The broad indexes saw slight declines, after Standard & Poor's cut its long-term and short-term debt ratings for 11 Spanish banks, following the agency's downgrade of Spain's sovereign debt to "BBB+A-2" from "A/A-1" last week. S&P said that the sovereign rating cut had "direct negative rating implications for the banks that we rate at or above the sovereign rating on Spain," and that "the factors behind the downgrade of Spain could have potentially negative implications for our view of the economic risk and industry risk affecting the Spanish banking industry."
With six Spanish banks on "credit watch negative," more downgrades could be coming, as S&P expects "either resolve or update the CreditWatch placements."
The KBW Bank Index (I:BKX) pulled back over 1% to close at 48.28, with all 24 index components showing declines for the session.In its first-quarter earnings announcement on April 19, Morgan Stanley reported $1.3 billion in net exposure to Spanish paper as of March 31, although sovereign exposure to Spain was a negative $155 million. Morgan Stanley's shares have returned 15% year-to-date, following a 44% decline during 2011.
Philip van Doorn. To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.