Friday, June 8, 2012

Fitch downgrades Spain by three notches from A to BBB

Fitch Ratings slashed Spain's sovereign credit rating by three notches on Thursday, citing ballooning estimates of the cost of a banking crisis, mushrooming debt and a deepening recession.

The long-term rating was chopped to BBB from A and left with a negative outlook, said Fitch, swooping as expectations mounted that the Europe Union would have to throw a lifeline to Spanish banks.

"The likely cost of restructuring and recapitalising the Spanish banking sector is now estimated by Fitch to be around 60 billion euros ($ 75 billion) and as high as 100 billion euros in a more severe stress scenario," it said.

That was more than double its previous estimate that the banking sector, stricken by its vast exposure to the collapsed property market, would need 30 billion euros.

A bank rescue would also push up the state's total accumulated debt at a rapid pace, Fitch said, warning that gross general public debt would likely peak at 95 per cent of total economic output in 2015.

"Spain is forecast to remain in recession through the remainder of this year and 2013 compared to Fitch's previous expectation that the economy would benefit from a mild recovery in 2013," the agency said.

The country's level of foreign debt also made it "especially vulnerable" to contagion from the crisis in Greece, where a general election on June 17 could see the country forced out of the eurozone if a new government 

read full story at ET

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