Moody’s downgrades European banks

Moody’s downgraded the debt of 30 Spanish banks today but has so far left the country’s three largest untouched.

Higher pressure on Spanish sovereign debt and the number of weak banks in the country prompted the downgrade. The role of smaller and regional banks is declining as the sector consolidates.

Moody’s has been planning the rating cut since February; planning to downgrade 122 financial institutions by May of this year, with the ratings of more than 100 banks from 16 European countries being considered – they also looked farther afield and have ideas about downgrading RBC.

Read: Downgrade would have small impact: RBC

Moody’s may make a statement regarding the downgrades this evening in Madrid, reports Bloomberg via sources close to the situation.

The ratings cuts come at a bad time; Portugal is weakening, and El Mundo newspaper reports €1 billion ($1.3 billion) in deposits have been pulled from Bankia SA, which is also being bailed out by the government. Once the government announced plans to take it over, its shares plunged by more than 25%.

Two weeks ago, the ratings agency downgraded Spanish government debt to Aa2. Moody’s is concerned about the banking sector’s restructuring costs, the government’s ability to reach reduction targets and the country’s poor growth prospects.

Yesterday, Greece’s president said depositors were pulling hundreds of millions of Euros out of banks, weakening the country’s already strained financial system.

In April, the IMF revealed the total assets of EU banks are likely to be decreased by 7% by the end of 2013. Falling merger and public offering activity, both of which are major sources of investment bank profits, are spurring the decrease.

To add insult to injury, Moody’s downgraded debt ratings at 26 Italian banks earlier this week—now ranking them lower than most of their peers.

The agency says banks are suffering because Italy is back in recession, with government measures cutting demand for loans. Moody’s notes, however, support from the European Central Bank lowered the default risk of many of the banks.