Post date: May 18, 2012 10:45:50 AM
MADRID, SPAIN (MAY 18, 2012) (REUTERS) - Madrid residents interviewed in the Spanish capital on Friday (May 18) morning were resigned to the bad news that Moody's Investors Service had cut the long-term debt and deposit ratings of the 16 Spanish banks because, it said, the government's ability to support some banks had weakened.
Moody's downgrades 16 Spanish banks, adding to the country's economic woes as Madrid's stock market opens in red and the risk premium shoots up again.
The negative news came after Spain's borrowing costs shot up at a bond auction on Thursday (May 17) and its troubled banks suffered a double blow, with shares in part-nationalised Bankia diving; 16 lenders - including Banco Santander, the euro zone's biggest, have had their credit ratings cut.Official data on Thursday (May 17) also confirmed Spain was back in recession and a newspaper reported a big outflow of deposits from Bankia but the government said it had taken a fundamental step to strengthen Spain's credibility by agreeing big budget cuts with the country's free-spending regions.
Madrid residents on Friday (May 18) morning expressed trust in the current government and supported the downgrade.
"It's evident the economy in this country is not very buoyant, we are suffering an important crisis we have six million jobless, an inheritance received by this government and left by the previous Socialist government and the fact we have got to this point creates uncertainty in the markets and we are paying for this uncertainty with the risk premium. We have to clean up the banks, we have to clean up the country and all the measures this government is taking are designed to do so," Madrid resident Domingo Beltran said.
"I think they should have done it (downgraded) long ago, because the banks in Spain aren't in a good position to secure deposits and the accounts of Spaniards and our government should have known that and taken the necessary measures so that this wouldn't happen," said another Madrid resident, who gave his name as Manuel.
Spain's banks, saddled with bad loans after a property boom collapsed, lie at the heart of the euro zone crisis as markets fear any major rescue would strain Madrid's already stretched finances and possibly require an international bailout.
Analysts say Spain has problems which go beyond the risk of contagion from the crisis in Greece, whose future in the euro is in doubt
Moody's cut the rating of BBVA, Spain's second largest lender, as well as Santander, even though both are generally regarded as sound, unlike some of their smaller peers.
At the debt auction on Thursday (May 17), the Treasury had to pay around 5 percent to attract buyers of three- and four-year bonds.
The latter sold with a yield of 5.106 percent, way above the 3.374 percent the last time it was auctioned.
Spain officially slipped into recession in the first quarter this year, final figures confirmed on Thursday, leaving the country threatened with a prolonged slump as the turbulent euro zone struggles to balance austerity with growth