Fitch Downgrades Greece to 'CCC' on Grexit Risk, Moody's Downgrades 16 Spanish Banks

Greek Drachmas (Wikipedia)
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"Fitch Takes Negative Rating Actions on Greece
17 May 2012 1:30 PM (EDT)

Link to Fitch Ratings' Report: Fitch Takes Negative Rating Actions on Greece

Fitch Ratings-London-17 May 2012: Fitch Ratings has downgraded Greece's Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'CCC' from 'B-'. The Short-term foreign currency IDR has also been downgraded to 'C' from 'B'. At the same time, the agency has revised the Country Ceiling to 'B-'.

The downgrade of Greece's sovereign ratings reflects the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union (EMU). The strong showing of 'anti-austerity' parties in the 6 May parliamentary elections and subsequent failure to form a government underscores the lack of public and political support for the EU-IMF EUR173bn programme.

In the event that the new general elections scheduled for 17 June fail to produce a government with a mandate to continue with the EU-IMF programme of fiscal austerity and structural reform, an exit of Greece from EMU would be probable. A Greek exit would likely result in widespread default on private sector as well as sovereign euro-denominated obligations, despite a moderate sovereign debt service burden following the restructuring of Greek government bonds in March.

Fitch previously assigned a single 'AAA' Country Ceiling across all Euro Area Member States (EAMS) reflecting the very low risk of transfer and convertibility controls being imposed within EMU and on euro-denominated debt. With exit from EMU a material and rising risk, Fitch has revised the Country Ceiling to 'B-' for Greece, which effectively imposes a cap on the ratings of all issuers and transactions domiciled in Greece. In the event of a Greek exit from EMU, Fitch would treat the forcible re-denomination of sovereign and private sector debt into a new Greek currency as a default event in line with its Distressed Debt Exchange rating criteria.

As Fitch previously commented (see 'Re-Run Elections Would Be Critical for Greece, Eurozone', dated 11 May 2012 at, a Greek exit from EMU would break a fundamental tenet underpinning Fitch's sovereign and other ratings in the eurozone as well as exacerbating economic and financial risks facing other EAMS. Consequently, Fitch would place all eurozone sovereign ratings on Rating Watch Negative (RWN) following the Greek elections if Fitch assesses that the risk of a Greek exit from EMU is probable in the near term.

As a result of the revision of the Country Ceiling, 32 structured finance (SF) notes that were rated above 'B-sf' have been downgraded. All Greek structured finance ratings are now capped by the Country Ceiling. This means that many tranches have the same 'B-sf' rating despite the different characteristics of their structures and collateral portfolios. Fitch will comment on the relative strengths and weaknesses of these tranches based on the performance of the underlying portfolios.

The SF tranches that were previously on RWN have been maintained on RWN as a result of the uncertainty surrounding the political situation in Greece. Fitch expects to downgrade these notes further in the event that an exit of Greece from EMU becomes probable, as discussed above. Additionally, the ratings of two tranches that are credit-linked to the sovereign's Long-term IDR have been downgraded.

A full list of rating actions is available by clicking on the link above or at 

Source: Fitch Ratings

Interesting articles to read at The Guardian: "Greek crisis: what happens next?" (a new election looms, with the possible reintroduction of the drachma to follow"); Cost of Greek exit from euro put at $1 trillion ("UK government making urgent preparations to cope with the fallout of a possible Greek exit from the single currency").

Next up, Spain.

Moody's downgrades Spanish banks; ratings carry negative outlooks or remain on review for downgrade

Global Credit Research - 17 May 2012

Actions follow rating reviews announced on 15 February 2012 and other dates

Madrid, May 17, 2012 -- Moody's Investors Service has today downgraded by one to three notches the long-term debt and deposit ratings for 16 Spanish banks and Santander UK PLC, a UK-domiciled subsidiary of Banco Santander (Spain) SA. The rating downgrades primarily reflect the concurrent downgrades of most of these banks' standalone credit assessments, and in five cases also Moody's assessment that the Spanish government's ability to provide support to the banks has reduced.

The debt and deposit ratings declined by one notch for five banks, by two notches for three banks and by three notches for nine banks. The short-term ratings for 13 banks have also been downgraded between one and two notches, triggered by the long-term ratings changes.

The outlooks on the debt and deposit ratings for ten of the 17 banks downgraded today are now negative. For the remaining seven banks affected by today's actions, their ratings remain on review for further downgrade, for reasons specific to each bank (as discussed separately below).

Today's actions reflect, to various extents across banks, four main drivers:

1.) Adverse operating conditions, characterised by the renewed recession, the ongoing real-estate crisis and persistent high levels of unemployment.

2.) Reduced creditworthiness of the Spanish sovereign, which weighs on banks' standalone profiles and affects the ability of the government to support banks.

3.) Rapid asset-quality deterioration, with non-performing loans to real-estate companies rising rapidly, and Moody's expecting other loan categories to deteriorate.

4.) Restricted market funding access, with the ongoing euro area debt crisis contributing to persistent investor concerns about Spanish banks and the sovereign.

Moody's recognises several positive trends that have limited the extent and scope of today's rating actions. These mitigants include (i) the strengthening risk-absorption capacity of banks, underpinned by stricter capital and provisioning requirements; (ii) liquidity support from the European Central Bank (ECB) and (iii) actual and prospective support from the Spanish government, within the constraints of the sovereign's own reduced creditworthiness. However, Moody's believes these positive factors are overwhelmed by mounting asset-quality challenges that weaken the earnings and threaten to erode the capital positions of many banks.

Moody's debt and deposit ratings for publicly-rated Spanish banks now range between A3 and Ba3, with an (unweighted) average between Baa2 and Baa3. This average is below most Western European banking systems, reflecting the severe impact of both the difficult domestic environment and the ongoing euro area debt crisis on Spanish banks.

Please click on this link for the list of Affected Credit Ratings. This list is an integral part of this press release and identifies each affected issuer. For additional information on bank ratings, please refer to the webpage containing Moody's related announcements:

Moody's has also published today a special comment titled "Key Drivers of Spanish Bank Rating Actions" ( with more detail on the rationale for today's actions.


The negative rating outlooks for nine Spanish banks affected by today's actions reflect Moody's expectation that banks will continue to face highly adverse operating and market funding conditions that pose a threat to their creditworthiness. In some cases, the outlooks additionally reflect the negative outlook on Spain's A3 government bond rating, which incorporates downside risks to the government's creditworthiness and therefore, to its ability to extend support to banks. The placement on review for further downgrade of the ratings for seven banks affected by today's actions reflects drivers specific to each bank, including in some cases ongoing mergers


Following today's actions, publicly-rated Spanish banks fall into four broad groups, based on their standalone creditworthiness:

- The first group consists of the two largest banks, Banco Santander (Spain) SA (deposits A3, BFSR C / BCA a3) and Banco Bilbao Vizcaya Argentaria SA (deposits A3, BFSR C / BCA a3). They retain the highest standalone credit assessments among Spanish banks, mainly because of the relatively stable earnings generated by their strong, geographically diversified franchises." (continue reading at

And 26 Italian banks were downgraded by Moody's on May 14...

"Moody's downgrades Italian banks; outlooks remain negative

Global Credit Research - 14 May 2012

Actions conclude the review announcements of 15 February 2012 and other dates
Milan, May 14, 2012 -- Moody's Investors Service has today downgraded by one to four notches the long-term debt and deposit ratings for 26 Italian banks, including five banks that are part of larger groups. In almost all cases, the rating actions reflect concurrent downgrades of these banks' standalone credit assessments, rather than changes in Moody's assumptions about levels of third party support, including Government support." (continue reading at

Here's the actual report: Key Drivers of Italian Bank Rating Actions.
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