downgraded to E+ (mapping to a BCA of B1) from C- (mapping to a BCA of Baa2), outlook changed to negative; Long-term debt and deposit rating downgraded to Baa3 from Baa1, outlook changed to stable; Short-term debt and deposit rating downgraded to P-3 from P-2
28) Caja de Ahorros y Monte de Piedad de Zaragoza, Aragón y Rioja (Ibercaja) BFSR downgraded to C- (mapping to a BCA of Baa2) from C+, outlook changed to negative; Long-term debt and deposit rating downgraded to A2 from A1, outlook changed to negative; Senior subordinated debt downgraded to A3 from A2, outlook changed to negative; Hybrid securities downgraded to Baa3 from A3, outlook changed to negative; Short-term debt and deposit rating affirmed P-1
29) Caja de Ahorros y Pensiones de Barcelona (“La Caixa”) BFSR downgraded to B- from B, outlook changed to negative; Long-term debt and deposit rating downgraded to Aa2 from Aa1, outlook changed to negative; Senior subordinated debt downgraded to Aa3 from Aa2, outlook changed to negative; Hybrid securities downgraded to A2 from Aa3, outlook changed to negative; Short-term debt and deposit rating affirmed at P-1
30) Caja Espana de Inversiones (Caja Espana) BFSR downgraded to E+ (mapping to a BCA of B1) from C- (mapping to a BCA of Baa2) under review for possible downgrade; Long-term debt and deposit rating downgraded to Baa1 from A3, outlook changed to negative; Senior subordinated debt downgraded to Baa2 from Baa1, outlook changed to negative; Junior subordinated debt under downgraded to Ba1 from Baa1, outlook changed to negative; Hybrid securities downgraded to B2 from Baa2, outlook changed to negative; Short-term debt and deposit rating affirmed at P-2
31) Caja Insular de Ahorros de Canarias BFSR downgraded to D- from C- (mapping to a BCA of Baa1), outlook changed to negative; Long-term debt and deposit rating downgraded to Baa1 from A3, outlook changed to negative; Senior subordinated debt downgraded to Baa2 from Baa1, outlook changed to negative; Junior subordinated debt under downgraded to Ba1 from Baa1, outlook changed to negative; Short-term debt and deposit rating affirmed at P-2
32) Caja Laboral Popular Cooperativa de Credito BFSR downgraded to C- (mapping to a BCA of Baa2) from C+, outlook changed to negative; Long-term debt and deposit rating downgraded to A3 from A1, outlook changed to negative; Short-term debt and deposit rating downgraded to P-2 from P-1
33) Cajamar Caja Rural, Sociedad Cooperativa de Credito BFSR downgraded to D+ (mapping to a BCA of Baa3) from C, outlook changed to negative; Long-term debt and deposit rating downgraded to A3 from A2, outlook changed to negative; Short-term debt and deposit rating downgraded to P-2 from P-1
34) Confederación Espanola de Cajas de Ahorro (CECA) BFSR of B- remains under review for possible downgrade; Long-term debt and deposit rating remains at Aa2 under review for downgrade; Short-term debt and deposit rating affirmed at P-1
35) Lico Leasing, EFC S.A. Long-term debt and deposit rating remains at A2 under review for downgrade; Short-term debt and deposit rating remains at P-1under review for downgrade
36) Mtes. de P. y Caja de Ahorros de Ronda, Cadiz, Almeria, Malaga y Antequera (Unicaja) BFSR downgraded to C+ from B-, outlook changed to negative; Long-term debt and deposit rating affirmed at Aa3 with a negative outlook; Senior subordinated debt affirmed at A1 with a negative outlook; Short-term debt and deposit rating affirmed at P-1
37) Santander Consumer Finance, S.A. BFSR of C+ remains under review for possible downgrade; Long-term debt and deposit rating remains at A1 under review for downgrade; Senior subordinated debt remains at A2 under review for downgrade; Short-term debt and deposit rating remains at P-1 under review for downgrade.
