Renewed economic turmoil in Brazil could put pressure on many big U.S. and European banks, Standard & Poor's Corp. said Thursday.
The credit rating agency revised its outlook to "negative" for eight big banking companies that do substantial business in Brazil and Latin America: Citigroup, J.P. Morgan & Co., BankBoston Corp., ABN Amro NV, Dresdner Bank AG, Societe Generale, and the Spanish banks Banco Santander and Banco Bilbao Vizcaya.
None of the debt ratings for the companies were changed, except for Banco Bilbao Vizcaya, which was put on the CreditWatch list.
Tanya Azarchs, a banking analyst at S&P, said the agency revised its outlooks because of evidence that the Asian "contagion" is spreading to Latin America.
"Latin America is a bigger exposure for most American banks than Asia was," she said. "It's difficult to tell where this will go, but we fully expect it to impact the economies of many Latin American nations."
With that in mind, S&P also gave a "negative" outlook to Banamex-Accival and Bancomer, Mexico's largest and second-largest banks, respectively. The agency said the banks were facing higher interest rates and an increased likelihood of recession. It would also be harder for them to attract foreign credits and investments, S&P said.
Ms. Azarchs said the agency had already put Deutsche Bank and Bank of Nova Scotia on the CreditWatch list.
Brazil's economic problems began Wednesday morning when the country effectively devalued its currency by 8% and its central bank president resigned. On Thursday the Brazilian stock market, the Bovespa, fell by almost 10% as investors there anticipated further weakening of the economy.
Yields on U.S. bonds contracted, much as they had last summer when investors took their money out of emerging markets.
Latin American economic maladies devastated many big U.S. banks in the 1980s. Back then, major U.S. banks had lent heavily to governments there. U.S. banks now do considerably more lending to the region's private sector.
Conspicuous by its absence on S&P's list was Chase Manhattan Corp., though the company does substantial business in Latin America. Ms. Azarchs said Chase's lending policies are "fairly conservative."
