Moody’s downgrade of Spain’s banks rating already priced in

The Spanish market had already priced in the cut in the rating of Spanish banks by rating agency Moody’s.

On June 25, Moody’s Investors Service downgraded the long-term debt and deposit ratings for 28 Spanish banks and two issuer ratings, but according to sources based in Madrid and London investors’ confidence will not be affected further following the rating action.

“Regarding the downgrade there is little noise as it is more than announced. Investors are not more worried now than a week ago,” a Madrid-based source told Investment Europe.

“The downgrade has been discounted and the fact that Spanish banks need €100bn of external support confirms the burden in their balance sheets. The downgrade would reflect how badly the bailout process has been handled. Expectations that it would restore confidence have been lost,” said Ted Scott, global strategy director at F&C.

The market rally which followed the announcement of the €100bn bailout lasted less than an hour and the rise in yields has confirmed the market reaction to the request for EU support, Scott added.

Moody’s downgrade of banks’ rating follows a cut of Spain’s sovereign rating by three notches on June 13.

Earlier on Monday, Spanish economy minister Luis de Guindos asked formally to eurozone partners for up to €100bn to recapitalise Spanish banks.
The aim will be to agree details and conditions of the loan before the next eurogroup meeting on July 9.

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