Moody puts negative outlook on Brazilian banks

The rating agency Moody’s has put the ratings of the nine biggest banks doing business in Brazil on negative credit outlook.

Debt issued by Banco do Brasil (BDORY, quote), Bradesco (BBD, quote), Itaú (ITUB, quote), Banco Santander (BSBR, quote), BES Investment, Safra and Votorantim (VCP, quote) is currently under review, as are the credit ratings of the Brazilian affiliates of HSBC and Citibank.

Moody’s expects to decide within 90 days whether the six institutions that do not have headquarters abroad should receive the new classification.

According to Jeanne Del Casino, vice president and group director of Moody’s credit rating unit, the catalyst here is that these operations all held credit ratings above the Baa2 sovereign rating of Brazil itself.

“The revisions took into account the dependence on macroeconomic and financial environment of the banks in relation to the domestic market and the exposure of these institutions to the domestic sovereign debt,” Del Casino says.

In addition, banks like BSBR’s Spain-based parent Santander (STDquote) and HSBC are being scrutinized for their ability to provide support to their Brazilian affiliates.

HSBC may have little problem passing this cross-border stress test. Santander, which has been at the heart of Spain’s version of the euro debt crisis, may be less fortunate.

In any event, be ready in late May for any downgrades and the ensuing pressure on these stocks.

 

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