Moody's downgrades Spanish banks, regions

Moody's cut its debt ratings of five Spanish banks and most of the country's regions Wednesday, one day after delivering Madrid a sovereign downgrade, warning it still lacked a "credible" resolution to its economic crisis. Banco Santander, BBVA, CaixaBank, La Caixa and Confederación Espanola de Cajas de Ahorros (CECA) all had their debt ratings cut by one level, appended with negative outlooks, suggesting possible future downgrade. Moody's also cut the ratings of nine regions, two Basque provinces and five other government-related entities by one or two steps each, and labeled them with a negative outlook. One region, Castile-La Mancha, was hit with a five-notch ratings cut to Baa2. "Today's rating action has been prompted by the downgrade of the Kingdom of Spain to A1 from Aa2," Moody's said in its statement on the banks downgrade. "With the government rating now at A1, Moody's believes that the benefit of potential support from the government is less pronounced relative to the standalone strength of these banks," Moody's said. Moody's said that "the high likelihood that support would be forthcoming" nevertheless kept them from further cutting the banks' ratings. As for the downgrade of the regions, Moody's said that their large financing needs and tighter access to long-term funding "have forced regions to deplete their cash reserves, extensively use short-term credit lines, and expand their commercial debt obligations." It also cited persistent budget shortfalls "due to the regions' difficulty in reining in their cost bases significantly." Castile-La Mancha's sharper downgrade came based on recent disclosures that made the large central region's finances "incompatible with an investment-grade rating." Moody's cited "the emergence of unexpectedly large deficits and commercial liabilities following a recent audit of its accounts." Earlier Wednesday Spain's Treasury challenged the sovereign downgrade, saying in a letter to investors the downgrade "may be motivated more by a short-term reaction to negative news about the eurozone debt markets" than by long-term fundamentals. "The nation's significant deleveraging has significantly reduced its external financing needs," the Treasury said. "The Spanish government remains committed to fiscal consolidation and structural reform."