02 December 2013 - 19:19 pm
Standard and Poor’s, Fitch and Moody’s – the “Big Three” credit rating agencies (CRAs) that score EU government debt – could face further action after failing to fix “inadequate practices from the past”.
The European Securities and Markets Authority (ESMA) published the results today of its probe into how the three agencies compiled ratings on sovereign bonds between February and October this year.
The regulator said it has not determined whether any of its findings constitute a breach of the CRA Regulation, and “may take action as appropriate in due course”.
ESMA said it had found deficiencies when it came to confidentiality, conflicts of interest, a lack of adequate resources and staff being used, and the delays seen in the publishing of ratings. It said it has required “remedial action plans” to be put in place by the agencies to address the problems.
The watchdog’s chair, Steven Maijoor (pictured), said the shortcomings uncovered “could pose risks to the quality, independence and integrity of the ratings and of the rating process.” He went on: >> Read More
25 November 2013 - 11:00 am
Standard & Poor’s says the Abenomics growth programme has improved the near-term prospects for Japan, but it warns it could still cut the credit rating of the world’s third-largest economy.
S&P rates Japan AA-. the fourth-highest investment-grade rating, but its outlook is negative and it sees a “more than one-third chance” of cutting the rating “within two years.”
The ratings agency says Tokyo’s recent efforts to hike the national sales tax and end deflation are encouraging, but they “still fall short of putting the country on a stable path to mending its fiscal problems.”
Among the worries at S&P are uncertainty about the government’s commitment to curb bloated spending, as well as companies’ high exposure to the country’ government debt.
Japan’s debt-to-GDP ratio, north of 200 per cent, is by the highest in the developed world. S&P writes:
Government stimulus and monetary easing appear to have pumped enough confidence into Japan to successfully kick-start economic growth, for now. However, a host of risks – including an unwinding of quantitative easing in the U.S. and a rising sales tax – hang over efforts to end deflation and repair the nation’s public finances, in our view.
08 November 2013 - 12:35 pm
Standard & Poor’s downgraded France’s sovereign credit rating by one notch this morning, from AA+ to AA, citing weak growth, high unemployment and a lack of conviction in the government’s reform plans for taxation and the labour market.
Here’s the early flashes from Reuters on the government’s response:
FRENCH ECONOMY MINISTER REAFFIRMS QUALITY OF FRENCH CREDIT REPUTATION AFTER S&P DOWNGRADE
FRENCH ECONOMY MINISTER SAYS REGRETS S&P DECISION
FRENCH ECONOMY MINISTER SAYS FRENCH DEBT RATING REMAINS AMONG THE SAFEST AND MOST LIQUID WITHIN EURO ZONE
08 November 2013 - 0:13 am
Standard & Poor’s Thursday warned that India could slip from investment to junk grade after the general election due next year “if the government that takes office does not appear capable of reversing India’s low economic growth”.
The largest global credit rating agency retained, for now, the sovereign credit rating for India at the bottom rung of investment grade but with this negative long-term rating outlook.
The S&P action comes just days after a Goldman Sachs research report said politics is now trumping economics and expressed optimism over a possible political change, led by the BJP’s prime ministerial candidate Narendra Modi coming to power.
The implications for India of a ratings downgrade would be difficult. >> Read More
01 November 2013 - 20:22 pm
In another blow to Sony’s faltering recovery, Moody’s has placed the Japanese consumer electronics group’s debt rating on review for a downgrade.
Sony is currently rated Baa3 by Moody’s, meaning that a downgrade would reduce it to junk status. Here’s why the credit rating agency, has put it on review:
Moody’s Japan K.K. has placed Sony Corporation’s Baa3 long-term senior unsecured bond and issuer ratings and the Prime-3 short-term rating of its supported subsidiary, Sony Global Treasury Services Plc., on review for downgrade.
The rating actions reflect the slow progress being made in improving overall profitability. Weak earnings across the majority of reporting units suggests the potential for a much longer period of restructuring and financial weakness than previously expected.
Moody’s review will focus on the pace of recovery of business segments which have been subject to intense restructuring efforts such as Home Entertainment & Sound, and Mobile Products & Communications business which benefitted from strong smartphone growth. Both segments reported operating losses in the second quarter despite these efforts.
The review will also consider the company’s overall profitability — expected to improve from the prior year but subject to a downward earnings revision in the recent quarterly reports. >> Read More
18 October 2013 - 11:59 am
The recent assignment of Rating Watch Negative on the US’s AAA sovereign ratings is unlikely to lead directly to downgrades of any Asian sovereigns, even though these are among the largest holders of US Treasuries, says Fitch Ratings. US Treasuries are likely to remain among the most liquid financial instruments, and so would continue to underpin Asian external liquidity and sovereign credit profiles.
Asian sovereign credit profiles have generally benefited from a strengthening of their foreign-currency balance sheets since the Asian Financial Crisis in 1997-1998. This has been driven by a rapid pace of reserve accumulation by most countries in the region, up until 2011.
The growth in foreign-currency reserves has subsequently slowed. Moreover, this has recently dropped from a year ago in countries such as India, Indonesia, Mongolia and Sri Lanka, due to twin deficit pressures and lower net capital inflows.
Nonetheless, regional reserves remain an important buffer against external shocks, and therefore underpin overall sovereign creditworthiness. This factor is not eroded by the Rating Watch Negative on the US’s AAA sovereign rating. >> Read More
25 September 2013 - 19:11 pm
The US will reach its spending limit in less than a month if leaders are unable to come to agreement on a new debt ceiling, according to Treasury Secretary Jack Lew.
In a letter sent to Congressional leaders, Mr Lew estimated the Treasury would exhaust all of its funding abilities no later than October 17, and called the potential impact “catastrophic”.
The White House is determined not to compromise when negotiating a rise to the $16.7tn limit, which it had in 2011 to avert a shutdown.
If an agreement is not reached before October 17, Mr Lew estimates the Treasury will have less than $30bn to use to cover expenses, below the $60bn in outlays it pays on same days, potentially leading to the first default by the US on its debt obligations.
From his letter:
The debt limit impasse that took place in 2011 caused significant harm to the economy and a downgrade to the credit rating of the United States. The drawn-out dispute caused business uncertainty to increase, consumer confidence to drop, and financial markets to fall. If Congress were to repeat that brinksmanship in 2013, it could inflict even greater harm on the economy. And if the government should ultimately become unable to pay all of its bills, the results could be catastrophic.
03 September 2013 - 18:50 pm
It has been observed that some banks have introduced certain innovative Housing Loan Schemes in association with developers/builders, e.g. upfront disbursal of sanctioned individual housing loans to the builders without linking the disbursals to various stages of construction of housing project, interest/EMI on the housing loan availed of by the individual borrower being serviced by the builders during the construction period/specified period, etc. This might include signing of tripartite agreements between the bank, the builder and the buyer of the housing unit. These loan products are popularly known by various names like 80:20, 75:25 Schemes.
2. Such housing loan products are likely to expose the banks as well as their home loan borrowers to additional risks e.g. in case of disputes between individual borrowers and developers/builders, default/delayed payment of interest/EMI by the developer/builder during the agreed period on behalf of the borrower, non-completion of the project on time, etc. Further, any delayed payments by developers/builders on behalf of individual borrowers to banks may lead to lower credit rating/scoring of such borrowers by credit information companies (CICs) as information about servicing of loans gets passed on to the CICs on a regular basis. In cases where bank loans are also disbursed upfront on behalf of their individual borrowers in a lump-sum to builders/developers without any linkage to stages of construction, banks run disproportionately higher exposures with concomitant risks of diversion of funds.
3. In view of the higher risks associated with such lump-sum disbursal of sanctioned housing loans and customer suitability issues, banks are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project/houses and upfront disbursal should not be made in cases of incomplete/under-construction/green field housing projects.
4. It is emphasized that banks while introducing any kind of product should take into account the customer suitability and appropriateness issues and also ensure that the borrowers/customers are made fully aware of the risks and liabilities under such products.
26 August 2013 - 15:05 pm
Fitch ratings said it was getting more challenging for India to meet its fiscal deficit target in the current fiscal year ending March 2014 with revenues slowing.
The rating agency is also monitoring India’s growth, inflation, public finances and the current account deficit (CAD) and its funding, analyst Art Woo said in a teleconference on Monday.
Fitch has a stable outlook on the ‘BBB-’ sovereign credit ratings. BBB- is the last rung on the ratings ladder above the so-called “junk” status that mainstream investors tend to avoid.
Last week, Fitch said India and Indonesia are not at immediate risk of credit rating downgrades, but warned it could act if the governments of these countries fail to calm current financial market tensions.
04 August 2013 - 18:13 pm
As many as 225 of a total 290 corporates are unlikely to be impacted on the ratings front if rupee falls to 65 against the dollar, according to India Ratings.
Since the beginning of the fiscal, the rupee has lost over 12 per cent and last Friday closed at all-time low of 61.10 to the dollar, as foreign funds continue to sell their positions in the country. India rupee hit intra-day record low of 61.21 on July 8.
Between May 22, when US Fed said it may stop bond buyback programme by the end of this year, and the week ending July 26, FIIs have pulled out a whopping Rs 63,460 crore from domestic debt and equities, as per Sebi data.
Credit ratings on 225 investment-grade corporates out of a total of 290 are unlikely to be impacted if at all rupee falls to 65 to the greenback, says the India Ratings report.
The report, however, said that “65 investment-grade issuers may face negative rating actions, such as an outlook revision or a rating downgrade, if the rupee remains in this range. But we do not expect any of these issuers to default.” Notably, the country is staring at a short-term forex loan repayment of USD 174 billion. >> Read More