Spain

Claire Jones

European Central Bank data, out Thursday, showed that the amount of cash that businesses and households are parking in Spanish banks rose in September for the first time since the spring.

Deposits held by Greek and Italian banks also rose last month, while those parked in German banks dipped slightly.

One swallow does not make a summer. But residents of the Eurotower will be cautiously optimistic that the fact that banks in Greece and Spain are no longer haemorrhaging deposits shows that one of the aims of the ECB’s Outright Monetary Transactions programme is being fulfilled with the central bank yet to buy a single bond. Read more

The cost of rehabilitating the Spanish banking sector is partly behind Moody’s decision to downgrade Spanish government debt from Aa1 to Aa2 today. The rating has been left with a negative outlook, meaning a further downgrade is likely within two years if there is no improvement. Moody’s also completed its review of Greek debt with a three notch downgrade earlier this week. It seems the agency has saved the most sensitive review – that of Portugal – till last; it is due out before March 21 but is more likely to appear next week.

Moody’s decision completes a set of Spanish downgrades by all three main ratings agencies in recent weeks. S&P downgraded to AA (equivalent to Moody’s Aa2) on February 1, and Fitch downgraded to AA+ (equivalent to Moody’s Aa1) on March 4. Reasons given: Read more

Moody’s rating agency has just downgraded Greece’s government bonds to B1 from Ba1, placing the debt on negative outlook, meaning further downgrades are likely. The move takes Greek debt from borderline junk to “highly speculative” territory.

Fitch and S&P still rate Greek debt three notches higher at BB+ (the equivalent of Ba1, Moody’s previous rating), but this might not last long. Fitch last downgraded on January 14 and has a negative outlook on the rating, while S&P last downgraded in December but has the rating on credit watch negative (meaning a downgrade is imminent, if there is no material improvement). Read more

Spanish banks could be €50bn short of new capital requirements, says Moody’s, revising its previous estimate of €17bn based on old requirements. This is roughly 5 per cent of Spanish GDP and considerably higher than the Spanish government’s estimate of €20bn.

Overall savings banks’ exposure to the real estate sector is €217bn, by Bank of Spain data. Of that, €100bn, or nearly half, is considered “problematic”. €28bn are under surveillance and considered risky; a further €28bn are more than 90 days past due; and €44bn are foreclosed. Problematic indeed. The most troubling sentence from the Moody’s report is that just 40 per cent of the €217bn loan exposure is collateralised by finished, completed housing:

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As expected, Moody’s has downgraded Spain, three months after placing the sovereign on downgrade watch. Fitch and S&P downgraded Spain’s debt in late Spring, and S&P still rates Spanish debt below its peers.

Spanish debt is still rated above the rest of the PIIGS by Moody’s. PIIGS sovereign debt runs from Ba1 for Greece to Aa1 for Spain. Moody’s order runs: Greece, Portugal, Italy = Ireland, Spain. Fitch and S&P rate PIIGS’ sovereign debt in the same rough order, though at different levels. Click on the graphic to play with our interactive sovereign ratings graphic.

The current debt trajectory of the US may imperil the country’s future Aaa rating, Moody’s has said.

Steven Hess, senior credit officer at the ratings agency, told Bloomberg the US needed a strategy to tackle its deficit: “Having a clear plan certainly increases confidence and the U.S. doesn’t have that yet… the debt trajectory as it is now is something that might potentially cause us to consider whether the US is Aaa at some point in the future.” Read more

Ralph Atkins

Spanish banks have been lobbying the European Central Bank to act to ease the systemic fallout from the expiry of a €442bn ($542bn) funding programme this week, accusing the central bank of “absurd” behaviour in not renewing the scheme.

On Thursday, the clock runs out on the ECB financing programme – the largest amount ever lent in a single liquidity operation by the central bank – under the terms of the one-year special liquidity facility launched last summer. One senior bank executive said: “We are fighting them every day on this. It’s absurd.” Read more

Greece was so last month. As attention shifts to Spain, one argument runs that the country will receive greater concern from ‘core’ European countries than Greece. But why? Read more

** corrected at 16.40 to read “in the near future” instead of “next few days”

Spain’s central bank has thrown down the gauntlet to bank regulators elsewhere in Europe, saying it plans to publish the results of “stress tests” on the country’s financial institutions in the near future to clear up doubts about Spain’s banking system. (Berlin has also dropped resistance to the plan.) Read more

Attention is focusing on Spain. Dominique Strauss-Kahn – who’s in the region anyway, apparently – will take the opportunity to visit the country on Friday to discuss the economy with the PM.

Agenda items might include Spanish sources of debt, following a disappointing bill auction on Tuesday, highest government bond yield spreads since the mid-90s, and data from RBS showing that Spanish institutions’ net borrowing from the ECB is at an all-time high (see chart). Note that the Spain is bucking the euro area trend, which has seen total euro area net borrowing fall by a sixth since its April 2009 peak of €629bn. The white line shows Spain’s borrowing as a proportion: now at a high of 16.5 per cent. High borrowing from the ECB suggests Spain is struggling to raise debt at reasonable rates elsewhere.

Spain is tackling problems in its economy. A raft of austerity measures Read more