Moody's Investors Service on Friday lowered its ratings on four Spanish banks owned by a government fund due to expected losses in the financially strapped country.
Spain's banks and government are struggling as the country suffers through its second recession in three years and its overall unemployment rate is at nearly 25 percent.
Moody's lowered its senior subordinated debt ratings on Catalunya Banc, NCG Banco, Banco de Valencia S.A and Bankia, along with its parent company Banco Financiero y de Ahorros, to a junk grade "C" status. This rating is typically given to debts that are in default and show little prospect for recovery of the principal or interest.
The banks are all owned by the government's Fund for Orderly Bank Restructuring.
Moody's also downgraded the senior debt and deposit ratings of Banco de Valencia one notch in junk-grade status to "Caa1". It downgraded the bank's standalone credit assessment three notches to "Ca", also in junk-grade territory.
The rating agency is keeping the remaining ratings of the other three banks on review for possible downgrade pending its review of Spain's bond rating and sovereign rating.
In June Moody's downgraded Spain's government bond rating from A3 to Baa3, just barely investment grade. Most analysts expect the country's rating will be reduced to junk. That could hurt Spanish debt markets because many pension funds and banks would have to sell Spain's bonds from their portfolios. That could push Spain to pay higher rates to borrow money, further hurting its finances.