Moody’s has downgraded the Sapnish bank to Aa2 from Aa1 and has reduced its bank financial strength rating to B- from B.
At the same time, dated subordinated debt was downgraded to Aa3 from Aa2, junior subordinated debt to A1 from Aa2 and the rating on preferred instruments to A2 from Aa3. It says all Santander ratings now have a negative outlook.
Moody’s senior vice president Maria Cabanyes says: “The downgrade of Santander’s rating by one notch expresses our concerns about the broad deterioration of the Spanish economy, to which Santander remains heavily exposed, as well as its recently increased exposure to the UK and the US, which both also face severe economic disruptions.
She admits the acquisition of Alliance & Leicester in the UK and
Sovereign in the US could bring some long-term strategic benefits, but
Cabanyes thinks that in the short and medium term the shift towards the UK
and US away from Latin America has increased Santander’s risk profile.
Cabanyes says: “We expect that Santander will continue to face further asset quality pressures both from Sovereign and A&L as well as from its home market. We believe that this will lead to quite significant future provisioning requirements, which in turn would affect Santander’s earning power and ability to strengthen its capital levels internally.”
Cabanyes does admit that Santander remains among the highest rated banks globally. She says this is reflected in the robustness and sustainable profitability of their retail-focused, geographically diversified activities.
She says: “We take further comfort from the availability of such support which Santander would very likely receive in the unexpected case of need as one of the Spanish banking system’s largest bank.”