Standard and Poor’s has warned Germany and the five other triple A members of the eurozone that they risk having their top-notch ratings downgraded as a result of deepening economic and political turmoil in the single currency bloc, the FT reports. The US ratings agency is poised to announce later on Monday that it is putting Germany, France, the Netherlands, Austria, Finland, and Luxembourg on “creditwatch negative”, meaning there is a one-in-two chance of a downgrade within 90 days. It warned all six governments that their ratings could be lowered to AA+ if the creditwatch review failed to convince its experts. Markets have been braced for a potential downgrade of France but few expected Germany’s top rating to be called into question. With regard to Germany, S&P said it was worried about “the potential impact (…) of what we view as deepening political, financial, and monetary problems with the European economic and monetary union.” Read more
Standard & Poor’s has dug into the European banking stress tests before.
But its latest review — out on Wednesday — really sums up the matter. It’s always been politically impossible for the European Banking Authority to assume real (restructuring) losses in the exercise. Read more
On Friday S&P stressed its March 29 five-notch downgrade of the GO and appropriation-backed debts of DeKalb County, Georgia was “not the canary in the coal mine, but more the anomaly”.
But in a municipal market report also out on Friday, Citi is more sceptical about the nature of the proverbial bird and what it means for other US local governments and the credit outlook for some munis. Read more
The new regime of financial regulation will hit annual profits at the US’s eight biggest banks by between $19.5bn and $22bn, according to one of the first assessments of the new law. Standard & Poor’s analysts say there will be a noticeable loss of income as a result of restrictions on proprietary trading, credit card fees and derivatives activity at Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, PNC Financial, US Bancorp and Wells Fargo, the FT reports. “We think that these banks will eventually be able to offset these deficits by making smaller additions to loan-loss reserves and raising prices for some products and services,” the report said. “A return to more typical banking conditions would, in our view, mitigate most, or even all, of the financial costs of Dodd-Frank for these banks.” Read more
Imagine a financial system without a single AAA-rated sovereign:
The rating agency has just cut Greece’s sovereign rating (Hellenic Republic) by one notch: from A to A-:
Following a relatively modest improvement in the general government deficit since 2004, Greek public finances are, in our opinion, entering the economic downturn with high deficits and gross debt estimated at around 3.5% of GDP and 94.1% of GDP in 2008, respectively. We believe that repeated failures to stick to budgetary plans and a longstanding over-reliance on the revenue side, aggravated by regular deficit-increasing one-offs and expenditure slippages, have led to structural weaknesses in fiscal management. Read more
On Wednesday, the House Oversight Committee of the US Congress held a hearing on the rating agencies. And it released some explosive material – the implications of which don’t yet seem to have quite sunk in. The evidence presented is extremely damning.
There are exchanges like this, via instant message: Read more
Credit ratings agencies were fully aware that their conflicts of interest were giving unduly high scores to risky assets, threatening the stability of the entire financial system, US lawmakers said yesterday. Employees at Moody’s and S&P privately questioned the value of some mortgage-backed securities that were given creditworthy ratings, according to e-mails released by a US panel, Bloomberg said. “Let’s hope we are all wealthy and retired by the time this house of cards falters,” one email read. Read more
A sovereign’s future debt path can not only be determined by its existing stock of debt, its future budget balances, real interest rates, and exchange rates, it can also be determined by discrete, one-off events that add to the government’s debt burden. Such events can stem from financial difficulty at the state or local government level (which, in aggregate, draw from the same base of taxpayers as the federal government), at the level of public enterprises, or from the financial sector.
In April this year, S&P issued a report which spooked markets, titled: “For the U.S. ‘AAA’ Rating, Government-sponsored enterprises pose greater fiscal risks than Brokers.” Read more
Actually, 48 hours – 72 hours, in the event of a credit rating downgrade.
So reports the New York Times, citing an individual close to the firm. The reason for the dramatic warning: ratings downgrades would spell huge collateral calls from counterparties on AIG’s CDS. The relevant detail is in AIG’s 10Q from June 30: Read more
Private equity groups will soon have more financial information disclosed publicly about the performance of the European companies they invest in under changes to Standard & Poor’s debt ratings. From December, S&P will give so-called public ratings for buy-outs with debt of more than €1bn in a move some investors and bankers hope will improve confidence and liquidity in the leveraged loan market. Read more
Several CDOs are going into liquidation on Tuesday – a sign, perhaps, that senior noteholders are losing their nerve amid more signs of deterioration in MBS fundamentals, as reported by the rating agencies this week.
But something slightly more interesting is happening with a CDO called Palladium II. As filed today with the Irish Stock Exchange: Read more
Take a deep breath now. We’re offering up a 5,000 word analysis – from this weekend’s New York Times Magazine. It’s not a typical leisurely-read-on-a-Sunday-in-April affair, admittedly, tackling the tricky relationship between Wall Street’s mortgage machine and the credit rating agencies over the recent years.
But neither is it vanity publishing, US-press style. Read more
Put the pistol down. Move away from the ledge. We can talk this through. The worst is all but over. Witness the title of the latest tome from Standard & Poor’s:
More Subprime Write-Downs To Come, But The End Is Now In Sight For Large Financial Institutions Read more
Late last night, rating agency Standard & Poor’s did some quiet housekeeping.
In a late press release, S&P announced it was adjusting its cumulative loss measure on 2006 subprime collateral to 19 per cent – up from 14 per cent: Read more
Ratings agencies Standard & Poor’s and Moody’s have become embroiled in legal action in the wake of the credit crisis, reports the Daily Telegraph. Action has been brought by shareholders, including pension and annuity funds, against Robert Bahash, the executive vice president and chief financial officer of The McGraw-Hill Companies, which owns S&P, and Linda Huber, the chief financial officer of Moody’s Corporation. They claim Mr Bahash and Ms Huber “misrepresented or failed to disclose” that their ratings agencies “assigned excessively high ratings to bonds backed by risky sub-prime mortgages – including bonds packaged as CDOs.” Read more
1The end of QE?
2Man walks into a gold bar. Au!
3The persistent supply-side constraints in US housing
4Bird, plane, Abe
5Bove vs Bloomberg, redux
Show more6Stress you next year
7The US collateral shortage lives on
8Alphachat: Lee Buchheit edition, featuring Lee Buchheit
9The (early) Lunch Wrap
10Re-setting ENRC (updated)
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