credit ratings

Thai central bankers have a double cause for celebration today: projected Thai exports have been revised up for the rest of 2010 and ratings agency Moody’s has removed its negative outlook on the country’s Baa1 credit rating.

Today’s inflation report from the Bank of Thailand suggests an enviable track record, with “strong growth” in the second quarter “mainly driven by merchandise exports and private spending”. Thailand is not impervious to the global economy, however: the Bank speaks of weakening external demand and forecasts exports to fall back to trend in 2011. Read more

Ratings agency Standard & Poors has upgraded Argentina to B, the same level as Fitch and now one above Moody’s. The move follows hot on the heels of an upgrade from Fitch.

The sovereign credit rating is still well in junk territory, denoted by the grey shading in the chart, right. The highlighted green line is S&P’s historical rating for Argentina; red is Fitch and blue Moody’s. Click on the graphic to explore the full graphic, in which you can compare countries side by side.

S&P joins Fitch in placing Ireland on a sovereign rating of AA- today; Moody’s rating remains a notch higher at AA. Ireland keeps its second position in the PIIGS’ line-up, however, which runs broadly: Spain, Ireland, Italy, Portugal and then Greece. Play with the graphic below for more.

Will Moody’s, S&P and Fitch downgrade each other? The Fed is looking to end its reliance on credit ratings – possibly changing Basel rules to boot.

The Federal banking agencies* have identified their use of those ratings, and are now requesting comments on the best replacements. From the horse’s mouth: Read more

The current debt trajectory of the US may imperil the country’s future Aaa rating, Moody’s has said.

Steven Hess, senior credit officer at the ratings agency, told Bloomberg the US needed a strategy to tackle its deficit: “Having a clear plan certainly increases confidence and the U.S. doesn’t have that yet… the debt trajectory as it is now is something that might potentially cause us to consider whether the US is Aaa at some point in the future.” Read more

Ratings agency Moody’s has downgraded Ireland’s sovereign debt rating to Aa2 (stable) from Aa1 (negative). Ireland’s National Asset Management Agency (Nama), a special purpose bad-loan vehicle whose debt is fully guaranteed by the Irish government, was also downgraded to Aa2.

The action brings Moody’s rating in line with those of S&P. Fitch remains a notch below both Moody’s and S&P. Drivers for the change were given as follows: Read more

Not one eurozone country deserved a credit rating upgrade in the past quarter, while some, such as Spain, deserved six-notch downgrades, new data show. Indeed, 13 of the worst-performing 15 countries were European (see Q-o-Q change column; source: CMA data).

The UK, by contrast, did deserve a one-notch upgrade. (The bad news is that even an upgrade leaves the UK’s implied rating one notch below its actual rating of AAA.) Far greater winners were Guatemala, Uruguay, Egypt, Bahrain and Colombia, which all merited multi-notch upgrades. Read more

“In the recent financial crisis, the ratings on structured financial products have proven to be inaccurate,” reads p822 of Dodd’s bill. “The activities of credit rating agencies are fundamentally commercial in character and should be subject to the same standards of liability and oversight as apply to auditors, securities analysts, and investment bankers.”

Well, Mr Dodd’s wish might just have come true. The WSJ is reporting agreement between the House and Senate:-

A panel of Senate and House lawmakers negotiating final details of a financial-overhaul bill agreed this week to

 Read more

Ralph Atkins

Lorenzo Bini Smaghi, European Central Bank executive board member, has offered another reason why fiscal retrenchment need not spell recession. This has obviously become an important theme for the ECB, with the US increasing the pressure for European policy steps that promote growth.

Speaking in Brussels, Mr Bini Smaghi pointed out the role of financial markets is often overlooked when future scenarios are modelled. “An unsustainable fiscal policy will, sooner or later, receive the attention of financial markets; they tend to react abruptly, generating a crisis which impacts heavily on the economy.”

He went on: “A timely fiscal adjustment which puts debt dynamics back onto a sustainable path entails a stronger growth over time. Read more

Ralph Atkins

The European Central Bank is keen to reduce its reliance on ratings agencies, Jürgen Stark, a member of its executive board member, told a Reuters conference this morning. Standard & Poor’s, Fitch and Moody’s “follow the market, they act in a pro-cyclical way and that is not helpful,” he said. Already, the ECB had decided to ignore ratings agencies’ views on Greece because it better understood the rescue plans now being implemented.

His comments were the latest hint that the ECB will look for other ways of judging the creditworthiness of assets put up as collateral in its liquidity-providing operations. Read more

How many ratings issuers should we have before some independent benchmark—i.e. a rating—would be needed to discriminate between them?

PwC has announced it is considering a move into the ratings arena, hitherto monopolised—or at least oligopolised—by three major ratings agencies. Perhaps they could start by backtesting the debt ratings issued by these three major players, and comparing them to real events.

Simone Baribeau

The FT’s live coverage of the Financial Crisis Inquiry Commission’s hearing on the credibility of credit ratings agencies has ended. But read on – a play-by-play of one of the most metaphor-enriched hearings on record is below. Testifying on “credit ratings and the financial crisis” were Warren Buffett, the billionaire investor, and Raymond McDaniel, chairman of Moody’s Corp. All times are eastern standard time.

As it happened coverage below.

2:05 pm: It’s over. After a discussion about rating state and municipal securities (Buffett wit #68 “If the federal government will step in to protect the security, I’d rate it triple A, if not, I don’t know what it should be rated.”) the meeting wraps up. The third hearing will begin at 2:30. No live blog for the next session, alas, but you can watch it hereRead more

The minimum rating on assets accepted as collateral at the Bank of England is Aa3 — but they can accept lower ratings whenever they please. That is the message of a Bank “clarification” issued today.

Conspiracy theorists might spot a pattern here. The ECB reduced its minimum threshold from A- to BBB- during the crisis, and recently extended this temporary measure into 2011. Read more

Ewald Nowotny yesterday described as “unacceptable” the power of Moody’s to determine the fate of Greece, and possibly Europe with it. Moody’s has just replied – by denying it holds such power.

The ECB usually requires more than  A- rating on financial products used as collateral. This was lowered temporarily to BBB- during the crisis, a reduction expiring at the end of this year. Standard and Poor’s and Fitch have since downgraded Greek sovereign debt to BBB+, meaning they would not qualify as ECB collateral when the rating requirement changes back. Only Moody’s has kept a rating that would allow Greek debt to qualify. Read more

From Reuters:

The current situation, where Greece’s fate depends on the decision of a single credit rating agency, is not acceptable, European Central Bank Governing Council member Ewald Nowotny said on Tuesday. Read more

Moody’s is ‘cautiously optimistic’ for the continued recovery of Middle East sovereigns (although this excludes the Dubai government, which is not rated by the ratings agency).

A sluggish global recovery will gain momentum and investor confidence will rebuild, predicts Moody’s Investors Service. So far this year, all Middle East ratings changes have been upward (Oman – Feb 18, Saudi Arabia – Feb 15). Moody’s points out that the region suffered a ‘relatively mild’ crisis. Read more

Moody’s has raised Oman’s local and foreign currency government bond ratings to A1 from A2. The country ceiling for foreign currency bank deposits has also been lifted to A1 from A2 and the country ceiling for foreign currency bonds has been raised to Aa2 from Aa3. Oman’s local currency country ceilings remain at Aa2. The outlook on the ratings is stable.

“The main driver of today’s rating change is the comparative strength of Oman’s public finances within its rating peer group,” explained Tristan Cooper, a senior credit officer in Moody’s sovereign risk group. Read more

Latvia’s outlook has been raised to stable from negative by ratings agency Standard & Poors, just a day after the outlook on neighbour Estonia was similarly raised.

The reason – as for Estonia – is “successful fiscal consolidation”. Rating were affirmed – B for short- and BB for long-term debt. (This is below Estonia’s short- and long-term rating of A-.) Read more

Local governments are almost certainly paying a premium when they raise debt by themselves – which they are doing in large and increasing volumes. Last year, Europe’s regional governmental (‘sub-sovereign’) debt stood at more than €1,200bn.

Particularly stung are Russia and France, which comprise between them the entire top 20 worst affected sub-sovereign debt holders. By contrast, two Spanish communities actually benefit – with better sovereign ratings than central government. Perhaps the Spanish government should be borrowing from themRead more

Standard and Poors have raised the outlook for the Lithuanian Republic from negative to stable, and affirmed the country’s BBB long-term rating and A-3 short-term rating. The ratings agency praised Lithuania’s fiscal consolidation, saying: “The outlook revision reflects the government’s successful and still ongoing implementation of substantial budgetary consolidation in the face of a severe external shock.”