Saturday 26 May 2012

Downgrades on European banks

Euro Steady despite S&P Downgraded 5 Spanish Banks to Junk
Though Standard & Poor’s Ratings Services announced today that it has revised down its economic risk score on Spain and lowered ratings on five financial institutions, market reactions regarding to the euro were fairly muted.

25 May, 2012

THE TAKEAWAY: S&P downgraded 5 Spanish banks to Junk and lowered economic risk score on Spain > the Downgrade Bolstered Uncertainty in the Eurozone that Forced ECB to Further Loosen its Monetary Policy> Reactions on Euro Fairly Muted

Standard & Poor’s Ratings Services announced today that it has revised down its economic risk score on Spain and lowered ratings on five financial institutions following its two-notch downgrade of the Kingdom of Spain (BBB+/Negative/A-2) on April 26, 2012.

Standard & Poor’s maintained its Banking Industry Country Risk Assessment (BICRA) on Spain in group “5” but lowered the economic risk score, a component of BICRA, to “6” from “5” and changed its assessment on Spain’s economic imbalances to “very high risk” from “high risk”.

The rating agency downgraded five Spain-based banks, including Bankia S.A, Banco Financiero y de Ahorros S.A., Banca Civica , S.A. (Civica), Banco Popular Espanol S.A. (Popular), and BankinterS.A., to junk status citing the impact of the banking industry’s economic risk on their capital positions or business model.

The agency also revised down its assessment of the stand-alone credit profiles (SACPs) of six financial institutions, with revisions raging from one to three notches. With the exceptions of two financial institutions, all ratings either carry a negative outlook or remain on CreditWatch negative. They generally reflect the possibility that the S&P could cut the ratings further in the context of increasing pressure on the bank’s financial strength when Spain economic conditions weaken.

One of five banks downgraded today by S&P, Bankia, asked Spanish government late Friday for 19 billion euros (roughly $23.8 billions) in rescue funds to “reinforce the solvency, liquidity and solidity of the bank”. The troubled bank was partially nationalized by Spanish government earlier this month after a top-level turmoil. Yet, the cost of rescuing banks could overwhelm government finances and the Spanish government might eventually seek for international rescue package, like the ones Greece, Ireland and Portugal did. Combined with escalating concerns about Greek Euro exit, the growing instability in Spanish banking sectors bolsters uncertainty within the euro zone. This is likely to put pressure on the ECB to further loosen its monetary policy in the coming weeks.

For article GO HERE

Moody’s downgrades three Scandinavian banks
Something is rotten in the state of Sweden, as Moody’s has downgraded the country’s Nordea Bank and Svenska Handelsbanken, while Norway’s DNB Bank has also seen its debt rating cut.

25 May, 2012

Nordea's and Handelsbanken's ratings were cut one notch to Aa3 from Aa2, while DNB was downgraded to A1/C- from Aa3/ C due to its reliance on market funding and exposure to risky assets.

Moody’s stressed that if the ongoing eurozone debt crisis deepens, Swedish banking will face higher risks because of its high reliance on wholesale funding and modest profitability due to price competition for retail loans. With low profit margins, Swedish banks would be challenged to rebuild capital in the event of unexpected losses, Moody’s explained.

Meanwhile Moody’s acknowledged “the relatively good capital markets access for most Swedish banks despite difficult market conditions in recent years”. Moreover, Moody’s pointed out “the Swedish economy has so far performed well compared with other European Union economies”, though the country is highly dependent on export to the rest of EU.

However, Moody's confirmed its ratings for the two major Swedish banks SEB at A1 and for Swedbank at A2 with the outlook stable for these institutions.

European banking came very much under pressure this year as the debt crisis widens. In April, the IMF issued a report saying that the total assets of 58 largest EU banks are likely to be decreased by 7% ($2.6 trln) by the end of 2013. Earlier this month Moody’s downgraded 16 Spanish banks as well as 26 Italian banks. In mid-February the US rating agency put 114 European banks under consideration: among these are the four major Swedish banks, formerly among the best-rated in Europe

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