The rating agency Moody's will carry out tonight a massive downgrade of the note it assigns to Spanish banks, similar to the one it made last Monday with Italian banks.
The firm, according to financial sources, has begun to notify the banks of the next reduction , as is mandatory in these cases. This downgrade will take place after on Monday, Moody's downgraded 26 Italian banks by one to four notches due to their vulnerability to the difficulties facing the Eurozone.
Three months ago, in mid-February, the agency announced that it was reviewing the rating of 114 European financial institutions in 16 countries, of which Italy and Spain were the most affected, with 24 and 21 entities, respectively.
Moody's then justified this action because of the “negative and prolonged impact of the crisis in the euro area”, combined with the deterioration in credit quality and the challenges faced by banks and securities firms with significant activity in the capital market.
Doubt of financial reform
If Moody's fulfills its threat, the image of Spanish banks would be affected again, at a time when it is suffering harsh punishment on the stock market due to the collapse of Bankia and the impact of the new financial reform.
That reform, which was approved on the 11th, once again increases the provisions that the sector must make to clean up its real estate assets by almost 30,000 million euros.
In this sense, Moody's highlighted this week that the financial reform approved by the Spanish Government and the nationalization of BFA were "positive" actions, but still left entities and creditors "vulnerable" in case more problem loans appear .
He added that these actions confirmed the availability to offer public support to entities, although the amount and form of aid are "uncertain."
"This will probably increase the burden of Spain's already high public debt," clarified the agency, which expects it to exceed 90% of GDP in 2014, almost triple the 36% registered in 2007.
On April 30, Standard & Poor's (S&P) lowered the rating of eleven Spanish financial institutions after doing the same days before with the national sovereign debt.
Another agency, Fitch, also cut the rating of Banco Santander, BBVA, CaixaBank and Bankia on February 13.
Source: The Economist
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