MARCH 24, 2011, 7:09 A.M. ET
MADRID (Dow Jones)--Spanish bank stocks, already weakened by the ongoing economic slump in Spain and Portugal, were under additional selling pressure Thursday following a downgrade of the Spanish sector by Moody's Investors Service Inc., and the collapse of Portugal's minority government overnight.
However, market observers said big names like Banco Santander (STD) and Banco Bilbao Vizcaya Argentaria SA (BBVA) may prove resilient to the latest news as Spanish markets are showing some signs of decoupling from Portugal's political and economic crisis.
"There's more confidence around Spain," said Silvia Verde, a banking analyst with Inverseguros, a local brokerage. "The market mood is better than it was a few months ago."
Moody's said its downgrade comes after a similar move on Spain's sovereign debt earlier this month. It said the move reflects heightened financial pressure on Spain's sovereign credit and that of "many" weak banks, and a decline of the systemic importance of smaller banks amid quick consolidation in the sector. It also reflects the expectation of a weaker support environment for banks across Europe.
Moody's left unchanged the ratings of Santander, BBVA and La Caixa, listed as Criteria CaixCorp. (CRI.MC)--Spain's three biggest banks by market share--and downgraded by one or more notches the deposit and senior credit ratings of 30 smaller banks, most of them unlisted saving banks or "cajas" now in the process of consolidating into bigger entities.
Iberian traders said the effect of the Moody's move, which includes downgrades of 15 banks by two notches and five banks by three or four notches, should be limited as it was already widely anticipated.
"In my opinion, the market has already priced in some [most] of this re-rating. What is interesting is that the big three remain untouched, this should prompt some shift to the quality names," a Madrid-based trader said.
After early losses in banking stocks across the board, most bounced back buy mid-morning: at 1018 GMT, Banco Popular (POP.MC) and Banco Sabadell (SAB.MC), two of the banks downgraded by Moody's, were flat. Santander was also flat, with BBVA down 0.2%, after it lost as much as 2% in the early trading.
Traders said BBVA is weaker after some recent outperformance, as the Moody's downgrade coincides Thursday with a downgrade by Japan's Nomura, to reduce from neutral--an added sign of growing risks to a sector hampered by real-estate debt, now widely seen as a weak link in Spain's economy.
Alberto Postigo, a Moody's Senior Analyst, said that as much as 60% of anticipated losses in Spanish banks are tied to the country's real-estate bust. Moody's is forecasting Spanish housing prices to drop 30% from their 2007 peak, and most estimates indicate prices have only dropped between 10% and 20% so far.
The crisis in Portugal, which is widely seen on the brink of requesting a European Union bailout, may also have a limited effect on Spanish banks. According to estimates from the Bank of International Settlements, Spanish banks are the most exposed to possible losses in Portugal, as they account for $109 billion out of $322 billion in total exposure of foreign banks in the country.
The shares of Portugal's largest banks--Banco Comercial Portugues SA (BCP.LB), Banco BPI SA (BPI.LB) and Banco Espirito Santo SA (BES.LB)--also came under early pressure, but they bounced later, as Portuguese markets have already discounted a possible bailout.
At 1018 GMT, BES was up 0.3%, with BPI up 1.2%, and BCP 1.1%.
Late Wednesday, Portuguese Prime Minister Jose Socrates said he will step down after Parliament rejected a key set of austerity measures, paving the way for the country to request a bailout that may be between EUR50 billion-EUR100 billion.
"The main scenario we have been discussing over the last months was finally confirmed... with Portuguese PM resigning after opposition blocked the new package of austerity measures which had been agreed by the government with the EU [with no prior negotiations or discussions with opposition and the president], the fourth to be presented in the last 12 months," a Lisbon-based trader said.
MADRID (Dow Jones)--Spanish bank stocks, already weakened by the ongoing economic slump in Spain and Portugal, were under additional selling pressure Thursday following a downgrade of the Spanish sector by Moody's Investors Service Inc., and the collapse of Portugal's minority government overnight.
However, market observers said big names like Banco Santander (STD) and Banco Bilbao Vizcaya Argentaria SA (BBVA) may prove resilient to the latest news as Spanish markets are showing some signs of decoupling from Portugal's political and economic crisis.
"There's more confidence around Spain," said Silvia Verde, a banking analyst with Inverseguros, a local brokerage. "The market mood is better than it was a few months ago."
Moody's said its downgrade comes after a similar move on Spain's sovereign debt earlier this month. It said the move reflects heightened financial pressure on Spain's sovereign credit and that of "many" weak banks, and a decline of the systemic importance of smaller banks amid quick consolidation in the sector. It also reflects the expectation of a weaker support environment for banks across Europe.
Moody's left unchanged the ratings of Santander, BBVA and La Caixa, listed as Criteria CaixCorp. (CRI.MC)--Spain's three biggest banks by market share--and downgraded by one or more notches the deposit and senior credit ratings of 30 smaller banks, most of them unlisted saving banks or "cajas" now in the process of consolidating into bigger entities.
Iberian traders said the effect of the Moody's move, which includes downgrades of 15 banks by two notches and five banks by three or four notches, should be limited as it was already widely anticipated.
"In my opinion, the market has already priced in some [most] of this re-rating. What is interesting is that the big three remain untouched, this should prompt some shift to the quality names," a Madrid-based trader said.
After early losses in banking stocks across the board, most bounced back buy mid-morning: at 1018 GMT, Banco Popular (POP.MC) and Banco Sabadell (SAB.MC), two of the banks downgraded by Moody's, were flat. Santander was also flat, with BBVA down 0.2%, after it lost as much as 2% in the early trading.
Traders said BBVA is weaker after some recent outperformance, as the Moody's downgrade coincides Thursday with a downgrade by Japan's Nomura, to reduce from neutral--an added sign of growing risks to a sector hampered by real-estate debt, now widely seen as a weak link in Spain's economy.
Alberto Postigo, a Moody's Senior Analyst, said that as much as 60% of anticipated losses in Spanish banks are tied to the country's real-estate bust. Moody's is forecasting Spanish housing prices to drop 30% from their 2007 peak, and most estimates indicate prices have only dropped between 10% and 20% so far.
The crisis in Portugal, which is widely seen on the brink of requesting a European Union bailout, may also have a limited effect on Spanish banks. According to estimates from the Bank of International Settlements, Spanish banks are the most exposed to possible losses in Portugal, as they account for $109 billion out of $322 billion in total exposure of foreign banks in the country.
The shares of Portugal's largest banks--Banco Comercial Portugues SA (BCP.LB), Banco BPI SA (BPI.LB) and Banco Espirito Santo SA (BES.LB)--also came under early pressure, but they bounced later, as Portuguese markets have already discounted a possible bailout.
At 1018 GMT, BES was up 0.3%, with BPI up 1.2%, and BCP 1.1%.
Late Wednesday, Portuguese Prime Minister Jose Socrates said he will step down after Parliament rejected a key set of austerity measures, paving the way for the country to request a bailout that may be between EUR50 billion-EUR100 billion.
"The main scenario we have been discussing over the last months was finally confirmed... with Portuguese PM resigning after opposition blocked the new package of austerity measures which had been agreed by the government with the EU [with no prior negotiations or discussions with opposition and the president], the fourth to be presented in the last 12 months," a Lisbon-based trader said.