Fitch downgrades Spanish banks, diversification can't save Santander or BBVA

LONDON (ShareCast) - Fitch Ratings has downgraded a slew of Spanish banks after having cut the country's sovereign rating on January 27th. The ratings agency took action on Santander (Madrid: SAN.MC - news) , BBVA (Madrid: BBVA.MC - news) , Bankia and CaixaBank because it believes there is "a close link between bank and sovereign credit risk (and therefore ratings) and it is unusual for banks to be rated above their domestic sovereigns." Fitch explains that these financial institutions are likely to be affected by the weak economic environment and notes that it expects "no GDP growth for Spain in 2012 and 1% growth 2013, for unemployment to remain high at around 23% and for the real estate market to remain a long-term cause for concern." Fitch does highlight the positive diversification of both Santander and BBVA but feels that it "does not entirely mitigate the rating constraints arising from its domicile". On a similar note, Standard & Poor's cut no less than 15 Spanish banks also due to the downgrade of the rating on the Kingdom of Spain. Santander closed yesterday with gains of 0.25% at €6.48, while BBVA ended flat at €7.14. JM