We knew this was coming but it’s still quite something to watch: the ripple effect within a bloodbath.
Hundreds of downgrades and outlook revisions were announced by S&P on Monday, following Friday’s historic downgrade of US sovereign debt to AA+ from AAA.
Here’s a body count, with selected excerpts from the releases:
1. Three clearing houses and The US Central Securities Depository.
The rating actions on DTC, FICC, NSCC, and OCC follow the lowering of the long-term sovereign credit rating on the U.S. (see United States of America Long-Term Rating Lowered To ‘AA+’ On Rising Debt Burden And Political Risks; Outlook Negative, published Aug. 5, 2011). The downgrades of these four financial institutions are not the result of any company-specific event. We have not changed our view of the fundamental soundness of their depository or clearing operations. Rather, the downgrades incorporate potential incremental shifts in the macroeconomic environment and the long-term stability of the U.S. capital markets as a consequence of the decline in the creditworthiness of the federal government.
2. Government-related entities and 10 of 12 Federal Home Loan Banks (FHLBs)
The downgrades of Fannie Mae and Freddie Mac reflect their direct reliance on the U.S. government. Fannie Mae and Freddie Mac were placed into conservatorship in September 2008 and their ability to fund operations relies heavily on the U.S. government. In addition to the implicit support we factor into our ratings, the U.S. Treasury has demonstrated explicit support by providing these entities with capital quarterly, as necessary.
3. 73 credit-related investment funds
We lowered our FCQRs on 73 of the 206 funds managed in the U.S., Europe, and Bermuda because of their significant exposures (generally greater than 50%) to direct or indirect investments in U.S. Treasury and U.S. government agency securities. The ratings were lowered by up to two notches as determined by our fund credit-quality matrix approach.
4. 10 US-Based insurance groups
Standard & Poor’s Ratings Services said today that it lowered to ‘AA+’ from ‘AAA’ its long-term counterparty credit and financial strength ratings on the member companies of five U.S. insurance groups: Knights of Columbus, New York Life, Northwestern Mutual, Teachers Insurance & Annuity Assoc. of America (TIAA), and United Services Automobile Assoc. (USAA). The outlooks on the ratings on all of these companies are negative. Standard & Poor’s also said that it lowered the ratings on approximately $17 billion of securities issued by New York Life, Northwestern Mutual, TIAA, USAA, and their affiliates.
5. (And just for good measure…) Berkshire Hathaway.
At the same time, Standard & Poor’s affirmed the ‘AA+’ ratings on the members of five other insurance groups–Assured Guaranty, Berkshire Hathaway, Guardian, Massachusetts Mutual, and Western & Southern–and revised the outlooks on ratings on these companies to negative from stable.
Which by pleasant coincidence, is Moody’s parent company, and of course owned by Warren Buffet, who had patriotically differing views of the US credit rating on Friday:
“In Omaha, the U.S. is still AAA. … In fact, if there were a quadruple-A rating, I’d give the U.S. that.”
Related link:
S&P downgrades the USAAA – FT Alphaville