Ever wondered what sovereign ratings ‘Made in China’ might look like? You know, the kind of ratings that China president Hu Jintao might have had in mind when he called for a more accurate ratings system at last month’s G20 meeting? Well, here’s your chance.

Over the weekend, Dagong Global Credit Rating Co., a Beijing-based rating agency and one of four dominant agencies in the PRC, published its first ever sovereign risk assessment. And as Dagong noted in its press release:

On the morning of July 11, 2010, Dagong Global Credit Rating Co., Ltd., a professional rating agency of China, released its sovereign credit risk reports of 2010 and for the first time the sovereign credit risk ratings for 50 Countries in Beijing. As a non-western rating agency, this is not only the first one in China, but also the first one in the world, that releases information on sovereign credit risks.

The results of Dagong’s assessment have been making headlines early this week, since they, err, diverge somewhat with those of western rating agencies like Moody’s, Fitch, Standard & Poor’s et al. Spot the differences in the table below: 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

Simone Baribeau

Moody’s just slashed Greece’s rating to Ba1 from A3, a whopping four notches, bringing the ratings agency in line with its peers and the country’s debt squarely into junk territory. Moody’s, along with Standard and Poor’s and Fitch, had already downgraded the debt-laden nation in April, but by fewer notches.

From the release:

Moody’s Investors Service has today downgraded Greece’s government bond ratings by four notches to Ba1 from A3, reflecting its view of the country’s medium-term credit fundamentals.
Today’s rating action concludes the review for possible downgrade, which Moody’s initiated on 22 April 2010. Moody’s has also downgraded Greece’s short-term issuer rating to Not-Prime from Prime-1. Greece’s country ceilings for bonds and bank deposits are unaffected by the review and remain at Aaa (in line with the Eurozone’s rating). The outlook on all ratings is stable.

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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

How did MBS all go so very very wrong? Here’s the visual answer.

Yes, what you’re looking at is AAA rated securities being created out of debt that, if the system were to be under financial stress, would likely be (depending on the exact structure of the security) among the last 4 per cent to be paid. You buy a AAA security, and if the default rate on subprime mortgages hits 4 per cent, the security is worthless. Read more

Poor Portugal. By dint of some dubious acronym, they are lumped into the same category as Greece.

First, a sizeable Greek bail-out, which appears more than adequate, sends European equities tumbling. Second, the cost of debt for the Portuguese government shot up today (6-month government bill average yield 2.955 per cent, versus 0.74 per cent at the last auction in March). Third, Moody’s has just placed Portugal on review for downgrade. Read more

“Negligible” risks of a Greek default but “multi-notch downgrade” likely. This from Moody’s in a confusing note yesterday. The ratings agency retains a downgrade review on the country but — unlike S&P — will wait till “shortly after the details of the euro area/IMF programme are unveiled”.

* Moody’s has consistently maintained that Greece’s short-term liquidity and restructuring risks are negligible given the depth of international commitment to maintaining regional financial stability…

* Moody’s believes that the appropriate repositioning of Greece’s rating should therefore be based on the country’s medium-term credit fundamentals…

* Moody’s has previously indicated that a multi-notch downgrade is likely, and that

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Ralph Atkins

Whatever love there was left in Brussels and Frankfurt for ratings agencies, it has almost evaporated.

Standard & Poor’s may have had some good arguments. But its downgrading of Greece and Portugal - and now Spain - has not exactly helped calm financial markets as officials try frantically to put together a rescue package in Athens. For the European Central Bank, the downgrading of Greece to junk status has created particular complications. If other agencies followed S&P, Greek assets would become ineligible for use as collateral in ECB liquidity operations for which the minimum requirement is BBB-. Read more

S&P has been slashing ratings. The Greek credit rating has been cut three notches to a non-investment grade of BB+ with negative outlook. Portugal’s long-term debt rating has been cut two notches to A-, also with negative outlook. In both cases, Moody’s > Fitch > S&P. And by quite some margin.

Greece: Read more

Ratings agency Fitch has cut Greece’s credit ratings by two notches from BBB+ to BBB-, signaling a further possible downgrade by issuing a negative outlook on the rating.

This is a bold step from Fitch: the chart shows their upgrades and downgrades have tended to follow or coincide with those of Moody’s and S&P. It remains to be seen whether their competitor agencies will follow them. Read more

Standard and Poor’s have removed Greek sovereign ratings from negative credit watch, where they were placed in December, and affirmed the BBB+ long-term and A-2 short-term ratings. The ratings agency confirmed the negative outlook.

Reasons as given in their press release:

Barclays Capital has rejected as “unjustified” the negative watch placed on Vietnam’s sovereign rating last week by Fitch. Bloomberg reports regional economist Prakriti Sofat as saying in a note: “The Fitch rating outlook change to negative is hasty and short-sighted.” She adds: “When the State Bank of Vietnam devalued the dong in early February, spot Vietnamese dong did not immediately jump to the top end of the new band, as was the case in previous devaluations, which suggests underlying pressures were not that stretched.”

Fitch placed their long-term local and foreign currency issue rating of BB- on negative watch, meaning that, with no further change, a downgrade would be imminent. The ratings agency cited a deterioration in confidence in the Vietnamese dong and a lack of financial transparency among its concerns.

Ralph Atkins

So that’s it, then, until October.  The latest steps in the European Central Bank’s ”exit strategy” laid out yesterday, set out how liquidity operations will be managed until the start of the fourth quarter. So will the ECB now just sit on its hands? Possibly. It certainly does not look like they are going to need to tighten monetary policy anytime soon (current market expectations are for the first hike only in the second half of 2011).

But these are turbulent times for the eurozone, and for the guardian of Europe’s single currency. Greece’s crisis may have subsided, but it has not gone away. Policymakers, including at the ECB, know they have to look at making the monetary union function more effectively. 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

Reaction to Greece’s proposed austerity package will be all important. Greece will ask the ECB to assess the plan, Bloomberg reported earlier. And the sooner, the better, for market stability. Approvals, if and when they come, will reassure investors that words will translate to actions.

In the interim, Moody’s has given cautious approval by affirming its A2 (Neg) rating. Read more

The Indian Ministry of Finance doesn’t pull any punches: it has investigated the $5bn ratings agency industry and promptly issued twelve recommendations.

“A rating is only an opinion, albeit a very influential one,” states the reportRead more

Ralph Atkins

An outburst by Ewald Nowotny, Austria’s cerebral central bank governor, has raised an interesting prospect. Might the ECB do away with the services of ratings’ agencies and judge itself the credit-worthiness of eurozone banks’ collateral?

Late on Tuesday in Vienna , Mr Nowotny highlighted the predicament currently faced by Greece: if Moody’s follows the other rating agencies in downgrading further its assets, they could become ineligible for use in ECB liquidity operations once the pre-global financial crisis regime is restored at the end of this year. Such assets would then become worth much less – sending Greece further into a downward spiral. 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

Ratings agency Standard and Poor’s have increased Turkey’s currency rating to BB and BB+ for foreign and local currencies, respectively. In both cases this is a one-notch increase. The outlook on both is positive, meaning barring any changes, S&P would expect to make a further upgrade within 12-24 months. Read more