Moody’s cuts ratings of 16 Spanish banks

European banking industry has suffered another crushing blow after Moody’s ratings agency downgraded credit ratings of 16 Spanish banks, citing weakened government’s ability to support some banks. The agency downgraded the long-term debt and deposit ratings by one to three notches for 16 Spanish banks and Santander UK PLC, a UK-domiciled subsidiary of Banco Santander SA. The debt and deposit ratings declined by one notch for five banks, by two notches for three banks and by three notches for nine banks. The short-term ratings for 13 banks have also been downgraded between one and two notches, triggered by the long-term ratings changes. The outlooks on the debt and deposit ratings for ten of the 17 banks downgraded today are now negative. For the remaining seven banks affected by today's actions, their ratings remain on review for further downgrade. The Spanish downgrade comes days after the agency cut the ratings of 26 Italian banks on May 14, including Italy’s largest, UniCredit and Intesa Sanpaolo. Moody’s dropped its long-term debt and deposit ratings for financial institutions due to recession, tough austerity measures and 1.9 trillion euro of outstanding public debt. These resulted in lower loan demand and more loan losses for Italian banks. The move comes as no surprise. Moody’s has been poised for the rating cut since February, when the agency announced it was planning to downgrade 122 European financial institutions by May.  The ratings of 114 banks and nine investment banks from 16 European countries were put under consideration, with the downgrade risks mainly relating to the eurozone periphery.