S&P downgrades outlook on Santander's debt to 'stable'

The ratings agency lowered its outlook on the Spanish lender's debt from 'positive' to 'stable' while reaffirming its rating of A-.

On 7 June, the European Single Resolution Board adopted a resolution scheme for struggling rival Banco Popular due to the liquidity problems it was going through.

It was sold to Santander on the following day.

"Our stable outlook reflects limited prospects for ratings upside until we see evidence that the integration of Popular is proceeding smoothly, not facing meaningful business or financial setbacks," S&P said.

Analysts at S&P said the purchase of Popular would be manageable for Santander despite its "meaningful" size and viewed the transaction as "positive" from a business perspective.

Likewise, Santander's decision to raise €7.0bn in fresh equity was "positive", they said.

However, it was likely to act as a drag on Santander's credit profile over the next two years even in what they expected would be a more "supportive" economic and operating environment in Spain.

S&P also noted the speed at which the purchase had been carried out, which likely meant Santander only had limited access to "fully reliable, detailed information can introduce some uncertainty."

"We think Banco Popular's poor asset quality will take a toll on Santander. The bank's stock of domestic nonperforming assets (NPAs) will double in net terms, requiring the implementation of an aggressive NPA reduction plan."

As of 1253 BST, shares in Santander were off by 1.18% to €6.05.