Four Spanish banks had covered bonds cut by Moody’s yesterday (Thursday) after it released its Spanish round of bank rating actions on the same day Bankia shares fell dramatically. However, Spanish bank stocks rebounded today and bankers were guardedly upbeat on supply.

José Ignacio Goirigolzarri, Bankia chairman

Moody’s downgraded 16 Spanish banks and Santander’s main UK subsidiary by one to three notches reflecting worse credit assessments of the financial institutions as well as, in five cases, the rating agency’s view that the Spanish government is less able to provide support.

Its ratings of Spanish banks now range from A3 to Ba3, with an unweighted average between Baa2 and Baa3, while according to Bernd Volk, head of covered bond research at Deutsche Bank, Moody’s cédulas ratings now range from Aa2 to Baa2.

The negative rating actions taken by Moody’s on Spanish covered bonds were:

• Banco de Castilla-la Mancha’s public sector covered bonds cut two notches, from A2 to Baa1, and left on review for downgrade. Its issuer rating is not disclosed.
• Banco Sabadell’s mortgage and public sector covered bonds cut by one notch, from Aa2 to Aa3, and left on review for downgrade. Sabadell’s issuer rating was lowered from A3 to Baa1, on review for downgrade.
• Cajamar’s mortgage and public sector covered bonds cut by two notches, from A2 to Baa1. Cajamar’s issuer rating was lowered from Baa3 to Baa2, on review for downgrade.
• Bankinter’s mortgage covered bonds cut by two notches, from Aa2 to A1. Bankinter’s issuer rating was lowered from A2 to Baa2, on review for downgrade.
• Banco Bilbao Vizcaya Argentaria’s public sector covered bonds, rated Aa2, put on review for downgrade. BBVA’s issuer rating was lowered from Aa3 to A3.
• CaixaBank’s mortgage and public sector covered bonds, rated Aa2, put on review for downgrade. CaixaBank’s issuer rating was lowered from Aa3 to A3

Banco Popular’s and Unicaja Banco’s mortgage and public sector covered bond programmes, rated Aa2, remain on review for downgrade.

“While the TPI leeway in all cédulas is zero, i.e. a further senior rating downgrade very likely leads to further rating downgrades, with cédulas ratings between Baa1 and Aa2 (sovereign rating ceiling for cédulas), the situation does not look that bad yet from a rating perspective,” said Deutsche’s Volk. “In this respect, the high minimum OC and the preferential claim on the whole mortgage book is very supportive.”

The covered bonds of some Spanish issuers were unaffected, including Santander’s, despite the banks’ ratings being cut, in Santander’s case three notches from A3 to Aa3.

“Given a wall of cédulas redemptions to come (over Eu200bn until the end of 2015), suggesting ongoing funding stress, and probably further deterioration in cover pool quality too, we prefer Santander, BBVA and CaixaBank, all rated Aa2 currently,” said Volk. “Bankia cédulas hipotecarias remain A2 and are probably a good way to play an improvement in the Spanish banking system.

“However, with press reports highlighting increased deposit withdrawals, at least on a stand-alone basis, things are likely to get worse.”

Bankia shares rebounded this (Friday) morning to more than recover all losses suffered yesterday. At one stage yesterday its shares were down almost 30% before closing 17% lower on rumours of a run on the bank, which was denied by Bankia.

“Bankia’s depositors can be absolutely certain about the security of the savings they have entrusted to the bank,” said José Ignacio Goirigolzarri, its chairman.

A syndicate official said the dramatic moves were a case of “sell the rumour, buy the fact”.

“Things are relatively quiet on the secondary front,” he said, with regard to Spanish covered bonds, while Spanish and French government bonds were some 5bp tighter versus Germany.

He said that while issuance would probably remain at “a strict minimum” until the summer break, there was the potential for supply in the near term. Finland’s OP Mortgage Bank sold a highly successful Eu1.25bn five year covered bond on Wednesday, the first benchmark in two weeks.

“They could extend out a little further than the Nordics,” said the syndicate official. “I wouldn’t be surprised if a French issuer got a deal away, albeit with a new issue premium rather than flat to secondaries, as has been the case lately.”

Another syndicate official suggested the coast was clear for further new issuance next week, with no peripheral government bond auctions scheduled, no public holidays, and fewer events providing for headline risk.

“We will have a full week, which should be quite positive for issuance prospects,” he said. “I hope activity will pick up.”