Trading on Moody's Downgrade of 30 Spanish Banks (STD, BBVA, EPV)

Just weeks after lowering Spain's sovereign debt rating, Moody's Investors Service downgraded the credit rating of thirty of Spain's smaller banks on Thursday, while leaving the credit ratings of the country's three biggest banks unchanged. There is growing resistance in some of the more financially conservative eurozone countries to bailing out banks without their creditors sharing more of the pain. The downgrade comes at a bad time for Spain, as the prime minister of its smaller neighbor Portugal resigned after he was not able to push through unpopular structural reforms that were needed if the country is to avoid a bailout. Portuguese prime minister Jose Socrates had long opposed the idea of seeking a bailout from the European Union and the International Monetary fund, like Greece and Ireland did last year, and had warned that he would resign if he was not allowed to take measures that would reduce Portugal's fiscal deficit. Jean-Claude Trichet, the president of the European Central Bank, had remarked a day earlier that announcing reforms was one thing but actually enforcing them was another. Like Portugal, Spain is also trying to push through structural reforms but it faces a similar environment to other eurozone country's that are trying to improve their fiscal balances and meeting much resistance to painful reforms. In Spain's case, it is difficult for the federal government to reduce spending because many of its regions have a high degree of fiscal autonomy. Not only does Spain need to enact reforms to its budget policies but the country's banking system is also in need of reforms that are expected to cost the country tens of billions of dollars. However, with growing opposition to bailouts in countries like Germany, Moody's feels European governments will be less likely to fully fund future bailouts of problem banks and that the creditors of smaller banks in need of bailouts may soon have to share the pain of any future bailouts. As confidence in the Spanish banking system continues to fall, Banco Santander S.A. STD and Banco Bilbao Viscaya Argentaria BBVA are two Spanish banks whose stock prices are sure to come under pressure. If the downgrade of so many Spanish banks and the resignation of a Portuguese prime minister who was unable to push through unpopular but need reforms are signs of larger problems looming in the European Union, the ProShares UltraShort MSCI Europe ETF EPV is an investment that could see significant gains.