S&P Downgrades Spain, Warns Of More Cuts (STD, BBVA)

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Standard & Poor’s has just lowered the sovereign credit rating of Spain.  We have warned that the downgrades were not over for Spain nor for the other PIIGS nations.  We would go ahead and assume that to still remain the case ahead as well.  Afterall, the long-term rating is Negative. If Spain was cut, logic would dictate that other PIIGS are next to be downgraded.

S&P’s downgrade took the long-term and short-term ratings down to BBB+/A2 from A/A-1 and today’s review reflects a view of significant risks to Spain’s economic growth and budgetary performance.  The review also cites a deterioration in the budget deficit trajectory from 2011 to 2015.  If you think that the banks are safe guess again: S&P sees a higher chance that Spain will have to throw in additional support to the Spanish banking sector.  There is even the call that GDP in 2012 will contract in real terms by 1.5% this year and will contract 0.5% in 2013.

Today’s downgrade has a caveat and that os that S&P could revise the negative outlook to Stable if the risks to external financing conditions begin to subside.  The question to ask is how that can happen right now… It also noted that Spain’s new government has been implementing a comprehensive set of structural reforms.

And the flip-side on that negative outlook again is that another downgrade could come up general government debt goes to above 80% of GDP during the period of 2012 to 2014.

Banco Santander, S.A. (NYSE: STD) closed down 2.6% at $6.35 in New York and shares are down another 2% at $6.22 in the after-hours session.  The 52-week low for the ADR is $6.08.

Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) closed down 1.4% at $6.83 today on its ADR in New York and the after-hours session is light but shares are indicated down under $6.80.  The 52-week low is $6.43.

Will Spain allow the employees of S&P to ever eat paella again?

JON C. OGG

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