An upgrade in this environment is apparently stupidly effective. Here’s Greece’s 10-year bond yield tumbling a full one per cent the day after Fitch upgraded it to to B- from CCC, and said the outlook was stable:
Central banks have kept rates ultra-low since the financial crisis, trying to stimulate economic growth. Whether one regards this as successful or not, one can agree that it has costs. A line item with a particularly nasty looking question mark above it is a corporate bond bubble. Read more
It might look a little underwhelming but that’s US prime money market funds increasing their exposure to eurozone banks for the third month in a row. At the end of September they were 16 per cent more expoosed on a dollar basis compared to the month before, according to Fitch. Read more
(Alternate title: Fitch junks incoming EU president.)
Fitch has cut Cyprus’ credit rating to ‘BB+’ from ‘BBB-’. That’s a junking and, shockingly, it’s down to the banks. From Fitch (with our emphasis): Read more
The review of the Spanish banks by the “big four” auditors may have been postponed until September, but there is another!
It’s by Oliver Wyman and Roland Berger, and at pixel time it looked like the Spanish press were reporting that the banking system needs around another €65bn in capital. Read more
This is kinda sweet. From Fitch:
The Swiss National Bank’s (SNB) statement that UBS (‘A’/Stable/’a-’) and Credit Suisse Group (‘A’/Stable/’a’) should promptly improve their loss-absorbing capacity confirms that Switzerland maintains one of Europe’s strictest supervisory frameworks for banks, Fitch Ratings says. Read more
UPDATE: The below is an accidental exaggeration and ignores the role of the fourth rating agency, DBRS, which Joseph recently posted about. For a collateral hike to take place DBRS would have to reduce its rating on Spain to BBBH/BBB. It is currently at A (high) with a negative outlook having been downgraded in May.
As JPMorgan’s Flows & Liquidity said in May: Read more
Fitch has just cut Spain’s rating to ‘BBB’ from ‘A’… Outlook Negative. (That’s the same rating as Kazakhstan, for those keeping score).
And, in a seperate report also just released, Fitch estimated that the Spanish banking system will need require additional capital of between €50bn and €60bn to cover potential stress losses on their domestic loan portfolios. Under a more extreme scenario, based on what occurred in Ireland, these amounts rise to between €90bn and €100bn. Read more
So you’re a global systemically important financial institution and, bar a few near global meltdowns, you have a pretty good time of it… but you also know Basel III is fast coming down the tracks and in its attempt to make you better able to stand up to those unexpected shocks that nobody likes, it will force a load of restraining rules upon you.
Fitch has gamely joined the ranks of those trying to put some numbers on the whole thing. The ratings agency had a look at the 29 global systemically important financial institutions (or G-SIFIs, a horrible acronym for banks listed at the bottom of this post), which as a group represent $47tn in total assets, and estimated that they might need to raise roughly $566bn in common equity in order to satisfy the new Basel III capital rules: Read more
From Fitch’s latest report on eurozone endgames, and their sovereign credit ratings implications (click to enlarge):
Gosh, Hungary divides sentiment. (It has also, just as we went to pixels, been stripped of its last investment-grade rating by Fitch.)
Despite our saying not once but twice that Hungary isn’t running out of money in its current crisis, people seem to think that we think they are running out of cash to pay off their debt. Read more
Following the EU Summit on 9-10 December, Fitch has concluded that a ‘comprehensive solution’ to the eurozone crisis is technically and politically beyond reach…
That’s the rather deadpan punchline of a Fitch Ratings action on Friday, placing the ratings of Belgium, Cyprus, Ireland, Italy, Slovenia and Spain on negative outlook. They might be downgraded one or two notches early in 2012. They’re putting every investment-grade eurozone sovereign on negative outlook so expect a few more supplementary statements. Fitch had affirmed France’s AAA rating but revised it to negative at pixel time. (Update — see text below.) Read more
Fitch follows S&P and downgrades a gaggle of investment banks.
Unlike S&P, however, this isn’t down to a change in methodology. Rather, as our emphasis below suggests, the rating agency argues that the banks aren’t as protected in “periods of exogenous financial stress” (cough, Europe; cough, Europe) as they’d like to make us believe. Read more
Following the end of the supercommittee clown show, Fitch catches up with Moody’s and changes its outlook on US government debt to negative from stable. S&P remains the only credit rating agency of the big three that does not rate the United States at AAA.
There’s nothing that new in the full statement, which we’ve pasted below. A negative outlook means a 50 per cent chance of a downgrade within two years, according to Fitch. But the rating agency tells us to not expect any decision until late 2013. In other words, it’s kicking the ratings can down the Mall in the hope that the 2012 election brings in a new, compromise-happy Washington. Read more
Fitch Ratings has backed calls to reform the sovereign CDS market following the voluntary deal for exchanging Greek bonds proposed last month, reports the FT. The ratings agency says the voluntary agreement by bondholders on Greek sovereign debt, which avoided triggering a credit event, means the settlement of CDS on sovereign countries requires clarification. “It would seem that the use of the restructuring credit event generally and the nature of the language employed should probably be revisited,” the agency says in a report to be released on Monday.
Lightning never strikes twice…unless you are a Kazakh bank.
Or more specifically, unless you are BTA Bank. Remember them? The largest bank in Kazakhstan before the credit crisis, which defaulted on $12bn of debt in 2009? Read more
US stocks turned sharply lower in late-day trading after a report warned of eurozone risks to US banks, with European Central Bank attempts to prop up the Spanish and Italian bond markets failing to stem investor fears over sovereign debts, the FT reports. Stocks had attempted to rally with economic data continuing to surprise to the upside, including Wednesday’s figures on mortgage applications and industrial production. But the rally stumbled, with the S&P 500 index ending down by 1.7 per cent to 1,236, led lower by the banking sector, after Fitch, the rating agency, warned that its “stable rating outlook” for US banks could change “unless the eurozone debt crisis is resolved in a timely and orderly manner, the broad outlook for US banks will darken”. Earlier, the rating agency Moody’s had downgraded ten German Landesbanken, citing efforts made by authorities to ensure losses are imposed on creditors under new resolution regimes designed to protect the state from being forced to fund future bailouts. Moody’s had previously factored the possibility for “extraordinary support” into their ratings, Bloomberg reports.
Standard & Poor’s has downgraded Spain’s sovereign debt rating, citing slowing growth and a weakening financial system, reports the FT. In an announcement late on Thursday, the rating agency knocked Spain’s rating down one notch from double A, where it has been since last April, to double A minus. It also kept the country’s rating on a negative outlook. S&P’s statement, which you can read in full on FT Alphaville, said that despite “resilience” in Spain’s economy this year, there were “heightened risks to Spain’s growth prospects” due to high unemployment, tighter financial conditions, a high level of debt and a broader eurozone slowdown. Earlier in the day analysts and government economists warned that Spain would be unlikely to meet its ambition of reducing its budget deficit to six per cent of GDP by the end of the year, writes the FT. Meanwhile Fitch downgraded several European banks on Friday morning and put several others on watch as part of a global review, reports Bloomberg.
Breaking pre-market news on Friday,
- Jupiter says assets under management proved resilient in face of significant declines in world equity markets — statement. Read more
Where the sovereign goes, the banks follow. (And vice-versa, of course.)
Fitch and S&P downgraded a slew of Spanish banks on Tuesday evening. The rating rationales are pasted below. Read more
Fitch gives an unwelcome weekend parting gift to traders and hacks with dual downgrades on Friday afternoon of Spain and Italy. Portugal was given a stay of execution, according to Bloomberg.
Start with Italy, which is less surprising following the triple-notch dump by Moody’s earlier in the week, although it remains the more worrying of the two (and arguably the most worrying in the world right now, as we previously mentioned). Read more
The biggest US money market funds have slashed their exposure to Europe’s embattled banking sector to the lowest since at least 2006, the FT reports, underlining the spreading nervousness about the eurozone’s indebted periphery. The 10 largest US money market funds reduced their short-term lending to European banks to just $284.6bn by the end of August, or 42.1 per cent of their total assets, Fitch Ratings said in a report published on Thursday. That’s the lowest relative exposure since at least the second half of 2006, when Fitch’s records begin, and lower than the level reached during the nadir of the financial crisis. Since the end of June, these “prime” money market funds, which act as lubricants for the global financial system and invest mostly in highly-rated debt, have cut their European banking exposure by more than $55bn in absolute terms. Read more