Ratings agency Moody's downgrades Greece

March04, 2012

THE ratings agency Moody's has downgraded Greece to the lowest rating on its bond scale, following a deal with private investors that would see them ultimately lose 70 per cent of their holdings in Greek debt.

Moody's lowered Greece's sovereign rating to C from Ca late on Friday, arguing that the risk of default remains high even if a bond-swap deal with banks and other private investors, due to be completed this month, is successful.

It said it would "re-assess the credit risk profile" after Greece issues the new bonds.

Ratings agency Standard & Poor's took similar action on February 27.

The swap deal aims to cut 107 billion euros ($132.42 billion) from the country's debt, and would see private investors lose more than half the face value of their Greek bonds in exchange for new ones issued with more favourable repayment terms for the crisis-hit country.

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The exchange is an integral part of a second bailout package for Greece by other eurozone countries and the International Monetary Fund.

"Looking ahead, the EU program and proposed debt exchanges will reduce Greece's debt burden, but the risk of a default even after the debt exchange has been completed remains high," Moody's said.

"Moody's believes that Greece will still face medium-term solvency challenges: its stock of debt will still be well in excess of 100 per cent of gross domestic product for many years, the country is unlikely to be able to access the private market once the second assistance package runs out, and its planned fiscal and economic reforms will still face very significant implementation risks."

(sourced heraldsun.com.au)

Greece crisis: Greece exit from euro possible: France, Germany

Thu, 3 Nov, 2011

CANNES, France: European leaders' long-delayed admission that a break-up of their cherished common currency was a distinct possibility is overshadowing a two-day meeting of the world's largest and fastest growing economies beginning Thursday in this Cote d'Azur resort.

French President Nicolas Sarkozy will welcome Barack Obama of the US, Hu Jintao of China as well as the leaders of India, Brazil, Russia and the other members of the Group of 20 leading world economies in the city made famous by its annual film festival, but the event is far from the star turn the unpopular French leader had hoped to make six months before he faces a tough re-election vote.

Sarkozy and other top EU officials have long held that it was unthinkable for Greece to quit the euro because it would be, Sarkozy has said, ``a failure of Europe.''

But in a late-night press conference with German chancellor Angela Merkel Wednesday, the leaders signalled for the first time that Greece's exit from the euro was indeed possible.

Saying that Europe had ``done everything we could'' to keep Greece in the eurozone, Sarkozy said ``now it is up to them to decide if they want to stay in the euro with us.''

That shift was prompted by the shock decision of Greek Prime Minister George Papandreou to call a controversial referendum on his country's $130 billion European bailout plan in early December that caught European leaders completely off guard and scrambling for a response.

Papandreou's stunning announcement Monday that he would stage a referendum roiled world financial markets and threw into question an ambitious and costly European deal worked out in torturous negotiations a week ago.

Merkel confirmed that Greece did not inform the rest of the eurozone about the referendum. ``This did not happen in a coordinated fashion,'' she said.

She and Sarkozy summoned Papandreou to Cannes for talks Wednesday at which European leaders expressed their anger and pressed him to hold the referendum as soon as possible.

A ``no'' vote in the referendum would have enormous consequences not just for Greece but for the rest of Europe. It could lead to a disorderly Greek default, force Greece out of the 17-nation eurozone, topple many fragile European banks and send the global economy spinning back into recession.

Sarkozy's office announced yet another round of discussions about Greece for Thursday morning, with Germany, Italy, Spain, the IMF and the European Union. The talks will notably not include Greece itself.

Playing hardball, eurozone officials said an (euro) 8 billion ($11 billion) loan that Greece needs within weeks to avoid bankruptcy was conditional on Greece backing the latest rescue deal.

Sarkozy had hoped the meeting of leaders of the Group of 20 leading world economies, in Cannes on Thursday and Friday, would be Europe's chance to assure the rest of the world that a comprehensive plan to deal with its debt crisis had finally been reached after nearly two years of half-measures and procrastination.

Papandreou's gambit ended that lofty ambition and likely derailed Sarkozy's hopes of transforming a successful summit into a boost to his own re-election chances.

The G-20 leaders are slated to discuss food security, reform of the international monetary system and the volatility of commodity prices _ none of which is expected to get much attention or produce any solid conclusions at a summit so dominated by the European quagmire.

Anti-capitalist protesters have not been cowed by the European debt drama, and have staged demonstrations demanding a tax on all financial transactions, an end to tax havens and more aid for development.

(sourced EconomicTimes)

Moody's warns Belgium it risks credit rating cut

Sat Oct 8, 2011
By Daniel Bases and Philip Blenkinsop

NEW YORK/BRUSSELS (Reuters) - Moody's warned Belgium on Friday its credit rating could fall due to the burden of bailing out Dexia, the French-Belgian financial group, and the prospect of higher funding costs and weak economic growth.

The ratings agency said it had placed Belgium's Aa1 government bond ratings, one notch below the top Aaa status, on review for possible downgrade.

Moody's joins Standard & Poor's and Fitch, which have put their AA-plus ratings for Belgium's on negative outlook in the past year. Both said Belgium's lack of a fully fledged government undermined budget efforts in one of the euro zone's most indebted states.

Moody's cited three reasons for its review: materially increased funding costs for sovereigns and banks of countries with high debt, risks to growth of Belgium's open economy, and the weight on public finances of supporting the banking sector.

Dexia is on the verge of being split up by Belgium and France, though a Dexia board meeting to discuss the group's future has been pushed back to Sunday from Saturday. Dexia, whose shares fell 42 percent this week alone, has been struck by both its heavy exposure to Greece and troubles accessing wholesale funding.

Belgium is to pay for the likely nationalization of Dexia's Belgian banking business and its share of guarantees for a "bad bank" of Dexia assets, including euro zone periphery debt.

In the course of its near-term review of Belgium's rating, Moody's said it will include a close look at the potential for additional government measures to support "the banking system, or individual banks."

"In this regard, Moody's intends to assess the potential costs and additional contingent liabilities that the government may incur in supporting the Dexia Group," Moody's said.

Belgium has found itself in the middle ground between the core triple-A-rated euro zone countries and those at the periphery of the single currency bloc whose sovereign debt has sold off sharply since the middle of 2010.

It has been without a new government since a parliamentary election in June 2010, and its public sector debt totalled 96.6 percent of annual output last year, putting it behind only Greece and Italy in the euro zone and on a par with bailout recipient Ireland.

The spread between yields on Belgian 10-year bonds and those on equivalent German bunds, a sign of the perceived risk of Belgian debt, pushed to a three-week high of 222 basis points on Wednesday; the spread fell to just below 200 on Friday.

Belgium's caretaker government plans to restrict the 2011 budget deficit to 3.3 percent of gross domestic product, comfortably below the average for the euro zone, and the chances of a new government forming have increased markedly in recent weeks.

Belgium is planning to bring the deficit down to 2.8 percent in 2012.

Belgium's debt agency has also sold 35.4 billion euros ($47.8 billion) of bonds this year, just short of its 36 billion euro target for the whole year, with two further debt auctions scheduled.

Financial markets were already unsettled on Friday after Fitch Ratings cut Italy's sovereign credit rating by one notch and Spain's by two, citing a worsening of the euro zone debt crisis and a risk of fiscal slippage in both countries.

(sourced Reuters)

UK banks downgraded

Fri,October07, 2011

Leading British banks saw their credit rating slashed Friday amid fresh concerns over future bailouts and a stark warning from the governor of the Bank of England over the serious nature of the current global financial crisis.

In remarks reported Friday, Mervyn King, the central bank governor, warned that the world economy was slowing down “much faster” than expected just a few months ago.

“This is the most serious financial crisis we've seen at least since the 1930s, if not ever,” King said in a stark reference to the Great Depression.

His remarks followed the bank's decision Thursday to inject a further 75 billion pounds (116 billion dollars) into the economy, under the so-called scheme of Quantitative Easing (QE), which has now reached a total level of 275 billion pounds.

Rating agency Moody's said Friday that it had downgraded the credit rating of 12 banks and financial institutions in Britain, including partially state-owned Royal Bank of Scotland (RBS) and Lloyds.

Moody's said it now believed the British government was “less likely” to support some firms if they got into trouble. It emphasised that the downgrades did not “reflect a deterioration in the financial strength of the banking system.”

Other banks and firms included Santander, Nationwide and a number of smaller building societies.

The move triggered a fall in leading banking shares on the London Stock Exchange of more than 3 per cent.

It coincided with a report in the Financial Times Friday that RBS, the bank at the centre of the 2008 credit crunch, require additional recapitalization.

“Moody's has lowered the amount of support it incorporates into the institutions's ratings to reflect the overall weakening support environment,” said a statement released by the agency.

The downgrades include a two-notch cut for government-controlled RBS, and a one-notch cut for Lloyds TSB, a division of part-nationalized Lloyds Banking Group.

It categorized the two banks as having a “high likelihood of support.”

Spanish bank Santander had its British business downgraded by one notch, while Nationwide Building Society suffered a two-notch reduction.

George Osborne, the Chancellor of the Exchequer, said the rating agency's decision was in line with government policy to tackle the “too-big-to-fail problem.”

“Credit rating agencies and others will say, well actually these banks have got to show they can pay for their way in the future.”

But he dismissed suggestions that British banks were not sufficiently capitalized. “They are not experiencing the kinds of problems that some of the banks in the eurozone are experiencing at the moment,” said Osborne.

The Financial Times said Friday that the government was concerned that RBS “may need more government money” as part of a wider European effort to recapitalize the banking system - Sapa-dpa.

(sourced iol)

Greek collateral deals negative for rating - Moody's

Monday 22 August 2011

LONDON (Reuters) - A series of agreements forcing Greece to provide collateral in return for aid from foreign governments would be negative for the credit ratings of Greece and other troubled euro zone states, Moody's ratings agency said on Monday.

The agency also said such deals showed a lack of will in some euro zone countries that put more pressure on Germany and France to take stronger steps to support the euro project.

Austria, the Netherlands and Slovakia said on Friday they wanted collateral on their loans to Greece after Finland secured such a commitment, but Greek officials have said they were not talking to countries other than Finland about such a plan.

Moody's warned that the pursuit of such agreements could delay the next tranche of aid for Greece and threaten to cause a default on payments on its debt.

It said a proliferation of collateral agreements would also limit the availability of funds for future bailout programs, and that for these reasons it expected other euro area members ultimately to reject the Finland-Greece deal.

"The tentative Finnish-Greek collateral accord raises concerns about the willingness and ability of some euro area policymakers to implement measures that may prove necessary to preserve the stability of the European Monetary Union," it said.

"This reticence places greater pressure on Germany and France to stake out a strongly supportive stance towards the euro area, with more concrete and immediate effect than the proposals the two countries made last week, in order to shore up the single-currency project."

Eurozone leaders to begin crucial bail-out fund talks

Friday, 11 March 2011 15:03

he 17 leaders of eurozone nations will finally sit down together later to forge their long-touted plans to secure the future of their currency zone.They do so as government borrowing costs again hit the roof.Europe's lenders don't

like what they are hearing on the Brussels grapevine. The driving factor is the worry that the summit set up expressly to forge a firm and permanent agreement between the 17 will end with a fudge. That worry has send the interest rate on the Portuguese government's 10-year bonds back to record highs.

Italy, Spain and Greece's governments are also being hit hard by high borrowing rates.
This emergency summit has been long awaited, but the fear is that all the tricky stuff setting out the terms that will underpin any future bail-outs from 2013 will probably be put back once again to be discussed further at the next full EU summit on 24 and 25 March.
Squeezed session
The agenda arrangements themselves don't bode well.
The emergency euro summit has now been squeezed into a late afternoon session because of the Libyan emergency.

But it's not just a case of there being too little time to thrash out an agreement. Diplomats and other sources have been carefully managing down commentators' expectations.
What has been agreed in principle by finance ministers is that the new permanent bail-out fund, the European Stability Mechanism (ESM) - which is designed to replace the current European Financial Stability Facility (EFSF) - will hold a total of 500bn euros ($690bn; £430bn).
This will be topped up by the IMF, but the markets are concerned that it won't be enough should Portugal and Spain both need to be bailed out in the near future.
It is if, or when, the permanent bail-out fund starts to prove inadequate that the question of the future oversight of national economies becomes crucial.

Large members such as Germany and France may not be prepared to cough up further if they have little influence on the peripheral countries' spending habits.
So what is the mechanism for sorting all this out and how is it going down?
In two words: Not well.
Bankroller
Germany, the eurozone's biggest single rescue bankroller, got the ball rolling and managed to win French support for a pact to tighten rules on state spending all round the eurozone.
This plan was big on reforms to boost competitiveness with the best performer to be used as a benchmark for others to emulate.
Germany also wanted things like wages indexed to inflation, higher retirement ages and borrowing limits, something that would prove very hard to sell to voters.
The pact idea was taken up with enthusiasm by the European Commission - but watered down - especially when it came to the provisions relating to competition.
Now, the word is that even this version is causing disagreement.

In particular, there appears to be less emphasis on the degree of oversight member countries would allow each other. The problem here is that the more the plan moves away from Germany's original concept, the less likely Germany may be willing to sign off a deal.
Many other related issues are pressing in on the 17 eurozone members.
The Greek and Irish premiers will continue to press the rest to agree for easier terms on their bailout loans.

Fundamental flaw
The ECB President Jean-Claude Trichet will also be at the summit. He's been desperately trying to ease up on the central bank's expensive daily support buying of weak eurozone countries' debt - notably that of Portugal.
One partial solution could be to allow the future rescue fund to be more flexible, so it too could buy the likes of Portuguese bonds.
But Germany is implacably opposed to that idea.
The eurozone countries are, essentially, grappling here with the fundamental flaws in the Euro project itself.
Ultimately, only more economic discipline enforced from the centre can probably ease those troubled debt markets.
But Friday's summit may once again see the divergent interests of Germany, France and the poorer peripheral countries getting in the way of a breakthrough.

Source: BBC

Greek rating cut sparks fear in eurozone

Tue, Mar08, 2011
By Daily Mail

The debt crisis in the eurozone deepened yesterday after the rating on Greek debt was slashed by three notches.

Greece's credit score was cut from Ba1 to B1 - lower than Egypt and deeper into 'junk' status - by Moody's Investors Services.

It sent a ripple of anxiety through the financial markets and drove up borrowing costs in Europe's most risky economies, including Portugal.

The move also increased pressure on eurozone leaders to ease the repayment terms on emergency loans to Greece and Ireland.

It caused outrage in Athens where the Greek finance ministry called for tighter regulation of the rating agencies which failed miserably in the lead up to the financial crisis.

'Ultimately, Moody's downgrading of Greece's debts reveals more about the misaligned incentives and the lack of accountability of credit rating agencies than the genuine state or prospects of the Greek economy,' said a Greek finance ministry spokesman.

Having completely missed the build-up of risk that led to the global financial crisis in 2008, the rating agencies are now competing with each other to be the first to identify risks that will lead to the next crisis.'

Moody's said 'endemic tax evasion' and 'very ambitious' austerity measures meant Greece may struggle to repay its debts.

Sarah Carlson, Moody's senior analyst for Greece, said the risk of a default 'has materially increased'.

European leaders are at loggerheads over how to deal with the deepening crisis. EU monetary affairs commissioner Olli Rehn said: 'There is a case to reduce the interest rates paid by Greece and Ireland.' But Germany is opposed to such action.

Greek borrowing costs rose to 12.2% while yields on Portuguese bonds hit a record high of 7.5% and Irish debt was at 9.27% - similar to when it was rescued in November.