Spain requests bank aid, Moody's downgrades banks

Mon Jun 25, 2012 6:56pm EDT
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By Julien Toyer and Jesús Aguado

MADRID (Reuters) - Spain formally requested a European bank rescue on Monday but lack of details kept investors fretting and Moody's cut the ratings of most Spanish lenders, citing the government's reduced ability to support them and the likelihood of higher property losses.

In a letter to Eurogroup Chairman Jean-Claude Juncker sent early on Monday, Spanish Economy Minister Luis de Guindos said he wanted to take up the EU offer of up to 100 billion euros ($125 billion) and hoped to finalize the package by July 9.

He did not specify how much money Spain will seek to recapitalize the indebted lenders and said the final amount and conditions of the assistance were still under discussion.

Ahead of reports of the Moody's downgrade, Spanish banking stocks .IBAN.BC closed down 4.9 percent on Monday, underperforming the blue-chips index .IBEX, which fell 3.7 percent. Spain's country risk, as measured by the spread between German and Spanish benchmark bonds, rose to around 518 basis points.

Moody's downgraded the ratings of 28 of 33 rated banks, by one to four notches, following a cut to Spain's sovereign rating to just above junk status earlier this month.

"The reduced creditworthiness of the Spanish sovereign...affects the government's ability to support the banks," the credit rating agency said in a statement.

"The banks' exposures to commercial real estate will likely cause higher losses, which might increase the likelihood that these banks will require external support."

The downgrade included Spain's largest two lenders, Santander SAN.MC and BBVA BBVA.MC and left the long-term debt of Bankia BKIA.MC, which requested a bailout last month, at junk status.   Continued...

A couple embraces in front of the Bankia-Caja Madrid bank branch in the Andalusian capital of Seville June 25, 2012. Spain formally requested European aid for its banks on Monday but did not specify how much money it will seek to recapitalize the indebted lenders. REUTERS/Marcelo del Pozo