Barclays, Credit Suisse, Deutsche Bank Ratings Cut by S&P

Barclays, Deutsche Bank and Credit Suisse Group AG had their credit ratings lowered by Standard & Poor’s as new rules and “uncertain market conditions” threaten their business.

Long-term counterparty credit ratings for the three banks were cut to A from A+, S&P said yesterday in a statement. The company also affirmed its A long-term rating and A-1 short-term rating on UBS AG, according to the statement. The outlook for all four companies is stable.

Banks are still in recovery from the 2008 financial crisis, which drove some economies into recession and spawned new regulations and legal probes. The four European lenders are among the most exposed to proposed rules that could reduce revenue from trading and investment banking operations, the ratings firm said.

“We consider that these banks’ debtholders face heightened credit risk owing to the industry’s tighter regulation, fragile global markets, stagnant European economies and rising litigation risk stemming from the financial crisis,” S&P said. “A large number of global regulatory initiatives are increasingly demanding for capital market operations.” Read more >>

Fitch Downgrades United Kingdom

Fitch Ratings has downgraded the United Kingdom's Long-term foreign and local currency Issuer Default Ratings (IDR) to 'AA+' from 'AAA'. The Outlook is Stable. At the same time, the agency has affirmed the UK's Short-term foreign currency rating at 'F1+' and the Country Ceiling at 'AAA'.

The rating actions follow the conclusion of the review of the UK's sovereign ratings initiated on 22 March and resolve the Rating Watch Negative. The previous Negative Outlook on the UK's sovereign ratings had been in place since 14 March 2012.

The downgrade of the UK's sovereign ratings primarily reflects a weaker economic and fiscal outlook and hence the upward revision to Fitch's medium-term projections for UK budget deficits and government debt. Despite the loss of its 'AAA' status, the UK's extremely strong credit profile is reflected in its 'AA+' rating and the Stable Outlook. Read more >>

Just what does a debt-laden, dysfunctional US economy have to do to get a ratings downgrade?

What exactly does a debt-laden, politically dysfunctional major economy have to do to get a ratings downgrade around here?

In 2011, the U.S. earned the ignominious distinction of being the first of several post-financial crisis era economies to be stripped of a triple-A credit rating. Yet since then, Washington has lurched from one budget crisis to the next, with no plan for arresting the growing federal debt burden.

In spite of those factors, the ratings agency triumvirate of Moody's, Fitch and Standard & Poor's — the only firm to actually mete out a U.S. downgrade thus far — have been strangely reluctant to pull the trigger on another ratings cut.

Even still, America's problems — including political paralysis, oceans of red ink and stunted growth — are mounting.

The refusal to cut the U.S. again is curious, given that the Sword of Damocles has already fallen on both Britain and France — the euro zone's second-largest economy, which has been downgraded on two separate occasions by two different ratings firms. Read more >>

S&P downgrades world's oldest bank to junk

Standard & Poor's on Wednesday cut its credit rating for troubled Italian bank Monte dei Paschi di Siena -- the world's oldest surviving lender -- to speculative-grade status of BB+ from BBB-.

The ratings agency said it was also placing the bank on negative outlook.

"Deteriorating trends in Banca Monte dei Paschi di Siena's financial position make it unlikely that the bank would restore profitability and improve its capital and funding position in line with our previous expectations.

"The difficult economic and operating environment we anticipate in the Italian market will compound the challenges for MPS to implement successfully its business plan," the agency said in a statement.

The ratings agency said the bank's profitability could continue to be under pressure through 2013 despite its efforts to reduce costs. Read more >>

Fitch Cuts Japan Debt Rating, Outlook Negative

Japan's sovereign rating was cut by one notch by Fitch on Tuesday as a political stalemate dims the chance that the country can curb its snowballing debt.

Fitch lowered Japan's long-term foreign currency rating to A plus from AA. It cut the local currency ratings to A plus from AA minus. Both were cut with a negative outlook. Fitch warned that further downgrades are possible unless the government takes new fiscal policy measures to stabilize public finances and its ratio of debt to gross domestic product.

The downgrade could serve as a chilling reminder to highly indebted countries in Europe that urgent action is needed to trim public debt and prevent concerns about sovereign debt from weighing further on the global economy. More...

Moody’s Issues Capital Warning to Global Banks - May Downgrade 17 Banks

Moody’s has warned that the tendency of global banks to avoid new capital requirement rules and load up on debt will continue to put pressure on their creditworthiness.

The credit rating agency announced it was placing 17 banks on review for a downgrade earlier this year, citing “vulnerabilities” in the companies’ vast and volatile capital markets businesses. The potential downgrades have become a talking point on Wall Street, with some bankers openly criticizing Moody’s and others privately attempting to change the agency’s mind in closed-door meetings.

But in an interview with the Financial Times, Moody’s banking analysts said the agency was updating its financial ratings to take into account the historical tendency of banks to leverage their balance sheets and arbitrage global financial rules, often to the detriment of the banks’ own health and the safety of the wider banking system. Moody’s caution could see all 17 banks downgraded when the review is finally completed, expected to happen in mid-June. More...

Spain Unemployment At Record Levels

Aljazeera.com
New figures show that Spanish unemployment has hit record levels, with nearly one quarter of the labor force unable to find work. The news was announced hours after the country's credit rating was cut two notches to "BBB " by ratings agency Standard & Poor's.

According to the new data released on Friday, unemployment levels hit 24.4 per cent at the end of March, the highest level since a statistical series began in 1996. The rate for people under 25 years of age was 52 per cent, up from 48.5 per cent in the previous quarter.

The number of unemployed people in the country has now risen to 5,639,500 people, according to the national statistics institute. This represents a rise of 365,900 from the last quarter. Total unemployment has risen 1.5 per cent, from a level of 22.9 per cent of the labour force in the final quarter of 2011. 

The institute also said that the number of households with every adult member unemployed rose by 153,400 to 1.7 million. Spain has the highest unemployment rate in the 17-member eurozone. "The figures are terrible for everyone and terrible for the government,' Jose Manuel Garcia-Margallo, the country's foreign minister, told Spanish National Radio. "Spain is in a crisis of enormous magnitude." More...

Jim Rogers: U.S. doesn't deserve AA+ credit rating, much less triple-A

Image via WikipediaThe U.S. doesn't deserve a AA-plus credit rating, much less triple-A, commodity bull and noted investor Jim Rogers told CNBC on Monday.

Rogers said the country was unlikely to be able to pay off its debt and Standard and Poor's rating cut had come too late and should have happened long ago.

"It seems to me it's physically, humanly impossible for the U.S. to ever pay off its debt," Rogers said. "They can roll it over and continue to play the charade, but the U.S. is bankrupt."

Rogers’ comments came during a CNBC interview with the head of sovereign ratings at Standard and Poor's, David Beers.

Beers said that according to S&P's calculations, total U.S. public debt, which includes local, state and federal government debt, will be $11 trillion this year, and will rise to $14 trillion in 2015 and to $20 trillion by 2021.

To put those numbers into perspective, according to the U.S. government's Bureau of Economic Analysis, U.S. annual gross domestic product (GDP) totaled $15 trillion in the second quarter of 2011. More...

Credit Rating Agency Scam and Latest Dollar Rally

AL MARTIN via conspiracyplanet.com
The deteriorated credit ratings of sovereign debt, especially as we see it in Dubai, Greece and Ukraine, etc., has rankled global equity markets.

This has also driven money into the US Dollar and is primarily responsible for the recent rally we've seen in the Dollar.

Sovereign debt is the debt of foreign nations, Second and Third World governments, denominated in a currency other than its own, to wit US Dollars, Yen, Pounds or Euros.

This sovereign debt has been sold and is payable in a currency other than that of the issuing country.

Usually the largest amount of sovereign debt outstanding is denominated in US Dollars and Japanese Yen.

So what does the credit rating downgrade of the government debt of Greece and Dubai debt really mean?

This is a problem which everyone knows about, but which has been, until recently, successfully hidden by what I call the Wanton Bullish Shills in the media.

Credit ratings agencies, like Standard & Poors, Moody's and Fitch's, are being disingenuous at best regarding their rating system.

They are independent for-profit corporations, yet they masquerade as allegedly objective credit ratings agencies in a monopolistic role deciding what is "credit-worthy” or not.

The problem with the credit rating agencies is the inherent conflict of interests and since there are only three of them, universally recognized by the central banks, the IMF, BIS, etc., they can get away with it.

The credibility of the credit rating agencies has obviously been hurt because they dragged their feet in downgrading Credit Default Swaps (CDS) and Collateralised Debt Obligations (CDOs) in 2007-2008.

The credit quality of that debt was obviously deteriorating, and it also pointed out the flaws in the credit rating agencies, namely that they are paid by the very same issuers of the debt they are rating.

The principal problem is that every effort that the Democrats have made to make the ratings agencies truly independent by either making them some sort of quasi-government entity, or by creating a so-called payment pool, or even a securities transaction tax that would be paid by the industry into a common pot that would then be managed by either the FDIC or SIPC, which in turn would pay the credit rating agency.

That would remove the direct connection between the issuers of securities and the credit rating agencies who are rating them. Every effort to make them more independent has been stifled by the Republicans.

And what about the weakness in the credit ratings of the sovereign debt of Greece and Ukraine? The agencies had been warning for the last half of 2009 that problems were coming in the Greek, Hungarian, Latvian, Ukrainian, etc. economies. They had acted to downgrade the sovereign debt of these nation-states.

In fact now Moodys, Standard and Poors and Fitch's have a total of 37 nation-states on their downgrade list. These are not Third World nation states, whose credit quality is perennially "junk" status anyway. What has become more troublesome is the sharp deterioration in the credit quality of so-called Second World nation state issuers as well. This would include Spain, Iceland, Greece Hungary etc.

At the same time, the credit rating agencies have also been warning First World nation-states like the United States and Britain that they can also lose their AAA credit ratings if they do not rein in their budget deficits.

Japan has also received similar warnings since the Japanese are now running a debt to GDP ratio of about 130%.

Greece Bankruptcy Could Doom Euro

Dan Weil
Greece’s debt has just been downgraded, and experts say that if the country goes belly up, the euro could be in big trouble.

"The Greek problem will be an acid test for the currency union," a senior German government official told German magazine Der Spiegel.

Fitch Ratings cut Greece’s credit rating to BBB+, the third-lowest investment grade.

Meanwhile, Standard & Poor's placed Greece's A- rating on watch for a possible downgrade, meaning it could be slashed within 60 days.

Greece is the lowest-rated country in the euro zone.

“Volatility is likely to continue for some time,” analysts at Barclays Capital wrote in a note to clients.

Greece is struggling with a weak economy and a massive debt burden.

The economy contracted 1.7 percent in the third quarter from a year earlier, and the budget deficit totals 12.7 percent of GDP.

While the government has plans to cut the gap, many analysts are skeptical.

"The likely rise in public debt to more than 120 percent of GDP next year and further to 125 percent in 2011 would leave the public finances highly exposed to shocks," Fitch analysts wrote in their report.

Experts are concerned that a Greek bankruptcy could spread to other countries in Europe.

“Greece is a whole lot more important than Dubai,” Uri Landesman, a fund manager at ING Investment Management, told Bloomberg.

“There are a lot of banks, in Europe especially, that have exposure to Greece.”

European Central Bank President Jean-Claude Trichet has said the euro-zone economy faces a rough road to recovery.

"The real economy is back to growth but we don't declare it (crisis) over. It is a bumpy road ahead, we have the sentiment that growth remains modest and we have to remain alert," Trichet said in an interview with the Europarltv, a television channel of the European Parliament.

Dubai is just a harbinger of things to come for sovereign debt

Jeremy Warner
Telegraph
Watch out. This may be just the beginning. In the scale of things, the debt problems of Dubai are little more than a flea bite. Dubai’s sovereign debts total “just” $80bn, which counts for nothing against the trillions being raised by advanced economies to plug fiscal deficits.

Small wonder, though, that this minor tremor has sent such shock waves around the wider capital markets. The fear is that threatened default in this tiny desert kingdom is just a harginger of things to come for government debt markets as a whole. According to new estimates by Moody’s, the credit rating agency, the total stock of sovereign debt worldwide will have risen by nearly 50 per cent between 2007 and 2010 to $15.3 trillion. The great bulk of this increase comes not from irrelevant little states like Dubai, but from the big advanced economies – America, Europe, and Japan.

Perversely, they are for the time being beneficiaries of the “flight to safety” that trouble in Dubai has sparked. Government bond yields in the major advanced economies have fallen in response to the crisis in the Gulf. If experience of the banking crisis, when investors removed their money from one bank only to find that the one they had put it into looked just as dodgy, is anything to go by, this effect will not last.

Up until now, markets have assumed that the ruinous fiscal cost of addressing the financial and economic crisis was probably just about affordable to the major economies. That view may be about to be challenged.

I’m going to be writing more about the fallout for Dubai and its implications for the advanced economies in tomorrow’s paper.