Summer is here ..

Spain fares even worse. In June, Moody's downgraded the ratings of 30 Spanish banks and building societies, citing the country's economic downturn and a big rise in non-performing loans. Santander and BBVA retained their B rating for financial strength and Aa1 rating for long-term debt ratings, but both have been placed under review.

Of course, one may be forgiven for being sceptical of ratings, since these are the same agencies that were assigning the stellar ratings in 2006-H1 2008 which helped propel the boom. Nevertheless, now we're firmly in the bust, the downgrades could lead to even more M&A activity in the financial sector, as downgraded institutions prove rich pickings for private equity.

As the recession tightens its grip, many European financial institutions, especially in the UK, have started restructuring processes, which could result in a similar flow of potential targets for cash-rich private equity funds. Barclays' recent offloading of assets attracted private equity players for what would have been a £3bn deal (though a hedge fund ultimately prevailed).

However, with few exceptions - among them, the Carnegie acquisition in Sweden, the recent acquisition of Ruffler Bank in the UK, and perhaps the less prominent acquisition of Banca Profilo by Sator in Italy - few deals have yet reached completion, meaning behind-the-scenes work may spawn autumnal activity.

Yours sincerely,

Francinia Protti-Alvarez

Editor, Southern Europe unquote"

Tel: +44 20 7004 7476

francinia.protti-alvarez@incisivemedia.com.

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