Market Overview

Fitch Downgrades 18 Spanish Banks, Spanish 10-Year Yield Goes Postal, Euro Plummets

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On Tuesday, Fitch downgraded the long-term issuer default ratings (IDR's) of 18 Spanish banks. This comes just a week after Fitch downgraded Spain's sovereign rating.

Fitch is anticipating further deterioration of the banks' loan portfolios, particularly for those heavily exposed to construction and real estate and those with low equity bases. Fitch states, "The crisis has contributed to heightened market risk aversion over Spanish debt, affecting funding access and costs for all Spanish banks."

"The downgrades of the Long-term IDRs reflect similar concerns to those that have affected the Spanish sovereign rating. In particular, Spain is expected to remain in recession through the remainder of this year and 2013 compared to the previous expectation that the economy would benefit from a mild recovery in 2013."

"The institutions affected by today's rating actions are purely domestic banks. Thus, their revenue generation capacity, risk profile, funding access and cost of funding are highly sensitive to the evolution of Spain's economy and its housing market. The sovereign rating acts as a cap for the Long-term IDRs of these domestic financial institutions."

Here is a full list of the downgrades:


  • Bankia downgraded to BBB from BBB+.
  • Banco Popular Espanol downgraded to BBB- from BBB.
  • CaixaBank, La Caixa, Kutxabank, Caja Rural de Navarra, Caja Rural de Navarra, Sociedad Cooperativa de Credito (CRN), and Grupo Cooperativo Iberico de Credito (GCI) all downgraded to BBB from A-.
  • Caja Laboral Popular's (Laboral) cut to BBB from BBB+.
  • Fitch is concerned about the relatively high real estate risk exposures and tight capital ratios at Banco Mare Nostrum (BMN) and Liberbank, S.A. (Liberbank). Their Long-term IDRs and VRs have been downgraded and placed on ratings watch negative. Fitch will be reviewing their ratings in the near term. Banco de Castilla-La Mancha is 75%-owned by Liberbank and its Long-term IDR mirrors that of Liberbank.

The euro plunged on the news, falling to 1.2455 from 1.25 against the US dollar, while Spanish 10-year yields hit euro-era highs near 6.755%.

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