Lengthening recession blamed as Fitch cuts Spanish credit rating
RATINGS agency Fitch cut Spain's credit rating to two levels above junk, blaming the cost of recapitalising the country's banking industry and a lengthening recession. It also repeated threats to cut Ireland's rating further if Greece leaves the eurozone.
Spain, previously rated A, may need as much as €100bn to bolster its banking system, compared with an earlier estimate of about €30bn, Fitch said.
The Spanish economy is likely to remain in recession this year and next year, the ratings company added. It previously forecast a recovery for next year.
The blow came as Spanish Prime Minister Mariano Rajoy said he was talking to other European leaders about how to shore up the country's banks.
Mr Rajoy said he wouldn't give estimates on how much capital Spain's lenders needed until he had reports from two international consultants, due this month, and from the International Monetary Fund, due on Monday.
One Spanish deputy said the banks may need as much as €10bn in aid. Reuters said the IMF report says the country needs €40bn. Fitch also reiterated yesterday it would cut its sovereign credit rating for the US next year if Washington cannot come to grips with its deficits and create a "credible" fiscal consolidation plan.
It added that it would immediately cut the credit ratings on Ireland, Cyprus, Italy, Spain and Portugal if Greece were to exit the eurozone.
Additionally, all eurozone nations would have their ratings put on its negative ratings watch list.
Spain is now involved in feverish talks to arrange a bailout despite not yet knowing how much money it will need.
Monday's IMF report, along with an audit of the Spanish banking sector conducted by consulting firms Oliver Wyman and Roland Berger, will help determine the size of a bailout for Spanish lenders being explored in Madrid, Brussels and Berlin.
Spain weathered funding pressures in European credit markets yesterday and managed to raise money at an affordable, if rising, cost.
Economy Minister Luis de Guindos said on Wednesday there were no immediate plans to apply for a bailout. (Additional reporting Bloomberg and Reuters)