Posts tagged 'Fitch'

US funds slash exposure to European banks

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.

Fitch warns of downgrades for China and Japan

Fitch Ratings warned on Thursday that it might downgrade the credit rating of China within two years, Reuters reports, and there was a greater than even chance of a downgrade of Japan’s credit status. Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch, told the news agency that China’s local currency debt rating could face a downgrade over the next 12 to 24 months. ”We expect a material deterioration in bank asset quality,” he said. “If the problems in the banking system pan out as we expect or are even worse over the next 12 to 24 months, then that would incline us to take the rating downwards.”

US inquiry eyes S&P ratings of mortgages

The Justice Department is investigating whether credit rating agency Standard & Poor’s improperly rated dozens of mortgage securities in the years leading up to the financial crisis, the New York Times reports. According to the paper’s sources, the Justice Department has been asking about instances in which the company’s analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S&P business managers. If the government finds enough evidence to support such a case, which is likely to be a civil case, it could undercut S&P’s longstanding claim that its analysts act independently from business concerns, the paper says. As yet, it is unclear if the investigation will involve the other two ratings agencies, Moody’s and Fitch, or only S&P. The agencies’ business practices and models have been highly criticized from many corners, including in Congressional hearings and reports that have raised questions about whether independent analysis was corrupted by the drive for profits.

More on the Fitch reaffirmation

We were as relieved as anyone that Fitch, as expected, declined to follow S&P’s lead on Tuesday, but here’s a chart that nevertheless gave us something to ponder:

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Fitch maintains US triple-A rating

Fitch Ratings on Tuesday confirmed the US’ triple-A credit rating and gave a vote of confidence to Washington’s deficit-reduction efforts, Reuters reports. The decision contrasted sharply with rival Standard and Poor’s decision to downgrade the US earlier this month. Fitch also kept a stable outlook on its US rating, but said it will revisit its decision at the end of the year. It threatened to slap a negative outlook on the rating at that time if lawmakers fail to implement the $2,100bn in savings that were agreed earlier this month, or if the economy deteriorates significantly. The FT says the Fitch decision shows that while there is not a vast disagreement between the agencies on the trajectory of US debt, they take different views on the recent debt ceiling deal, and on the potential for the US political system to produce more savings.

 

Why Fitch still rates the US AAA

Fitch, the Good to Moody’s Bad and S&P’s Ugly, on Tuesday morning reaffirmed its AAA rating on US sovereign debt and maintained a stable outlook. This is unsurprising: it said as much following the conclusion of the debt ceiling negotiations.

A quick read of the rationale (pasted below) highlights the differences in how Fitch sees the US fiscal picture. (It’s more William Hart than James Whistler.) Compared to S&P, it places more faith in Congress, current growth assumptions, and the special place of US currency and debt in global capital markets. Read more

Rating agencies start to splinter over US debt

Moody’s has assigned a negative outlook to the US’s AAA rating, FT Alphaville reports, just hours after competitor Fitch reaffirmed its commitment to the US’s triple-A rating. It looks increasingly looking like the US will be subject to a mild form of split rating: good (Fitch, AAA), bad (Moody’s, AAA with negative outlook) and ugly (S&P, AA?). Investors are still awaiting word from Standard & Poor’s, which switched to a negative outlook in July, saying there was a 50 per cent probability of a downgrade within three months. Meanwhile China’s Dagong Global Credit Rating Company downgraded US sovereign debt from A+ to A.

Moody’s turns negative on US outlook

The United States had its triple A rating confirmed by Moody’s and Fitch on Tuesday but threats of future downgrades remain, says Reuters. Moody’s Investors Service maintained the US Aaa rating, but assigned a negative outlook, which means a downgrade is possible within 12 to 18 months. Fitch was more positive, saying the country still had “the political will and capacity to ultimately do the right thing”, but also said it would conclude a more thorough review of the US rating by the end of August and did not rule out shifting to a negative outlook. FT Alphaville has published both Fitch’s and Moody’s statements. Investors are now awaiting word from Standard & Poor’s, which switched to a negative outlook in July, saying there was a 50 per cent probability of a downgrade within three months. Meanwhile CNN reports China’s Dagong Global Credit Rating Company, which is not recognised by the SEC, downgraded US sovereign debt from A+ to A.

Fitch: USAAA! USAAA! USAAA!

On Tuesday afternoon Fitch reaffirmed its commitment to the US’s AAA rating.

The statement from the rating agency, which has been less critical of the US fiscal trajectory than Moody’s and S&P, describes the US’s debt ceiling deal as “commensurate with its ‘AAA’ rating”. Its timing was Chopinesque — at pixel time the President was set to sign the Budget Control Act, following the Senate’s Tuesday 74 to 26 vote in favour of the deal. Read more

In a dark, dark wood — Sino-Forest ratings edition

Interesting rating action by Fitch on Thursday:

Fitch Ratings-Hong Kong/Singapore-14 July 2011: Fitch Ratings has withdrawn Sino-Forest Corporation’s (Sino-Forest) Foreign Currency Issuer Default Rating and senior unsecured debt rating of ‘BB-’. The ratings were on Negative Watch at the point of withdrawal. Fitch has withdrawn the ratings as it is unable to obtain sufficient information to maintain them. Read more

Dumping Ireland

Compare:

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ECB will continue to accept Greek debt

The European Central Bank will continue to accept Greek debt as collateral for loans unless all the major credit rating agencies it uses declare it to be in default, a senior finance official told the FT. The ECB would rely on the principle of using the best rating available from the agencies – Standard & Poor’s, Moody’s and Fitch – the official said. The comments came after S&P on Monday said the plan, backed by France and Germany, for banks to roll over their holdings of Greek debt into new bonds would constitute a “selective default”. Fitch, the third-largest rating agency, has also indicated it is likely to call a rollover a default. But Moody’s has yet to comment. If only one of them does not downgrade Greece, the ECB could continue to prop up the Greek banking system. The ECB’s continued support for Athens is crucial given that Greek banks are almost entirely dependent on the European Central Bank for funding. Meanwhile Reuters reports that Asian stocks paused on Tuesday after several days of gains that were widely attributed to the Greek rollover deal.

US default would prohibit Aaa rating, Moody’s says

Bloomberg reports that the US would risk not winning back its top Aaa credit rating soon if a failure by Congress to raise the nation’s debt limit causes even a short-term default, according to Moody’s Investors Service’s senior credit officer. “Up until now, our assumption was that the risk is virtually zero of them ever missing an interest payment,” Moody’s Steven Hess said during an interview. “If they actually miss a debt payment, then it’s a fundamental change.” A default stemming from “the debt limit and the political configuration would indicate that, well, this might happen again,” Hess said at Bloomberg headquarters in New York on June 21. “That risk is perhaps not compatible with Aaa.” Fitch has already warned it may place the US credit rating on negative watch if the debt ceiling was not raised by August 2.

Hot stuff in European banks’ exposure

Fitch was doing its best on Tuesday to not fall down dizzy while circling around the possible ways to separate Greek banks from the sovereign.

The logic is tortuous but at least Fitch is trying to provide fair warning. From a press release accompanying its latest report on European bank exposure to Greece, published Tuesday. Read more

Squaring the Greek circle

The ratings agencies have left no one in any doubt where they stand on a voluntary rollover of Greek bonds.

Overnight from Reuters: Read more

Fitch may place US on negative watch

Ratings agency Fitch said it would place the US credit rating on negative watch if the debt ceiling was not raised by August 2, Reuters reports, the date by which Treasury secretary Tim Geithner believes borrowing authority would be exhausted. Moody’s issued a similar warning this month, saying it would put the US on review if there was no agreement on the debt limit by mid-July.

IMF ties Greek aid to bail-out deal

The International Monetary Fund is blocking a critical €12bn ($17bn) aid payment to Greece just weeks before it is due, insisting it cannot go through without concrete assurances from European officials on a new Greek bail-out, reports the FT. European finance ministers went into a meeting on Sunday believing the two issues had been separated and that the payment would go ahead as planned in early July once a new austerity plan was approved by the Greek parliament. Meanwhile Fitch said it would regard a voluntary rollover of Greek maturities as a default, Reuters reports. The FT reports that while continuing uncertainty is weighing on market sentiment, the news that future bonds issued by the European Stability Mechanism on behalf of Greece, Ireland or Portugal will not receive “preferred creditor” status was welcomed by creditors.

+++Vienna Plus+++

Introducing the latest in eurozone debt crisis terminology. ‘Vienna Plus’ — brought to you by Fitch.

The FT reports on Monday that European ministers were expected to back a plan, supported by the European Central Bank, dubbed ‘Vienna Plus.’ It’s basically the 2009 Vienna Initiative on steroids — holders of Greek bonds coming due in the next three years will not only be encouraged to maintain their exposures but also to buy new, longer maturing-bonds. Read more

The T-bill that broke America’s credit [updated]

Hypothetically, obviously. At this stage.

Its CUSIP number is 9127953B5. Read more

Sovereign ratings still relevant – but mostly when they go negative

Just in case you were wondering.

Bond markets still react to sovereign ratings announcements, though they tend to react more when the rating agencies say something negative. That’s the conclusion of a new working paper from the European Central Bank, which looked at changes in yields and CDS spreads after rating actions from Standard & Poor’s, Moody’s and Fitch on two dozen European Union countries from 1995 on. Read more

Fitch goes negative on Japan

Fitch has revised Japan’s outlook to negative from stable, FT Alphaville reports. “Japan’s sovereign credit-worthiness is under negative pressure from rising government indebtedness,” Fitch said. FT Alphaville says stand by for commentators pointing at deflation-ravaged low JGB yields and concluding that Fitch is not being overly smart. Read more

Greek government hypocrisy, Fitch edition

Blah blah blah, we hate Fitch, blah, speculators boo, blah, from the Greek finance ministry on Friday (via Reuters):

“[The Fitch downgrade] overlooks the additional commitments already undertaken by the Greek government to meet its 2011 fiscal targets and speed up its privatisation programme,” the Finance Ministry said in a statement. Read more

Ratings agencies in legal victory

Ratings firms won another victory against legal claims that they should be held responsible for billions of dollars in losses suffered by investors during the financial crisis, reports the WSJ. A three-judge panel of the US Court of Appeals for the Second Circuit ruled that Moody’s, Standard & Poor’s, and Fitch Ratings cannot be held liable for their ratings of mortgage-backed securities. In a decision upholding a lower court’s dismissal of the case brought by pension funds in Wyoming and Detroit, the judges wrote that ratings firms provided “merely opinions” about the credit-worthiness of the securities. Opinions are protected by the First Amendment, a defense the rating firms have often used in the past.

S&P has another go at Japan

Amid a stream of gloomy forecasts for Japan’s economic outlook this year, it was a downgrade that had to happen at some point, though some were left wondering whether S&P’s move on Wednesday to cut its outlook for Japan’s sovereign debt from “stable” to “negative” was slightly – err, hasty.

S&P cited concerns about the effect of massive reconstruction costs following the March 11 earthquake and tsunami disasters on Japan’s already wide fiscal deficits. Coming on the heels of the agency’s January downgrade of Japan’s sovereign credit rating, and its shock move last week to cut its outlook on US sovereign debt, it makes S&P look rather zealous – perhaps overly so, given that Japan is yet to detail how it proposes to pay for reconstruction. Read more

A warning on rapid Chinese credit expansion from Fitch

There were some extremely sobering thoughts from Fitch on Wednesday related to the scale of China’s mega lending boom of the last few years.

On Tuesday the rating agency affirmed China’s A+ Long-Term Foreign Currency and AA- Long-Term Local Currency sovereign debt ratings, but changed its outlook on the latter to negative from stable. Read more

Fitch close to junking Portugal

You know what we said lately about sovereign credit ratings turning on a dime?

Example du jour late on FridayRead more

One of these ratings opinions is not like the other

Below are three rating agency opinions on Sequoia Mortgage Trust 2011-1 — which cobbles together mostly California-based mortgages from Redwood, and also happens to be the first private Residential Mortgage-Backed Security deal of the year.

The first is from FitchRead more

CoCos at dawn

Moody’s on Monday:

For both securities, there is a persistent challenge for investors: how to determine the potential for loss when the triggers resulting in equity conversion are not transparent and allow for significant regulatory discretion. This same difficulty in predicting the loss associated with contingent capital securities is why we have decided not to rate such securities at this point in time. In addition, investors are taking equity risk with the upside limited to the return of principal at redemption or maturity. Read more

Fitch warns on muni downgrades

Cash-strapped US states and cities face the prospect of downgrades after Fitch Ratings changed the way it analyses their burgeoning pension bills, according to the FT. In valuing pension liabilities in its credit analysis of states and local governments, the rating agency will now assume a return on assets of 7 per cent, lower than the average return of 8 per cent used by most pension plans. That translates to an increase in the average plan liability of 11 per cent. Plans in Montana, Hawaii, Vermont and New Jersey are among those whose funding ratios fall under 60 per cent using Fitch’s assumptions. The Illinois State Employees Retirement System is the weakest at 37 per cent, compared with 44 per cent using its reported 8.5 per cent assumed rate of return.

Snap news

Breaking pre-market news on Friday,

- Espírito Santo Financial terminates its contract with Fitch — statementRead more