Posted 08.06.2012 08:02:28 UTC
Updated 08.06.2012 08:07:12 UTC
Fitch cut its rating on Spain's government debt by three notches to BBB and placed the country on 'negative outlook', meaning a further downgrade could come in coming months.
The new rating was Spain's lowest among the three main ratings agencies, and leaves it just two short of junk status, which would force many institutional investors to automatically dump Spanish assets.
"The negative outlook primarily reflects the risks associated with a further worsening of the euro zone crisis, notably contagion from the ongoing Greek crisis," the agency said in a release accompanying the downgrade.
Fitch said the rating downgrade reflected higher than expected recapitalisation needs for Spanish banks, which it said would be around 60 billion euros ($75 billion), or as high as 100 billion euros under a more severe stress scenario.
The country's rating also assumed the country would receive European help in recapitalising its banking system. Fitch said recapitalisation costs would push the country's debt to gross domestic product ratio up by 6 percentage points more than expected, and the ratio would peak at 95 percent in 2015.