S&P Spain Downgrades... Three More Years of Deleveraging (STD, BBVA)

Standard & Poor’s is downgrading banks in Spain, after it cut local and regional government units after a January downgrade of the Kingdom of Spain.  This should really be of no surprise whatsoever, neither should the next downgrade.  What is surprising is simply how long it expects things to remain this way. In fact, they are already warning of larger uncertainty, economic imbalances, and more.  Today is just Spain’s turn to be back in the barrel if you get that joke.  The systemwide funding is now called High Risk as if you did not get that already… S&P anticipates further episodes of illiquidity and volatility although it has noted that banking regulators have created a solid regulatory framework.  The ratings agency calls it an intermediate risk in economic resilience and a high risk in economic imbalances. 

Here is the real standout note…. the deleveraging process will stretch at least three more years.

Spain cut the ratings on 15 banks… again, this should not be a surprise.  Any broad cuts in local or regional governments in general are going to trickle down:

Banco Santander S.A. (NYSE: STD) was cut with its family ratings down to A+/Negative/A-1 from AA-/Watch Neg/A-1+.

Banco Bilbao Vizcaya Argentaria S.A. (NYSE: BBVA) was cut with its family ratings down to  A/Negative/A-1 from A+/Watch Neg/A-1.

If this is a surprise to anyone, it is because they do not understand that government downgrades trigger downstream downgrades and reviews for more downgrades.  Still… 3 more years.