Five European Nations to Be Downgraded by S&P: Report

[Windsor]

Published: Friday, 13 Jan 2012 | 1:18 PM

By: Antonia van de Velde
CNBC Associate Editor

Standard & Poor's will cut the credit ratings of Italy, Spain and Portugal by two notches and downgrade France and Austria by one notch, a French newspaper said Friday, without citing its sources.

The newspaper, Les Echos, said that S&P would spare Germany, the Netherlands, Finland and Luxembourg in its long-awaited adjustment of euro zone sovereign ratings. It said the announcement would come at around 4:30 pm ET, after the US stock market has closed.


"Remain alert tonight when U.S. markets close," one euro zone source told Reuters.

Read more...http://www.cnbc.com/id/45985456

 

[singveld]

Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh die

France and Austria lost their top credit ratings in a string of downgrades that left Germany with the euro area’s only stable AAA grade as Standard & Poor’s warned that crisis-fighting efforts are still falling short.

France and Austria were cut one level to AA+ from AAA and face the risk of further reductions, the rating company said in Frankfurt late yesterday. While Finland, the Netherlands and Luxembourg kept their AAA ratings, they were put on negative watch. Spain and Italy were also among the nine nations downgraded. The first gauge of the report’s impact will come in two days when France sells as much as 8.7 billion euros ($11 billion) in bills.

“In our view, the policy initiatives taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone,” S&P said in a statement.

The company acted at the end of a week in which signs grew that Europe’s woes may be cresting as borrowing costs fell, evidence of economic resilience emerged and the European Central Bank said it had quelled a credit crunch at banks. While France’s downgrade may make it harder for the euro region’s bailout fund to raise money in financial markets, the immediate impact on French and Italian bond yields was muted.

“Perhaps this will now concentrate the minds of EU policy makers making them realize that no country is immune to being pulled down by the euro crisis,” said Sony Kapoor, managing director of policy advisory firm Re-Define in Brussels. “The downgrades have now been expected for weeks so this should blunt some of the impact they would otherwise have had.”
Crisis Struggle

European leaders are still struggling to tame a crisis now in its third year and convince investors they can restore budget order. Greece’s creditors yesterday suspended talks with its government having failed to agree about how much money investors will lose by swapping the nation’s bonds, increasing the risk of the euro-area’s first sovereign default.

The euro yesterday fell to its weakest in 16 months against the dollar, declining to $1.2665. The yield on Germany’s benchmark 10-year bund slipped 7 basis points to 1.759 percent and earlier touched a record low.

The yield on France’s equivalent 10-year debt rose 3 basis points to 3.055 percent and Italy’s 10-year yield climbed 1 basis point to 6.596 percent.
‘Breakthrough’ Needed

Authorities have still to produce “a breakthrough of sufficient size and scope to fully address the euro-zone’s financial problems” and should stump up more resources and show greater flexibility, S&P said. Officials were also chastised for focusing too much on budget cuts which could prove ‘self defeating’’ as economic growth slows, it said.

The result is that refinancing costs for certain countries may remain “elevated” and credit availability and economic growth may fade, it said. It nevertheless praised the ECB’s decision to lower interest rates and aid banks for helping avert a collapse of market confident.

Regional finance ministers sought to play down S&P’s shifts or turn them to their advantage as European leaders prepare to meet for the first time this year on Jan. 30.

“It’s not a catastrophe,” French Finance Minister Francois Baroin told France 2 television, noting his country now has the same rating as the U.S.
Schaeuble’s Comments

Wolfgang Schaeuble, his German counterpart, said the moves vindicated the decision by governments last month to bring forward a permanent bailout fund to this year from 2013 and strengthened his country’s determination to stabilize the euro region by instilling stricter budget discipline.

“We know that there’s uncertainty with respect to the euro area,” he told reporters in the northern German port city of Kiel.

The French and Austrian downgrades risk sapping the potency of the region’s current rescue program, which has a spending capacity of 440 billion euros ($558 billion). The European Financial Stability Facility, which is funding rescue packages for Greece, Ireland and Portugal partially with bond sales, owes its AAA rating to guarantees from the region’s top-rated nations. It is scheduled to sell up to 1.5 billion euros in 6- month bills next week.

The French downgrade and refusal by governments to provide more credit enhancements would still reduce the fund’s lending capacity by around a third to 293 billion euros, Trevor Cullinan, S&P’s director of sovereign ratings, said last month. It is scheduled to call for bids of up to 1.5 billion euros in 6-month bills on Jan. 16.
EFSF Power

“It will be interesting to see what the strategy will be regarding the EFSF,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. Downgrades could “limit the volume of AAA rated EFSF paper that could be issued, or the EFSF could begin to issue non-AAA.”

Downgrades sometimes lack bite. The yield on the benchmark U.S. government bond fell to a record 1.6714 percent on Sept. 23, seven weeks after S&P withdrew its AAA rating for the first time, citing the nation’s political process and a failure to tackle a record budget deficit.

The impasse in Greece’s debt-swap talks comes three months since officials and creditors agreed to implement a 50 percent cut in the face value of the country’s debt, with a goal of paring Greek’s borrowings to 120 percent of gross domestic product by 2020. Unresolved is the coupon and maturity of the new bonds to determine the total losses for investors.
Greek Impasse

Proposals put forward by a committee representing financial firms have “not produced a constructive consolidated response by all parties,” the Washington-based Institute of International Finance said in a statement yesterday. “Discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.”

The government said the two sides will reconvene discussions next week. European governments have been pushing for the Greek debt to carry a coupon of 4 percent, a person with direct knowledge of the negotiations said this week. Private bondholders said they would accept those terms for a period of time if they were able to get a bigger payout later as Greece’s economy recovered, the person said.

The Greek bond due October 2022 rose, pushing the yield six basis points lower to 34.36 percent at 5:20 p.m. London time. The price climbed to about 20.5 percent of face value.

The first ever French downgrade strikes a blow to President Nicolas Sarkozy’s bid for re-election after he sought to protect his government’s creditworthiness by announcing tax increases and spending cuts. He trails his main rival, Socialist Party candidate Francois Hollande, by about 14 points in voting intentions for the second round of the election in May, according to a BVA poll for Le Parisien published Jan. 9.
Draghi’s View

Prior to S&P’s announcement investors had eased the costs they were imposing on Italy and Spain to borrow, sparking speculation the worst of the crisis may be passing. ECB President Mario Draghi said on Jan. 12 the central bank had averted a serious credit shortage and economy is stabilizing with data showing rebounds in German exports and French business confidence.

“This decision could upset the positive developments we’ve seen in Europe in the last few weeks,” ECB Governing Council member Ewald Nowotny said. “That’s the most dangerous thing in my view.”

 

[singveld]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

Standard & Poor's Takes Various Rating Actions On 16 Eurozone Sovereign Governments
Publication date: 13-Jan-2012 16:36:27 EST
View Analyst Contact Information

In our view, the policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone.
We are lowering our long-term ratings on nine eurozone sovereigns and affirming the ratings on seven.
The outlooks on our ratings on all but two of the 16 eurozone sovereigns are negative. The ratings on all 16 sovereigns have been removed from CreditWatch, where they were placed with negative implications on Dec. 5, 2011 (except for Cyprus, which was first placed on CreditWatch on Aug. 12, 2011).

FRANKFURT (Standard & Poor's) Jan. 13, 2012--Standard & Poor's Ratings
Services today announced its rating actions on 16 members of the European
Economic and Monetary Union (EMU or eurozone) following completion of its
review.

We have lowered the long-term ratings on Cyprus, Italy, Portugal, and Spain by
two notches; lowered the long-term ratings on Austria, France, Malta,
Slovakia, and Slovenia, by one notch; and affirmed the long-term ratings on
Belgium, Estonia, Finland, Germany, Ireland, Luxembourg, and the Netherlands.
All ratings have been removed from CreditWatch, where they were placed with
negative implications on Dec. 5, 2011 (except for Cyprus, which was first
placed on CreditWatch on Aug. 12, 2011).

The outlooks on the long-term ratings on Austria, Belgium, Cyprus, Estonia,
Finland, France, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal,
Slovenia, and Spain are negative, indicating that we believe that there is at
least a one-in-three chance that the rating will be lowered in 2012 or 2013.
The outlook horizon for issuers with investment-grade ratings is up to two
years, and for issuers with speculative-grade ratings up to one year. The
outlooks on the long-term ratings on Germany and Slovakia are stable.

We assigned recovery ratings of '4' to both Cyprus and Portugal, in accordance
with our practice to assign recovery ratings to issuers rated in the
speculative-grade category, indicating an expected recovery of 30%-50% should
a default occur in the future.

Today's rating actions are primarily driven by our assessment that the policy
initiatives that have been taken by European policymakers in recent weeks may
be insufficient to fully address ongoing systemic stresses in the eurozone. In
our view, these stresses include: (1) tightening credit conditions, (2) an
increase in risk premiums for a widening group of eurozone issuers, (3) a
simultaneous attempt to delever by governments and households, (4) weakening
economic growth prospects, and (5) an open and prolonged dispute among
European policymakers over the proper approach to address challenges.

The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements
from policymakers, lead us to believe that the agreement reached has not
produced a breakthrough of sufficient size and scope to fully address the
eurozone's financial problems. In our opinion, the political agreement does
not supply sufficient additional resources or operational flexibility to
bolster European rescue operations, or extend enough support for those
eurozone sovereigns subjected to heightened market pressures.

We also believe that the agreement is predicated on only a partial recognition
of the source of the crisis: that the current financial turmoil stems
primarily from fiscal profligacy at the periphery of the eurozone. In our
view, however, the financial problems facing the eurozone are as much a
consequence of rising external imbalances and divergences in competitiveness
between the eurozone's core and the so-called "periphery". As such, we believe
that a reform process based on a pillar of fiscal austerity alone risks
becoming self-defeating, as domestic demand falls in line with consumers'
rising concerns about job security and disposable incomes, eroding national
tax revenues.

Accordingly, in line with our published sovereign criteria, we have adjusted
downward our political scores (one of the five key factors in our criteria)
for those eurozone sovereigns we had previously scored in our two highest
categories. This reflects our view that the effectiveness, stability, and
predictability of European policymaking and political institutions have not
been as strong as we believe are called for by the severity of a broadening
and deepening financial crisis in the eurozone.

In our view, it is increasingly likely that refinancing costs for certain
countries may remain elevated, that credit availability and economic growth
may further decelerate, and that pressure on financing conditions may persist.
Accordingly, for those sovereigns we consider most at risk of an economic
downturn and deteriorating funding conditions, for example due to their large
cross-border financing needs, we have adjusted our external score downward.

On the other hand, we believe that eurozone monetary authorities have been
instrumental in averting a collapse of market confidence. We see that the
European Central Bank has successfully eased collateral requirements, allowing
an ever expanding pool of assets to be used as collateral for its funding
operations, and has lowered the fixed rate to 1% on its main refinancing
operation, an all-time low. Most importantly in our view, it has engaged in
unprecedented repurchase operations for financial institutions, greatly
relieving the near-term funding pressures for banks. Accordingly we did not
adjust the initial monetary score on any of the 16 sovereigns under review.

Moreover, we affirmed the ratings on the seven eurozone sovereigns that we
believe are likely to be more resilient in light of their relatively strong
external positions and less leveraged public and private sectors. These credit
strengths remain robust enough, in our opinion, to neutralise the potential
ratings impact from the lowering of our political score.

However, for those sovereigns with negative outlooks, we believe that downside
risks persist and that a more adverse economic and financial environment could
erode their relative strengths within the next year or two to a degree that in
our view could warrant a further downward revision of their long-term ratings.

We believe that the main downside risks that could affect eurozone sovereigns
to various degrees are related to the possibility of further significant
fiscal deterioration as a consequence of a more recessionary macroeconomic
environment and/or vulnerabilities to further intensification and broadening
of risk aversion among investors, jeopardizing funding access at sustainable
rates. A more severe financial and economic downturn than we currently
envisage (see "Sovereign Risk Indicators", published Dec. 28, 2011) could also
lead to rising stress levels in the European banking system, potentially
leading to additional fiscal costs for the sovereigns through various bank
workout or recapitalization programs. Furthermore, we believe that there is a
risk that reform fatigue could be mounting, especially in those countries that
have experienced deep recessions and where growth prospects remain bleak,
which could eventually lead us to the view that lower levels of predictability
exist in policy orientation, and thus to a further downward adjustment of our
political score.

Finally, while we currently assess the monetary authorities' response to the
eurozone's financial problems as broadly adequate, our view could change as
the crisis and the response to it evolves. If we lowered our initial monetary
score for all eurozone sovereigns as a result, this could have negative
consequences for the ratings on a number of countries.

In this context, we would note that the ratings on the eurozone sovereigns
remain at comparatively high levels, with only three below investment grade
(Portugal, Cyprus, and Greece). Historically, investment-grade-rated
sovereigns have experienced very low default rates. From 1975 to 2010, the
15-year cumulative default rate for sovereigns rated in investment grade was
1.02%, and 0.00% for sovereigns rated in the 'A' category or higher. During
this period, 97.78% of sovereigns rated 'AAA' at the beginning of the year
retained their rating at the end of the year.

Following today's rating actions, Standard & Poor's will issue separate media
releases concerning affected ratings on the funds, government-related
entities, financial institutions, insurance companies, public finance, and
structured finance sectors in due course.

RATINGS LIST
To From
Austria (Republic of) AA+/Negative/A-1+ AAA/Watch Neg/A-1+
Belgium (Kingdom of) (Unsolicited Ratings)
AA/Negative/A-1+ AA/Watch Neg/A-1+
Cyprus (Republic of) BB+/Negative/B BBB/Watch Neg/A-3
Estonia (Republic of) AA-/Negative/A-1+ AA-/Watch Neg/A-1+
Finland (Republic of) AAA/Negative/A-1+ AAA/Watch Neg/A-1+
France (Republic of) (Unsolicited Ratings)
AA+/Negative/A-1+ AAA/Watch Neg/A-1+
Germany (Federal Republic of) (Unsolicited Ratings)
AAA/Stable/A-1+ AAA/Watch Neg/A-1+
Ireland (Republic of) BBB+/Negative/A-2 BBB+/Watch Neg/A-2
Italy (Republic of) (Unsolicited Ratings)
BBB+/Negative/A-2 A/Watch Neg/A-1
Luxembourg (Grand Duchy of) AAA/Negative/A-1+ AAA/Watch Neg/A-1+
Malta (Republic of) A-/Negative/A-2 A/Watch Neg/A-1
Netherlands (The) (State of) (Unsolicited Ratings)
AAA/Negative/A-1+ AAA/Watch Neg/A-1+
Portugal (Republic of) BB/Negative/B BBB-/Watch Neg/A-3
Slovak Republic A/Stable/A-1 A+/Watch Neg/A-1
Slovenia (Republic of) A+/Negative/A-1 AA-/Watch Neg/A-1+
Spain (Kingdom of) A/Negative/A-1 AA-/Watch Neg/A-1+
N.B.--This does not include all ratings affected.

 

[palden]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

Ho say Liao. All Ang mo now become beggars Liao.

 

[Cestbon]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

Previous all look at the West. Now who is laughing?

 

[singveld]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

Eu is biggest trading partner for singapore, their misery will affect singapore too, the companies have to cut staff, they might fire the locals first.

 

[laksaboy]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

European countries should grow a pair of balls and withdraw from the EU.

 

[Windsor]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

The House Of Cards Are Tumbling Down.

 

[Ash007]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

They are just opinions don't take too much into it. The rating agencies themselves have said again and again that their ratings are opinions and shouldn't be relied on it at all.

[video=youtube;zIGThxn_eGk]http://www.youtube.com/watch?v=zIGThxn_eGk[/video]

 

[Windsor]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

They are just opinions don't take too much into it. The rating agencies themselves have said again and again that their ratings are opinions and shouldn't be relied on it at all.

So they said, but the entire world is in a bit of a dither and headline news in all major MSM's and World News. Like having lost a leg and saying it's nothing but a flesh wound.

 

[Ash007]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

Probably proves the rest of the world are just as daft?

So they said, but the entire world is in a bit of a dither and headline news in all major MSM's and World News. Like having lost a leg and saying it's nothing but a flesh wound.

 

[Windsor]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

Probably proves the rest of the world are just as daft?

Actually they are all bankrupt and playing a game of "let's pretend." The longer they prolong the inevitable, the more painful it will be when the crash happens.

 

[Ash007]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

News like these makes me wonder if I should delay my property purchase for a couple of months more. Any opinion on this on the Aussie market particular the Sydney market?

Actually they are all bankrupt and playing a game of "let's pretend." The longer they prolong the inevitable, the more painful it will be when the crash happens.

 

[Windsor]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

News like these makes me wonder if I should delay my property purchase for a couple of months more. Any opinion on this on the Aussie market particular the Sydney market?

I can ask a relative who is head of a landbank organisation with interests in Oz and USA. Will meet him during family reunion this weekend.

 

[Ash007]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

Thanks in advance mate.

I can ask a relative who is head of a landbank organisation with interests in Oz and USA. Will meet him during family reunion this weekend.

 

[Windsor]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

Thanks in advance mate.

I have no idea which part of Oz where he has them, and Sydney may not be the city that he has any advice to offer. If that is alright with you, I can only find out later, but will let you know during CNY.

 

[Ash007]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

No worries, any help I can get now would be highly appreciated.

I have no idea which part of Oz where he has them, and Sydney may not be the city that he has any advice to offer. If that is alright with you, I can only find out later, but will let you know during CNY.

 

[Windsor]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

No worries, any help I can get now would be highly appreciated.

Ok bro. Thanks for understanding and I hope I can get some good info for you.

 

[singveld]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh

DOWNGRADED EUROZONE COUNTRIES

DOWN By one notch:
France
Austria
Malta
Slovakia
Slovenia

DOWN By two notches:
Cyprus
Italy
Portugal
Spain



UNCHANGED EUROZONE COUNTRIES
Belgium
Estonia
Finland
Germany
Ireland
Luxembourg
Netherlands


COUNTRIES (GLOBALLY) STILL WITH AAA RATING

UK
Australia
Canada
Denmark
Finland
Germany
Hong Kong
Liechtenstein
Luxembourg
Netherlands
Norway
Singapore
Sweden
Switzerland

 

[singveld]

Re: Die lor. i have 50k euro invested, what do i do now... ah...die s&p die, ah neh