Standard & Poor’s cut 15 cédulas and multi-cédulas yesterday (Thursday) and Bankia cédulas hipotecarias were put on CreditWatch negative, although the rating agency’s actions reflected consequences of a downgrade of Spain on 26 April rather than moves this week.

Bankia mortgage covered bonds were put on CreditWatch negative by S&P after it had on 30 April put the bank’s BBB- rating on CreditWatch negative. Its mortgage covered bonds, rated AA, benefit from the maximum seven notch uplift available under S&P’s criteria.

On Wednesday it was announced that Spain’s Fund for Orderly Bank Restructuring (FROB) will take a new 45.5% stake in Bankia.

S&P left its rating on CreditWatch negative in response to this, saying yesterday that there is increased uncertainty about the financial strength and future rating of Bankia and Banco Financiero y de Ahorros (BFA), its parent.

“In addition to reflecting the foregoing, the CreditWatch reflects the possible revision of our views on the economic risk and industry risk factors affecting Spain’s banking system, and how this could affect Bankia’s stand-alone credit profile,” said S&P.

Indeed market participants were looking beyond the impact of the Bankia news on the bank itself.

“The intervention of the Spanish government – and here in particularly its willingness to inject additional capital – should help to stabilise Bankia’s covered bonds which have widened significantly over the last couple of months,” said analysts at RBS yesterday. “However, this will probably be only short lived as the market focus will likely shift to the Spanish government and how they plan to finance the bad bank due to be announced tomorrow (Friday) and the additional capital needs by the entire banking sector not only Bankia.”

Cédulas spreads were said to have moved wider, but in line with weaker Spanish government bonds, with Italian covered bonds moving out in parallel with their sovereign, too.

“We have had enquiries coming through on cédulas,” said one banker, “but people were just looking to see if there were any decent levels, and there haven’t been many flows. The market was more stable yesterday and today there is nothing much going on.”

S&P took rating actions on three other Spanish banks’ mortgage covered bond programmes yesterday as a result of its negative rating actions on sponsor banks on 30 April, which followed the rating agency’s downgrade of Spain from A to BBB+, on CreditWatch negative:

• Banca Cívica mortgage covered bonds were cut from AA to AA-, on CreditWatch positive. The issuer had been downgraded from BBB- to BB+. The covered bonds benefit from the maximum seven notch uplift available. The issuer is on CreditWatch positive and S&P said a positive rating action on the issuer would lead to a positive rating action on the covered bonds, all other things being equal, but could be constrained by its EMU criteria, which limit the maximum uplift above a sovereign to six notches (see below for more details).

• Ibercaja and KutxaBank mortgage covered bonds were cut from AA+ to AA, on CreditWatch negative. The issuers had been downgraded from BBB to BBB-, on CreditWatch negative. The covered bonds benefit from the maximum seven notch uplift available.

In a separate release, S&P cut a further two mortgage covered bond programmes, two public sector covered bond programmes, and eight multi-cédulas, saying that these downgrades reflected the lower sovereign rating and the impact of country risk exposure on the programmes.

Under S&P’s EMU methodology, covered bonds with “high” country risk exposure can only achieve a rating one notch above the rating of the respective country, while those with “low” exposure can achieve six notches of uplift.

“High” levels of exposure to Spain limit the public sector covered bond programmes of Banca Cívica and Banco Bilbao Vizcaya Argentaria (BBVA) ratings to A-, CreditWatch negative, S&P said in yesterday’s release. It said that the two programmes are backed solely by public sector collateral originated in Spain.

“Low” levels of country risk exposure to Spain in Barclays Bank SA and CaixaBank mortgage covered bond programmes limit their ratings to AA+, on negative CreditWatch. The Barclays and CaixaBank programmes were cut from AAA and the Banca Cívica and BBVA programmes from A+.

The negative CreditWatch reflect the negative CreditWatch of Spain.

Eight mortgage backed multi-cédulas with “low” country risk exposure to Spain have their ratings limited at AA+ (sf): AyT Cédulas Cajas Global series XXVI; Cédulas Grupo Banco Popular 3; Cédulas TDA 17, 18, 20, 21; IM Cédulas 15; and IM Cédulas 1 Grupo Banco Popular. All the multi-cédulas were cut from AAA.