Bloomberg News

Santander, BBVA Are Cut By S&P as No 2012 Turnaround Seen

October 11, 2011

(Updates with Fitch downgrades starting in sixth paragraph.)

Oct. 11 (Bloomberg) -- Spanish banks including Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA had their ratings cut by Standard & Poor’s, which cited “dimming” growth prospects and “heightened” market turbulence.

Santander and BBVA, Spain’s biggest banks, had their long- term credit ratings cut to AA- from AA with a negative outlook. Among other downgrades made by S&P, Banco Sabadell SA and Bankinter SA were lowered to A- from A. Banco Popular Espanol SA had its A- long-term rating put on a negative outlook.

“We no longer see 2012 as a turnaround year for Spanish banks,” S&P said in a statement, adding that the outlook for all the banks it covers in Spain is negative. “Their ratings prior to today’s downgrades had little room to accommodate another year of weak financial performance,” S&P said.

Spanish banks, pummeled by a real estate crash that has forced them to take a combined 105 billion euros ($143 billion) of provisions since 2008, now face surging financing costs while a worsening economic outlook for the economy also delays recovery in their loan quality. Banco Espanol de Credito SA, a retail bank controlled by Santander, today reported an 83 percent year-on-year drop in third-quarter profit as lending shrank and loan impairments jumped.

S&P said the finances of Spanish banks weakened as they accumulated damaged assets and exhausted provisioning cushions. Lenders in the country face mounting funding challenges and the prospect that bad loans will continue accumulating during 2012 and potentially into the first part of 2013, S&P said.

Fitch Cuts Ratings

Fitch Ratings also cut ratings today on Spanish banks following its Oct. 7 downgrade of Spain’s sovereign debt to AA- from AA+. The outlook for the rating is negative.

Santander had its long-term issuer default rating cut to AA- from AA and BBVA was lowered to A+ from AA-, Fitch said. CaixaBank SA was cut to A from A+ and Popular and Sabadell to BBB+ from A-, the ratings company said.

“The weak economic environment in Spain, high unemployment and the property sector’s problems will continue to affect the volume and of activities in banks domestically as well as asset quality,” Fitch said in a statement.

--Editors: Keith Campbell, William Ahearn.

To contact the reporters on this story: Charles Penty in Madrid at cpenty@bloomberg.net; Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net.

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net


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