S&P’s Adelson Steps Down as Chief Credit Officer, Jacob Leaves in Shuffle

Friday, Dec09, 2011

Standard & Poor’s is replacing its chief credit officer, Mark Adelson, as the world’s largest ratings company winds down a year in which its grades of governments have faced growing scrutiny.

Adelson, 51, who oversaw an overhaul of S&P’s methodologies that was designed to address their failures during the collapse of the mortgage-bond market, will become a “senior research fellow,” the New York-based unit of McGraw-Hill Cos. said yesterday in a statement. Also, David Jacob, global head of structured finance, will depart at the end of the month.

The changes come three months after Douglas Peterson left Citigroup Inc. to become S&P’s president, following its decision to strip the U.S. of its top AAA ranking. This week, the firm warned it may downgrade Germany, France and 13 other European countries. Even as S&P’s moves roil credit markets, McGraw-Hill is planning to separate its financial businesses from its textbook publishing unit under pressure from hedge fund Jana Partners LLC.

“There are a lot of changes going on at McGraw-Hill broadly,” Peter Appert, an analyst who follows the company at Piper Jaffray & Co. in San Francisco, said in a telephone interview. Peterson has been discussing removing layers of management, he said.

Ian Thompson, who was previously responsible for the Asia- Pacific region, will replace Adelson, S&P said in the statement. Peterson, the former chief operating officer of Citibank NA, replaced Deven Sharma, who had led the unit since 2007.
Worked Together

Jacob and Adelson joined S&P in 2008 from Adelson & Jacob Consulting, where they worked together. Jacob took over a structured-finance business that was blamed by congressional investigators for contributing to the worst financial crisis since the Great Depression by assigning top grades to risky real-estate bonds.

Under Adelson, S&P revised the way it graded governments, banks and bonds backed by assets such as mortgages. The new criteria for structured finance were designed to be “tougher,” Adelson said in an undated video on S&P’s website. Any bonds carrying AAA ratings should be able to withstand stress similar to the Great Depression, Adelson wrote in a paper in 2009.

S&P downgraded the U.S. one step to AA+ on Aug. 5, saying that gridlock in Washington and the rising national debt were making it riskier to invest in government bonds. The cut was questioned by President Barack Obama, who said in a speech on Aug. 8 that the ratings company was basing its judgment on politics, not on the government’s ability to pay its debts.
Europe Warning

On Dec. 5, S&P warned that it may cut 15 euro nations as policy makers prepared to meet in Brussels to end a crisis that led to bailouts of Greece, Ireland and Portugal, and now threatens to engulf Italy.

European Central Bank governing council member Christian Noyer lambasted S&P.

“They changed their methodology and it’s now more linked to political factors and less to fundamentals,” Noyer said on Dec. 5 at a conference in Paris. “The rating agencies fueled the crisis in 2008 and we can question whether they’re not doing the same thing in the current crisis.”

Moritz Kraemer, S&P’s head of European sovereign ratings, denied that the company was trying to influence politics.
Deal Scuttled

In July, S&P withdrew grades it had assigned to a $1.5 billion offering of bonds backed by commercial mortgages from Goldman Sachs Group Inc. and Citigroup Inc., forcing the banks to scuttle the deal after it was placed with investors.

“The manner in which S&P took its action has severely eroded investor and issuer confidence in its ratings,” Morgan Stanley analysts led by Richard Parkus in New York wrote in a note on July 28.

Last month, after revising its bank criteria, S&P lowered its ratings of Goldman Sachs Group Inc., Bank of America Corp. and UBS AG.

Prior to consulting, Adelson was head of structured finance research at Nomura Securities International, according to a statement announcing his hiring.

S&P also said that it was looking to hire a new chief economist and chief risk officer. McGraw-Hill said on Dec. 7 it would eliminate 550 jobs at its education unit.

(sourced Bloomberg)

Stocks Fall, Euro Erases Gain as Fitch Cuts Credit Ratings of Italy, Spain

Fri,Oct7, 2011
By Rita Nazareth and Cordell Eddings

U.S. stocks fell, halting a three-day rally, and the euro erased earlier gains versus the dollar after Fitch Ratings downgraded the government debt of Spain and Italy. Treasuries retreated, pushing 10-year note yields toward their biggest weekly increase since July.

The Standard & Poor’s 500 Index slipped 1 percent to 1,153.44 at 12:34 p.m. in New York after rebounding more than 8 percent from a one-year intraday low on Oct. 4. The euro lost 0.2 percent to $1.3405 after climbing as much as 0.7 percent. The 10-year note yield increased nine basis points to 2.08 percent and has climbed 16 points in five days.

Faster-than-forecast growth in U.S. employment was overshadowed by concern Europe’s debt crisis will worsen. Italy had its foreign and local currency long-term issuer default ratings cut to ‘A+’ from ’AA-,’ while Spain had the same set of ratings cut to ‘AA-’ from ‘AA+.’ The outlook for both is negative.

Government data showed payrolls climbed by 103,000 workers, topping the median forecast in a Bloomberg News survey of economists for a rise of 60,000. The data followed reports earlier this week showing faster-than-estimated growth in manufacturing, construction and service industries, improving retail sales and signs that European leaders were stepping up efforts to tame the region’s sovereign debt crisis.

The 30-year Treasury bond’s yield climbed nine basis points to 3.04 percent and is up 12 points the this week. Two-year yields climbed one basis point to 0.28 percent, up three points on the week.

‘Positive Surprise’

“We saw a positive surprise in payrolls and the market has to respect that and push yields higher on the optimism, but no one is too excited about the data given the uncertainty in Europe,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas SA, one of the 20 primary dealers obliged to participate in U.S. debt offerings. “The uncertainty isn’t going away anytime soon.”

The S&P 500 rebounded more than 8 percent from a one-year intraday low on Oct. 4. The benchmark index sank 14 percent in the third quarter and this week came within 1 percent of extending its decline from its April peak to 20 percent on a closing basis, the common definition of a bear market. The slump pushed the index to 12 times reported earnings, the cheapest valuation level since 2009, according to data compiled by Bloomberg.

The S&P GSCI commodities index is poised to snap a streak of four straight weekly declines.

Jobs Revision

The government jobs data also showed hours and earnings both increased and revisions to previous reports added a total of 99,000 jobs to payrolls in July and August. The jobs report last month showed no gain in non-farm payrolls for August.

“This is yet another data point suggesting that the U.S. is not moving toward recession any time soon,” Richard Skaggs, senior equity strategist at Loomis Sayles & Co. in Boston, which manages more than $150 billion, said in a telephone interview. The revisions to prior months “were significant,” he said. “Last month, the unchanged number really sent stocks for a loop.”

The rate by which data on the economy has been trailing forecasts has been decreasing since June, according to the Citigroup Economic Surprise Index. The U.S. gauge, which fell below zero on April 29 as the S&P 500 was peaking, has climbed from a low of minus-117.2 on June 3 to minus-14.7.

Earnings Season

Alcoa Inc., the largest U.S. aluminum producer, will mark the unofficial start of the earnings-reporting season when it reports results on Oct. 11. Third-quarter profits for S&P 500 companies are projected to have grown 13 percent, according to analyst forecast compiled by Bloomberg, down from an estimate of 17 percent when the index traded at a three-year high at the end of April.

The Stoxx Europe 600 Index rose 0.8 percent to extend its weekly gain to 2.6 percent. Gauges of energy producers and auto companies climbed more than 1.7 percent to lead gains among 19 industries.

European markets closed before Fitch downgraded Italy and Spain.

The yield on 10-year Italian bonds rose seven basis points to 5.49 percent. The nation said it plans to sell securities maturing between 2016 and 2025 on Oct. 13. Spanish yields fell two points to 4.97 percent.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet in Berlin on Oct. 9 to discuss Greece’s debt problems as the nation edges closer to default. It will be their eighth one-on-one summit in 20 months.

The BSE India Sensitive Index, or Sensex, added 2.8 percent after Citigroup raised its rating on the nation to “neutral.” The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong advanced 3.7 percent. Benchmark indexes gained more than 2.6 percent in Russia and South Korea.

(sourced Bloomberg)

S&P cuts Italy ratings one notch, outlook negative

Tue Sep 20,2011

REUTERS - Standard and Poor's downgraded its unsolicited ratings on Italy by one notch to A/A-1 and kept its outlook on negative, a major surprise that threatens to add to concerns of contagion in the debt-stressed euro zone.

The single currency skidded over half a cent to $1.3606 after S&P said the cut reflected its view of Italy's weakening economic growth prospects.

Italy's fragile governing coalition and policy differences within parliament will likely limit the government's ability to respond decisively to the challenging domestic and external macroeconomic environment, the agency said.

"In our opinion, the measures included in and the implementation timeline of Italy's National Reform Plan will likely do little to boost Italy's economic performance, particularly against the backdrop of tightening financial conditions and the government's fiscal austerity program," said S&P.

The move from S&P came as a surprise as the market had thought Moody's was more likely to downgrade Italy first. Moody's last week said it would take another month to decide on its action.

The downgrade came as Greece struggles to meet demands from lenders for yet more austerity measures.

"It's just more of the same negative news," said Stephen Roberts, a senior economist at Nomura in Sydney.

"It only adds to the contagion risk over Greece and has encouraged the flight to safety in markets here," he added, pointing to a sharp fall in the Australian dollar on the news.

S&P 500 futures also dropped 0.7 percent and early hopes for a bounce in Asian shares on Tuesday looked to be still-born now.

European stocks had already slid on Monday, while yields on Italian and Spanish bonds rose sharply on fears of a Greek default, compounded by the failure of EU finance ministers to agree new steps to resolve Europe's debt crisis at weekend talks.

International lenders told Greece on Monday it must shrink its public sector and improve tax collection to avoid running out of money within weeks as investors spooked by political setbacks in Europe dumped risky euro zone assets.

Finance Minister Evangelos Venizelos held what Greece termed "productive and substantive" talks by telephone with senior officials of the European Union and International Monetary Fund after promising as much austerity as necessary to win a vital next instalment of aid.

Before the talks, which will resume on Tuesday evening after meetings of experts through the day, the IMF representative in Greece spelled out steps Athens must take to secure the 8 billion euro loan payment it needs to pay salaries and pensions next month.

Moody's cuts Japan rating, blames politics

Wed Aug 24, 2011
By Rie Ishiguro and Kaori Kaneko

TOKYO (Reuters) - Moody's Investors Service cut its rating on Japan's government debt by one notch to Aa3 on Wednesday, blaming a build-up of debt since the 2009 global recession and revolving-door political leadership that has hampered effective economic strategies.

Japan is preparing to elect its sixth leader in five years to replace unpopular Prime Minister Naoto Kan, under fire for his handling of the response to a March tsunami and subsequent radiation crisis at a crippled nuclear power plant.

The downgrade, while not out of the blue, served as another reminder of the debt burdens that nearly all of the world's major advanced economies shoulder, even as policymakers struggle to agree on ways to stimulate sub-par growth.

The United States lost its top-tier AAA rating from Standard & Poor's earlier this month, and Moody's warned in June that it may downgrade Italy as Europe's sovereign debt crisis festers.

Moody's new rating on Japan's debt is three notches below coveted AAA status, which Tokyo lost in 1998, but is still classified as high grade.

"Over the past five years, frequent changes in (Japan's) administrations have prevented the government from implementing long-term economic and fiscal strategies into effective and durable policies," Moody's said.

Moody's had warned in May that it might downgrade Japan's Aa2 rating due to heightened concerns about faltering growth prospects and a weak policy response to rein in bulging public debt, already twice the size of its $5 trillion economy.

Finance Minister Yoshihiko Noda, a fiscal conservative who has joined the race to succeed Kan, refrained from direct comment on Moody's downgrade. But he said: "Recent JGB auctions have met favourable demand and I don't see any change in market confidence in JGBs."

Analysts said the downgrade was hardly a surprise and the bond market reaction was muted.

"I had expected that the rating cut would have taken place after the election for the leadership of the (ruling) Democratic Party of Japan. But looking at the candidates, there seems to be nobody among them who would seriously tackle financial reform, so that's why Moody's went ahead and cut the rating," said Yuuki Sakurai, CEO and president of Fukoku Capital Management Inc.

Japan's next leader has a mountain of challenges ahead, from battling a soaring yen and forging a post-nuclear crisis energy policy to rebuilding from the tsunami and reining in public debt, while paying for reconstruction and the bulging costs of an ageing society.

The March disasters knocked the economy back into recession, and the strength of an expected rebound later this year is being clouded by weak domestic and global demand and recent gains in the yen, which threaten export competitiveness.

The government on Thursday unveiled steps to help firms cope with the yen's recent rise to record highs, including a $100 billion emergency credit facility aimed at making it easier for Japanese companies to buy foreign firms.

It also said it would ask major financial firms to report on dealers' currency positions for the period to the end of September, an apparent attempt to curb speculation.

"We are watching more carefully than before whether there is any speculative activity in the market. We won't exclude any options and will take decisive action when necessary," Noda told a news conference to announce the government measures.

Noda's chances of winning an Aug. 29 ruling party leadership race to pick Kan's successor dimmed this week after former Foreign Minister Seiji Maehara, who says beating deflation should be the top priority, reversed course and decided to run.

TAX HIKES AND TIMING

Most of the seven DPJ candidates eyeing the top job agree Japan must eventually raise its 5 percent sales tax to help fund the ballooning social welfare costs of its fast-ageing society. Only Noda, however, favours raising other taxes soon to fund reconstruction of Japan's tsunami-devastated northeast region, and even he has been toning down that stance lately.

"While most people in the market believe Maehara is very likely to win the election, a swift policy response on debt problems is unlikely to come out soon," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

Moody's said Japan needed to achieve 3 percent nominal growth in its gross domestic product to get the deficit under control and that a government plan to double the 5 percent sales tax by mid-decades was not bold enough.

"That's not enough. The government knows that as well," Tom Byrne, Moody's senior vice president and regional credit officer, told Reuters in a telephone interview.

The yen barely moved on the downgrade news, trading at around 76.7 to the dollar, while 10-year JGB futures were up 0.08 point at 142.63 at the end of the morning session after initially dipping into negative territory. Japanese stocks eased.

Moody's said the outlook for Japan's credit rating was now stable given the "undiminished home bias of Japanese investors and their preference for government bonds, which allows the government's fiscal deficits to be funded at the lowest nominal rates globally".

Byrne told Reuters that as a rule, the rating was not expected to change for 12 to 18 months.

The downgrade brings Moody's rating for Japan into line with rival agency Standard & Poor's, which cut Japan's rating in January to AA minus, the fourth-highest on its scale.

Moody's downgrade of Japan was its first since 2002, when it reduced the rating to A2, six notches from the top. It had upgraded Japan three times since then, with the last upgrade as recent as May 2009.

Persistent deflation and slow growth has shackled Japan's economy for years, reducing tax revenues available to the government, which has grown to rely on debt issuance to finance a large part of its budget.

S&P replaces president Deven Sharma after U.S. downgrade

Tue Aug 23, 2011
By Abhishek Takle and David Henry

BANGALORE/NEW YORK (Reuters) - Standard & Poor's said its president is stepping down, capping two weeks of controversy following the rating agency's downgrade of U.S. government debt on Aug. 5 that sparked a row with the Treasury.

S&P's parent McGraw-Hill Companies Inc, said on Tuesday Deven Sharma, who has served as S&P president since 2007, will be succeeded on Sept. 12 by Citibank(C.N) Chief Operating Officer Douglas Peterson.

"S&P will continue to produce ratings that are comparable, forward looking and transparent," McGraw-Hill said in a statement, adding that Sharma would work on a strategic portfolio review for the group until leaving at year-end.

The one-notch downgrade of U.S. government debt from AAA, which has not been matched by other major rating agencies, led to the biggest sell-off in global stock markets in three years and was criticised by Treasury officials and the administration of President Barack Obama over some of the methodology used by S&P.

The U.S. Justice Department is also investigating the ratings agency over its actions in assigning high ratings to complex mortgage securities leading up to the 2008-2009 financial crisis, a source familiar with the matter told Reuters last week.

S&P management has been criticized for its handling of the downgrade, although some advocates said it was acting responsibly in light of mounting debt and Washington's political inability to devise a long-term solution to the issue.

The Financial Times, which first reported Sharma's resignation, quoted unnamed sources on Tuesday saying his departure was unrelated to the downgrade or the Justice Department investigation.

PRESSURE TO SPIN OFF

Executives and directors of McGraw-Hill are under increasing pressure from shareholders to restructure the publishing company and possibly spin off the profitable S&P ratings business.

At a board meeting Monday, directors decided to replace Sharma and discussed an ongoing strategic review, the Financial Times said.

Directors and executives met with Jana Partners, a hedge fund, and the Ontario Teachers' Pension Fund to hear their arguments on why the publishing company should be broken up.

Those shareholders, who publicly called for a possible restructuring of McGraw-Hill on Aug. 1, own 5.6 percent of the company, a bigger stake than that of Chief Executive Harold "Terry" McGraw III, the great-grandson of the company's founder.

The activist shareholders urged directors Monday to unwind the conglomerate and to appoint "an independent oversight figure" to help Standard & Poor's navigate potential new regulation and public attention.

They argued that the recent controversy and political scrutiny highlight the drawbacks of having the S&P Ratings business coupled with McGraw-Hill's unrelated operations.

Standard & Poor's primary competitor, Moody's Investors Service, was separated about ten years ago from a mini-conglomerate then known as Dun & Bradstreet.

Some McGraw-Hill investors say the same should happen to S&P, in part because it would allow the agency to operate with virtually no debt and the freedom to issue critical ratings without undue fear of losing assignments from corporate issuers who pay for ratings.

CEO Terry McGraw, who turns 63 this month, has recently retreated from defending the company's diverse portfolio of brands and made several executive changes.

In July, he vowed to take "significant" actions to restructure the company, and sources say he may spin off or sell the company's textbook division.

In June, McGraw vowed to sell the company's handful of television stations, a move long promoted by many stock analysts. Last November, he replaced the head of the textbook division and in 2009, he agreed to sell BusinessWeek, a flagship media brand that was losing money.

Outgoing president Sharma joined McGraw-Hill in 2002 from consulting firm Booz Allen Hamilton, according to a statement from the publishing company.

He served as a vice president for global strategy for five years before joining S&P in 2006 as executive vice president for investment services and global sales. He was named president in 2007.

Life after the U.S. rating downgrade

Aug 12, 2011

By Nipun Mehta, Reuters

The unthinkable (for some) happened last week when the U.S. economy was downgraded from ‘AAA’ to ‘AA+’ with a negative outlook by Standard & Poor’s, one of the three large global rating agencies.

That led to an interesting situation where European economies like France and the UK are rated higher than the U.S., despite huge concerns about their financial condition. The event would undoubtedly have hurt the American ego, particularly since S&P announced that there could be more downgrades in the offing.

That this was an event that was imminent is accepted by many, but what is in store for the global economy and the Indian economy going forward?

There are several concerns that will keep haunting the central banks, the equity markets and governments around the world. These include:

- What if the UK and France are downgraded too?

- Will the other two rating agencies also downgrade U.S. in a few weeks’ time?

- How long before some U.S. companies and state and local governments get downgraded?

- Why is Spain still rated AA, Italy A+ and Ireland BBB+, when India and Brazil are rated ‘BBB-‘, by Standard & Poor’s? Will these European economies be downgraded soon?

- At ‘BBB-‘, why are India and Brazil rated the same as Portugal which has serious economic issues?

While a downgrade of one or more of the European economies is waiting to happen, one can rest assured that any such event can and will have a severe contagion effect on the other EU economies due to their linkage. Several European banks would undergo a rating change too under such circumstances.

The fact remains that even as far as the EU is concerned, the situation is delicate and we continue to tread on thin ice. Amidst all this is the bigger question of how long the U.S., being the world’s largest economy, will take to come out of the recessionary condition. One could just see another round of QE3 in the U.S. or a round of bank funding that we witnessed by France and the UK in 2008.

The other issue is of fiscal discipline by these countries which are facing a deep financial crisis. The easiest thing to reduce deficits is to raise taxes. What is always difficult for governments is to reduce expenditure as this could further lead to potentially slowing down the economy. It’s always a fine balance that needs to be created between inflationary pressures (that events like quantitative easing measures create) and recessionary conditions (which reduced expenditure can potentially create).

Given the global concerns, world equity and commodity markets will be affected even if they may not be directly impacted by the downgrade. Global currency and bond markets have already seen considerable volatile movements due to movement of large funds into and out of them.

While crude and commodity prices have eased post the event, how long they continue to fall, or sustain at lower levels will determine the inflation levels in several economies, as well as profitability of several companies in the manufacturing sector.

Select Asian economies on the other hand presently face the opposite task of inflationary pressures due to fast paced growth. It is due to this that equity markets in select Asian economies will possibly stabilise faster than the European or U.S. markets.

Risk aversion has ensured that funds move to safer asset classes like gold. One should not be surprised if part of these funds move to emerging economies once there are signs of stability in the global markets.

As far as Indian markets are concerned, once the global negative news subsides, it will be a choice between fundamentals, liquidity and valuations. While interest rate concerns, domestic scams and lack of decision making by the government continue to pull down sentiment, fundamentals remain strong and valuations are becoming increasingly attractive.

What is missing is the FII liquidity which can drive the markets upwards. In a situation where both the U.S. and EU face deep concerns over their fiscal policies, it may not be too long before emerging markets and India start attracting flows. We do need to closely watch policy action by the RBI.

Nibble into the equity markets if you have the risk taking ability to see some more volatility arising out of possible announcements from the U.S./ EU economies. If not, wait till there is greater stability in the global markets.

Euro coal prices soften on oil slide turmoil

Tuesday, 09 Aug 2011

Reuters reported that prompt physical coal prices fell recently in light trade with the market tracking a more than 3% slide in oil due to growing financial turmoil.

August is the annual low point for coal trading activity, because many participants are on holiday and end users are usually covered and do no need fresh cargoes until September or October.

A trader in Europe said "The whole thing has come off on other factors such as oil. It's certainly outside factors and not fundamental coal issues. It's fairly balanced."

As per report, oil dropped recently as worry about an economic slowdown spread after Standard & Poor cut the United States top tier credit rating late on Friday.

Fear gripped financial markets as the fallout from the historic downgrade of the US debt rating by S&P drowned out pledges of assistance from Europe's central bank and soothing words from the Group of Seven.

(Sourced from Reuters)

Iron Ore-Shanghai rebar hits 1-month low on U.S. downgrade

Mon Aug 8, 2011 | By Reuters

* Shanghai rebar hits lowest since July 4
* Concerns over U.S. woes drag down rebar, iron ore swaps
* Iron ore traders still accessing impact of global rout

SHANGHAI, Aug 8 (Reuters) - Shanghai rebar futures fell over 1 percent to a more than one-month low on Monday as investors fretted about Standard & Poor's downgrade of the United State's top-tier credit rating, raising worries about a recession in the world's largest economy.

The most active January rebar futures contract on the Shanghai Futures Exchange traded down to 4,770 yuan ($741) on Monday, its lowest since July 4, and down 1.28 percent by the midday break from the previous close.

"Investors were frightened by the downgrade of the U.S. credit rating compounded by the euro zone's growing sovereign debt crisis, reversing the upward trend which was supported by high cost," said Jay Zhang, analyst with Everbright Futures.

Standard & Poor's cut the U.S. long-term rating by one notch from AAA on Friday on concerns about the nation's budget deficit and climbing debit burden, raising market concerns that the U.S. would slip into recession. Meanwhile, worries about the euro zone debt crisis continued spreading, further dampening global markets

A sharp fall in rebar prices has continued to weigh on prices of iron ore, the key steelmaking raw material, diluting buying interest among steel mills and traders in China, the world's top steel producer and iron ore buyer.

"The market has started to soften, but we are still evaluating the impact from the global rout later today," said an iron ore trader in coastal Shandong province.

Chinese steelmakers started to slow purchase of iron ore late last week after miners pushed up prices to as high as $190 per tonne including freight amid continued tightness of iron ore in India, the world's No. 3 exporter.

The Singapore Exchange-cleared iron ore swaps <0#SGXIOS:> extended losses last Friday due to a fragile outlook for the global economy.

Offers for Indian ore fines with 63.5 percent iron content stood steady at around $186-188, including freight, unchanged from last Friday, trading sources said.

Stockpiles of imported iron ore at major Chinese ports rose by 1 percent to reach a record 95.35 million tonnes by last Friday, with ore from top supplier Australia up 5.4 percent, while that from India slipped 1.2 percent and from Brazil down 5.7 percent.

India's Supreme Court partially lifted an iron ore mining ban imposed on July 29 in a key region of Karnataka state by allowing NMDC to mine up to 1 million tonnes per month of the steel-making ingredient from Aug. 6

Key global iron ore indexes, tracking spot deals in China and used by global miners to determine contract prices, were mixed last Friday, but still clung to their highest since mid-May.

Metal Bulletin Iron Ore Index .IO62-CNO=MB lost $1.12 to $177.45 a tonne, slightly off a nearly 2-month high on Thursday, and Platts 62-percent index IODBZ00-PLT fell $1.5 t0 $178 a tonne.

The Steel Index's 62-percent iron ore reference price .IO62-CNI=SI extended gains to $178 a tonne, up 10 cents from Thursday, its highest since May 17. ($1 = 6.440 Chinese Yuan)

European shares fall after US downgrade

Mon Aug 8, 2011 7:17am GMT

LONDON (Reuters) - European shares slipped on Monday continuing their two-week slide after Standard & Poor cut the U.S. prized AAA credit rating by one notch, with miners the worst performers.

But losses could be limited after the Group of Seven leaders said they were "ready to take action to ensure stability and liquidity in financial markets" and the European Central Bank is to extend its bond buying support.

Commodity stocks whose performance is dependent on a strong economic outlook were among the worst performers, with the STOXX Europe 600 Basic Resources index down 1.7 percent.

"The downgrade to the U.S. is not great. These markets are going to remain unsettled for a while, we had recommended investors to raise cash in anticipation of this volatility," Mike Lenhoff, chief strategist at Brewin Dolphin Securities, said.

"If the ECB is going to provide some support to the bond markets that could create some sort of relief, buying opportunities could emerge in the sold off cyclical areas, but we are looking for more stability first."

By 0710 GMT, the pan-European FTSEurofirst 300 index of top shares was down 0.3 percent at 972.55 points, having hit their lowest level since late May 2010.

(sourced Thomson Reuters)

Oil falls more than $2 after US credit rating

Mon Aug 8, 2011

By Manash Goswami

SINGAPORE (Reuters) - Crude fell more than $2 a barrel on Monday after rating agency Standard & Poor's downgraded the United States' top-tier credit rating, raising concerns on the outlook for demand in the world's biggest oil consumer.

U.S. oil fell as low as $83.68 a barrel and traded at $84.22 by 0143 GMT, posting losses for five of the last six trading sessions. Brent slumped as much as $106.20, the lowest since the close of June 27, and traded at $106.54.

Markets are on edge following the U.S. credit downgrade to AA-plus and fears of Europe being unable to battle a debt crisis and prevent it from spreading. Aiming to calm investors, the Group of Seven major industrialised nations expressed trust in U.S. Treasuries and steps by the European Central Bank to halt financial market contagion.

"The cost of borrowing will increase in the U.S. as a result of the downgrade," said Ken Hasegawa, a commodity derivatives manager at Japan's Newedge brokerage. "The U.S. will have to tighten money flow to reduce its deficit. That may lower consumption by people in the country, reducing oil demand."

Investors on Monday struggled to ascertain the impact of the downgrade on the financial system, from mortgages to banks to markets that rely on U.S. Treasuries for collateral.

NO RATING IMPACT ON ASIAN SOVEREIGNS

Standard and Poor's sought to assure global investors that its downgrade of the U.S. would have no immediate impact on sovereign borrowers in the Asia-Pacific. But the agency said a fresh global financial crisis could hurt some Asian sovereigns harder this time around.

Asian shares fell and the dollar languished near a record low against the Swiss franc, while gold powered to another record just short of $1,690 an ounce.

U.S. stock index futures opened sharply lower in the first trading in domestic equities after the downgrade on concerns the move was likely to raise borrowing costs for the American government, companies and consumers.

Many downplayed the likelihood of the sort of financial contagion experienced when Lehman Brothers went under in September 2008. Few had expected it to have to file for bankruptcy, and few were prepared for the fallout.

"Yes, the downgrade has some implications, no doubt about it," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney. "But it is one ratings agency, and it is nothing too much. The fall in prices is a knee-jerk reaction by Asia."

Japan's Finance Minister Yoshihiko Noda said that market trust in the dollar and U.S. Treasuries has not wavered in the wake of the downgrade.

U.S. Treasury debt is as safe as it was before the downgrade and Congress' "damaging" debate over raising the country's debt limit, Treasury Secretary Timothy Geithner said on Sunday. He also criticised the move.

U.S. 30-year long bond futures fell moderately at the start of electronic trade in Asia. The 30-year T-bond future fell 12/32 in price to 131-26/32.

In Europe, political and financial leaders gave their first sign of readiness to battle the debt crisis with the European Central Bank signalling it would start buying Italian and Spanish debt.

On Friday, Brent settled at $109.37 a barrel, slumping 6.3 percent for the week. U.S. oil settled at $86.88 a barrel, having bounced off a previous session trough of $82.87, the lowest since November 26, 2010.

Brent would revisit the August 5 low of $104.30 per barrel, as a medium-term downtrend is expected to develop more, while a bearish target at $81.35 is unchanged for U.S. oil as a wave "3" of a downward wave "C" has not been completed, according to Reuters technical analyst Wang Tao. (sourced Thomson Reuters)

Moody's warns Greek default almost certain

Mon Jul 25, 2011
By Ingrid Melander and George Georgiopoulos

ATHENS (Reuters) - Moody's cut Greece's credit rating further into junk territory on Monday and said it was almost certain to slap a default tag on its debt as a result of a new EU rescue package.

It was the second rating agency to warn of a default after euro zone leaders and banks agreed last week that the private sector would shoulder part of the burden of a rescue deal that offers Greece more cash and easier loan terms to keep it afloat and avoid further contagion.

"The announced EU programme along with the Institute of International Finance's statement implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100 percent," Moody's said in a statement. Bank lobby IIF, which led private sector negotiations, aims to attract 90 percent investor participation in the bond exchange plan which comes on top of the EU's new 109 billion euro bailout.

Moody's cut Greece's rating by three notches to Ca, just one notch above default, to reflect the expected loss implied by the proposed debt exchanges.

Greece now has the lowest rating of any country in the world covered by Moody's, which, like Fitch last week, said it would review Greece's rating after the debt swap is completed.

"Once the distressed exchange has been completed, Moody's will reassess Greece's rating to ensure that it reflects the risk associated with the country's new credit profile, including the potential for further debt restructurings," it said.

However, whereas Fitch pledged to quickly give Greece a higher, "low speculative grade" after its bonds had been exchanged, Moody's said it could not forecast when the rating would change or how.

"It all depends how quickly the debt exchange takes place," said Alastair Wilson, Moody's Managing Director for EMEA Credit Policy. "Once we have greater visibility over that, we will reassess the credit profile quite quickly. Whether the rating will change, that's a different question," he told Reuters.

A senior EU official said on Saturday that the aim was to start a voluntary swap of privately-held Greek bonds in late August and conclude it in early September.

Greek bank shares and the broader stock market were unfazed by Moody's action. Analysts said the downgrade and the default warning were priced in and less worrying following assurances provided by the EU deal.

"The EU Council last week effectively secured Greek banks' continued access to ECB liquidity, even in the case that PSI (private sector involvement) triggers a selective default," said Platon Monokroussos, an economist at EFG Eurobank.

The government has repeatedly criticised ratings firms for their downgrades and its spokesman threatened on Monday to end its subscriptions to these agencies as the new rescue package means Greece will not issue new bonds for years.

"All governments pay a subscription to these agencies. We, I think, do not need the reviews anymore. They have no practical value," Elias Mosialos told Radio 9. "Perhaps the finance ministry should end its subscription."

CONTAGION CONTAINED ... FOR NOW

Moody's said it would take into account the possibility of a second default while reassessing Greece's rating.

"Our experience is that relatively small restructurings have often been followed by deeper defaults," Wilson said, adding that he could not say if this would be the case for Greece.

The rescue package for Greece benefits other euro zone countries by containing near-term contagion risks but it was not necessarily positive in the longer run as it set a precedent for private sector involvement in rescue deals, Moody's said.

"The support package sets a precedent for future restructurings should the finances of another euro area sovereign become as problematic as those of Greece. The impact of Thursday's announcement for creditors of Ireland and Portugal is therefore likely to be credit-neutral," it said.

The cost of insuring most peripheral euro zone government debt against default rose on Monday on market doubts that the fresh aid package for Greece agreed last week will protect bigger economies from contagion.

Standard & Poor's and Fitch rate Greece CCC, broadly in line with Moody's rating. S&P has not yet said how the EU summit deal will affect Greece's rating.

(sourced Reuters)

Miners see record profits as glut of ships reduces rates - Report

Wednesday, 20 Jul 2011 |By Bloomberg

Bloomberg reported that the largest glut of ships in history means the cheapest freight rates relative to iron ore prices in at least a decade, helping Rio Tinto Group and BHP Billiton Limited to generate record profit.

According to data compiled by Bloomberg, the cost of transporting iron ore to China from Brazil, the biggest route, is now equal to 10% of the value of the commodity used by steelmakers, compared with 64% in 2003.

Mr Sverre Bjorn Svenning director of Fearnley Consultants in Oslo who correctly predicted a slump in freight rates in March said that proportion probably won't rise much until at least 2013.

Mr John Banaszkiewicz, the London based founder of Freight Investor Services Limited, said that "It's a dream for an iron-ore mining company: the highest commodity prices and the lowest freight prices. Freight used to be a critical part of the delivered cost of iron ore and now it’s almost nothing."

Mr Johnson Imode, an analyst at Standard & Poor’s Equity Research in London, said that lower freight costs increase the mining companies’ share of the iron ore sale price. The effect of freight on their profit is hard to gauge because they don’t disclose contract terms.

According to the London based Baltic Exchange, capsizes cost USD 11,314 a day to charter in the single voyage market, compared with a peak of about USD 234,000 in June 2008. Traders of freight derivatives anticipate costs no higher than USD 18,075 through 2016. Rates are volatile, rising or falling 18% or more in all except one of the last 12 months.

The United Nations Conference on Trade and Development estimates that shipping accounts for about 80% of world trade in goods. Global demand for iron ore will rise 7.3% to 1.84 billion tonnes in 2011, while supply will advance 2.5% to 1.81 billion tonnes. Iron ore fines, a grade of the material, will average USD 251.90 a tonne in 2011, 41% more than in 2010. It anticipates USD 243.50 for 2012 and USD 230.70 in 2013.

Ratings agencies rattle cages in U.S., Europe

By Walter Brandimarte

NEW YORK (Reuters) - The credit ratings agencies are again angering governments, but this time they are taking on the big fish of the world economy.

From Washington to Brussels, Moody's, Standard & Poor's and Fitch have added to the intense pressure on governments trying to deal with crushing sovereign debt.

Their warnings about the precarious finances of the world's top economies have also roiled investors more accustomed to seeing emerging market countries take the brunt of criticism.

Tension hit new highs on both sides of the Atlantic last week as Moody's and Standard & Poor's threatened to downgrade the United States' prized "triple-A" rating.

A few days earlier, Moody's slashed ratings in Ireland and Portugal to "junk" status, triggering an outcry from European officials.

"These opinions, they continue to give them in such a way that it worsens the crisis," Ewald Nowotny, a member of the European Central governing council, said on Tuesday, referring to the agencies. He said markets could live without them.

Now that the agencies are focusing their fire on the rich world, U.S. and European officials -- long proponents of seeing indebted nations "take their medicine" -- are crying foul.

Their complaints carry a strong sense of deja-vu.

In 1998, when Moody's pushed Brazil deeper into "junk" rating territory, the country's finance ministry called the decision a "mistake" that showed the agency needed to invest more in sovereign risk analysis.

In a sign of the turnaround of the fortunes of many emerging economies, 11 years later in its New York headquarters Moody's received a much friendlier Brazilian finance minister, Guido Mantega, to hand him Brazil's much-awaited "investment-grade" status.

The question now is whether the agencies will be able to withstand much stronger political pressures while the debt crisis rages in developed countries.

In Europe and the United States, policymakers have already promised tougher regulations for the agencies after they failed to spot the housing bubble in the middle of the last decade and stand accused of contributing to it by giving generous ratings to subprime mortgage bonds.

Rating agencies came under fire from holders of subprime-related securities because raters are paid by the firms issuing the securities. Investors argued that kind of "economic incentive" blurred the analysis.

Sovereign nations, by contrast, do not shell out any money for their ratings.

That has not lessened the political anger. On Wednesday, U.S. Congressman Dennis Kucinich said: "No nation, agency or organization has the authority to dictate terms to the United States government. Moody's and its compatriot S&P were a direct cause of the near collapse of the economy of the United States."

EUROPEAN RATING AGENCY

In Europe, where the agencies poured cold water on a plan for Greece to extend debt maturities and avoid a default, sentiment is even worse. European Commission President Jose Manuel Barroso accused them of having an anti-European bias.

Barroso and other policymakers want the creation of an European rating agency which, they argue, would be better equipped to analyse euro zone issues. That argument overlooks the fact that Fitch is majority-owned by a French company.

The intensity of Europe's reaction to the latest sovereign downgrades is proportional to the power that ratings agencies retain over financial markets -- a clout that even the ratings agencies suggest is exaggerated.

In a recent special report about proposed regulation changes, Moody's said the agencies should not be seen as "gatekeepers in the financial markets" and their ratings should not be used as substitutes for disclosure by issuers.

WRONG TIMING

Some say policy makers may have a point when they criticize the timing of the downgrades by ratings agencies.

Their failure to anticipate the severe deterioration of sovereign credit was an issue in emerging market debt crises in the past, said Claudio Loser, a former Western hemisphere director for the International Monetary Fund.

"My experience with the rating agencies in Latin America during the debt crisis of the 1980s and 1990s is that they were a destabilizing factor," said Loser, now president of the Centennial Latin America consulting firm.

"They did not warn the markets when they should have and they did actually create more noise when it was not the appropriate thing to do."

Loser believes policymakers will force the agencies to "adjust significantly," and that they will emerge stronger from this crisis.

Int'l rating body upgrades Indonesia's rank

Friday, April08, 2011 15:21:59

JAKARTA, April 8 (Xinhua) - International rating agency Standard & Poor's Ratings (S&P) upgraded Indonesia's long term foreign debt and sovereign credit rank from BB to BB+ with positive outlook, detikcom online news reported on Friday.

S&P also maintained Indonesia's short term debt rank at "B".

The upgrade is based on improving the government's financial balance and external liquidity as well as strong economic performance and prudent fiscal management.

It said that the upgrade could sustain if inflation pressure could be curbed, debt position reduced and debt balance improved, or if fiscal and external vulnerability are reduced though reforms.

"Indonesia's positive outlook reflects some kind of upgrade if inflation could be tamed in line with further improved financial balance that are combined with successful implementation of the government's policy on fiscal, administration and structural reforms agenda," said S&P credit analyst Agost Bernard. By English.news.cn

Greek PM renews attack on credit rating agencies over new downgrade of Greece by Standard and Poor's

Wed March30, 2011 05:42:42
Greek Prime Minister George Papandreou (L) attends a press conference for the meeting of the Progressive Alliance of Socialists and Democrats of the European Parliament in Athens, capital of Greece, March 29, 2011. Papandreou renewed his attack on international credit rating agencies Tuesday after the new downgrade of Greece's credit rating by Standard and Poor's. (Xinhua/Marios Lolos)

ATHENS, March 29 (Xinhua)-- Greek Prime Minister George Papandreou renewed his attack on international credit rating agencies Tuesday after the new downgrade of Greece's credit rating by Standard and Poor's.

The agency slashed once again the country's rating by two notches to BB- from the previous BB+ Tuesday, arguing that Greece will most probably need more foreign aid eventually to overcome an acute debt crisis which led it to the brink of default last spring.

"The decision on Standard and Poor's does not reflect the efforts we make to put our finances in order," said Papandreou during a press conference held in Athens for the meeting of the Progressive Alliance of Socialists and Democrats of the European Parliament.

With the group's head Martin Schulz by his side, the Greek Premier and Socialist International leader repeated strong criticism against rating agencies, "which went from the bubble of euphoria to the panic of risk."

International rating agencies reflect the systemic flaws of the European common currency, Papandreou and Schulz acknowledged. But they also make markets panic without proper justification sometimes, the Greek PM stressed.

"Greece is downgraded not because of its policies, but because EU reaction to the crisis is still considered not bold enough, too little too late," added the Greek leader, noting that a wide gap between markets and politics remains, making people wonder over who governs our world.

Reminding that the same agencies rated positively toxic bonds which created the current international economic crisis, Papandreou raised again the issue of lack of accountability of these agencies and the need that banks bear their burden in the crisis and contribute to efforts to restore growth in Greece, Europe and across the globe.

"Greece aims to fully return to the international markets as early as possible, so we will not have to resort to the new permanent European Stability Mechanism after 2013," he said.

Since last May Greece has not borrowed from international markets on prohibitively high interest rates, but been depending on a multi-billion euro aid package from the European Union and the International Monetary Fund to exit the crisis by 2013 through harsh austerity measures and structural reforms.

Despite progress, skepticism remains amongst foreign analysts in ratings agencies whether Greece will overcome the crisis without further support.

Expressing strong solidarity to Greece over the Herculean task under way, German Socialist Schulz criticized German Chancellor Angela Merkel's stance over the Greek crisis, stressing that "no country within the EU can teach lessons to others and aim development on its own."

Schulz voiced confidence that Greece will exit the crisis, based on the result of the latest EU summit in Brussels last week, "which revealed that more and more conservatives across EU realize that the only way out of the crisis is unity and solidarity."
Editor: Mu Xuequan

Moody's lowers Spain's debt qualification

Thu, Mar10, 2011

MADRID, March 10 (Xinhua) -- Debt qualification agency Moody's on Thursday lowered its qualification of Spain's sovereign debt by one mark from Aa1 down to Aa2. The agency refused to rule out lowering its qualification of the debt further in the future.

Moody's explains its decision by saying that the cost of restructuring the Spanish financial system is higher than expected and that it will provoke an increase in the country's deficit.

While the Spanish government calculates its reforms need an injection of 20,000 million euros, Moody's believes it will be more than twice that figure and that the amount needed could even rise as high as 110,000 million euros.

These needs place the Spanish economy at risk from any turbulence in the financial markets.

The agency is also worried about the lack of government control over the budgets of Spain's autonomous communities and highlights that the country has only "moderate" perspectives of short term economic growth.

Meanwhile the Spanish government's reform of labor laws and pensions, which will see the retirement age raised to 67 by 2029, have been praised by Moody's and are given as reasons why Spain's qualification has not been lowered further.

Moody's also believes that Spain can sustain its current debt and doesn't believe that the country will need any help from rescue funds.

This is the second time that Moody's has lowered its qualification of Spain's sovereign debt in recent months. The first time it did so was in September 2010, when it reduced it from the highest possible rank: AAA to Aa1. The agency then warned of a further reduction in December of last year.

Two other debt qualification agencies, Standard and Poor's and Fitch, also withdrew their maximum qualification for Spain's debt in April and May last year, respectively.

Editor: Mo Hong'e