Agencies trust Botín more than Spain

From Spain's best-seller newspaper El País | The rating agencies consider Banco Santander's solvency stronger than that of the Spanish state. Until now, the ratings given by credit agencies were slightly higher for the debt issued by the Kingdom of Spain than for the bonds issued by the bank that Emilio Botín presides. But the two step downgrade announced on Monday by Fitch, the third largest agency, tilts the balance in favour of Santander. Santander already had the same qualification as Spain in the eyes of Moody's (Aa2) and Standard & Poor's (AA) and it was precisely Fitch who broke the tie in favor of the Spanish public debt, as the agency gave an AA + to the Treasury and an AA to the Cantabria-based bank. With the two step reduction in the Spanish rating, Fitch is once again breaking the tie but this time in favour of the financial entity.

Santander is the only major Spanish listed company that exceeds the Spanish state in solvency. Inditex, which is not rated because it does not even have debt, quite the contrary, €2.9bn in cash, is the most solvent. Of the remaining big business, BBVA has the same rating as Spain although with two small differences, one in favour and one against: the rating that Fitch gives S

pain includes a “negative outlook” (i.e., which means that things could get worse) and the outlook for BBVA is “stable”. It's just the opposite for S&P: the bank receives a “negative outlook” while Spain has a “stable” one.

It is not very common that rating agencies give a bank or a company a higher rating than the state where it is based. In the euro zone this is possible because the ceiling is marked by the countries that are considered more creditworthy, like Germany, which have the highest rating (AAA). In fact, Fitch has stressed that the downgrade to the Spanish state does not affect its businesses and that the ceiling for Spanish entities is still AAA.

However, this principle is beginning to be questioned. Moody's has warned in a report last October 5 that it will review whether to keep in force the rule that allows banks of the euro countries to have a higher rating than their country. So far, Moody's has implemented the policy of “one ceiling” for the countries of the euro, which means that any bank in the euro zone can aspire to the triple A rating. However, given the increased risk (which “is still low,” it says) of “one or more” countries getting out of the euro, Moody's will review whether to continue this policy.

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