Moody’s Investor Service is cutting its credit ratings on 28 Spanish banks, saying the weakening financial condition of Spain’s government is making it more difficult for that country to support its lenders.
The announcement came on the same day Spain’s government formally asked for help from its European neighbors in cleaning up its stricken banking sector. However the request left many questions unanswered, including how much of a $125 billion loan package Spain would ask for.
That uncertainty led to losses Monday in stock markets in the Europe and the U.S. Bond investors pushed Spain’s borrowing costs higher, a signs of lagging confidence in the country’s ability to support its banks.
Spain formally asked the European Union on Monday for rescue loans to help clean up its troubled banking industry. The Spanish economy, the fourth-largest of the 17 countries that use the euro currency, is suffering from the aftershocks of a real estate bust that has devastated families as well as banks. Unemployment is nearly 25 percent.Spanish government officials haven’t said how much they will seek from the loan package offered by the EU June 9. Two international audits last week found that as much as $77 billion could be needed. Spain wants the loans to go directly to the banks so that the government wouldn’t be responsible for repayment. That idea has met with resistance, however.
The size and interest rates of the loans likely will be discussed at the EU summit this week.
Many analysts believe big banks, including those in the U.S., would be the first to feel the hit of a freeze-up in Europe’s financial system if Spain isn’t able to convince bond markets that it can rescue its hobbled banks.
The uncertainty pushed borrowing costs higher for Spain’s government. Its stock market plunged 3.7 percent.