Thread: Moody's downgrades Portuguese debt to junk

Portugal's debt has been relegated to junk status after Moody's Investor Services warned that the country's prospects had been damaged by the international efforts to rescue Greece.

Moody's cut Portugal's credit rating by four notches to Ba2 Photo: The Telegraph

By Louise Armitstead
11:15PM BST 05 Jul 2011

The credit rating agency singled out the insistence of European leaders on private bondholders taking part in the Greek bail-out as a reason for the downgrade.

Moody's slashed Portugal's debt four notches to Ba2, saying that the country was likely to need a second bail-out before it could raise money in the capital markets.

Based on the conditions imposed on Greece, it was likely that "private sector participation would be required as a precondition" to a second cash injection, said Moody's.

The outlook was left at negative, signalling the possibility of more downgrades. The blow came after markets closed in Europe, but the euro fell against the dollar for the first time in seven days, finishing 0.9pc down on the day. In America markets also slid.

Moody's said that it also had "heightened concerns" that Portugal would not be able to achieve the deficit reduction targets that have been set by the European Union (EU) and International Monetary Fund. The targets in terms of "reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system" represent "formidable challenges", said Moody's.

Although the targets and structural challenges faced by Greece are far tougher – Greek debt is graded at Caa1 – the rating agency said that the increasingly hardline approach of European leaders "is an important factor for Portugal".

In a statement, Moody's said that "the EU's evolving approach to providing official support" to debt-laden countries "increases the economic risks facing current investors". It added that the change "may discourage new private sector lending going forward and reduce the likelihood that Portugal will soon be able to regain market access on sustainable terms".
Last week, Portugal – which received a €78bn (£70bn) bail-out in May – said its deficit fell to 8.7pc of GDP at the end of the first quarter, down from 9.2pc three months earlier. But it has committed to cutting the deficit to just 3pc by 2013.
International banks are meeting in Paris on Wednesday in an effort to salvage talks with European regulators over sharing the cost of bailing out Greece.
The lenders will debate a plan that will be more advantageous to Greece than the proposals put forward by French banks last week.
The French banks had offered to roll over 70pc of debt maturing by the end of 2014. The new deal could include rolling over more debt and lowering the interest rates even further.
The meeting, which will be chaired by the Institute of International Finance, follows Standard & Poor's verdict that the French plans would constitute a default.
European authorities are determined for Greece to avoid an official default but still want private creditors to share the costs of bailing out the shattered economy.
Greece has €82.6bn (£74.2bn) of government bonds maturing before the end of 2014. European banks hold about €25bn of this.
Meanwhile, Hans Hoogervorst, the new head of the International Accounting Standards Board, suggested allowing European banks to adopt a new accounting rule, called IFRS 9, to gain a "bit more leeway" on Greek debt. IFRS rules have attracted controversy in Britain for hiding risks and distorting accounts.

Moody's downgrades Portuguese debt to junk - Telegraph

Powerful people Moody's.

I think you can safely say they are not the authority people think they are.

The Washington Post had a major article on a threat by Moody's to downgrade U.S. debt. The article identifies Moody's as "one of the premier credit-rating agencies." It also would have been reasonable to identify Moody's as one of the credit rating agencies that helped to extend the housing bubble by routinely giving investment grade ratings to mortgage backed securities and collaterized debt obligations that were full of bad and even fraudulent mortgages.

Moody's also has managed to miss most of the major corporate bankruptcies in recent years, giving both Lehman's and Bear Stearns top investment grade ratings until just before their collapse. It's record on rating sovereign debt is also not very good. It downgraded Japan's debt almost a decade ago yet Japan can still borrow long-term at interest rates of less than 1.5 percent. This suggests that financial markets do not have much regard for Moody's ratings. This would have been useful information to provide readers.

Read more: Moody's, Which Gave Investment Grade Ratings to Hundreds of Billions of Toxic Mortgage Backed Securities

More interestingly, they are alone in this step, which suggests its probably politically or financially motivated.

Moody's executives should be in jail and the company should be shut down. But of course, when it's pointed out that they're a bunch of lying c**ts, they plead that they are only "advisory".

Starting in the early 1970s, the "Big Three" ratings agencies (S&P, Moody's, and Fitch) began to receive payment for their work by the securities issuers for whom they issue those ratings, which has led to charges that these ratings agencies can no longer always be impartial when issuing ratings for those securities issuers. Securities issuers have been accused of "shopping" for the best ratings from these three ratings agencies, in order to attract investors, until at least one of the agencies delivers favorable ratings. This arrangement has been cited as one of the primary causes of the subprime mortgage crisis (which began in 2007).

it's not entirely true, but crippen as usual, speak out of his ignorant ass

the credit rating for MBS tranches was not a free service, someone had to pay for it

the model used for the rating is often "controversial" though and some "oversight" could be blamed on the models being used at the time

there is no perfect system and it's beyond naive to think that AA is just an irreversible badge of quality or fixed approval of quality.

you can mostly blame the naivety of certain institutional investors or maybe simply their greed to get more with less

Twas all a quote!!

From WP:

"Congressional investigators have revealed that some employees of the credit-rating firms knew they were giving high grades to overly risky securities. Regulators also have warned that the firms may have been more interested in generating fees from banking clients who paid for securities to be rated than in offering an unbiased assessment"

The SEC couldn't have the fucking bastards, because most of their dirty lying took place in Europe.

THe same company who issued AAA for the "toxic" debts.

Europe declares war on rating agencies

A chorus of policy-makers from Europe and across the world have denounced Moody's drastic downgrade of Portuguese debt as an act of financial vandalism, accusing the "Anglo-Saxon" rating agencies of driving states into bankruptcy and destabilising the global system.


Politicians have denounced Moody's drastic downgrade of Portuguese debt as an act of financial vandalism. Photo: BLOOMBERG

By Ambrose Evans-Pritchard, International Business Editor
9:18PM BST 06 Jul 2011
425 Comments


Wolfgang Schauble, German finance minister, said there was no justification for the four-notch downgrade or for warnings that Portugal might need a second bail-out. "We must break the oligopoly of the rating agencies," he said.

Heiner Flassbeck, director of the UN Office for World Trade and Development, said the agencies should be "dissolved" before they can do any more damage, or at least banned from rating countries.

Moody's downgrade late on Tuesday set off immediate contagion to Ireland, with dangerous ripple effects across southern Europe. Yields on Irish two-year bonds surged above 15pc of the first time. Italian borrowing costs reached levels not seen since the aftermath of the Lehman crisis in late 2008. Yields on Spain's 10-year bonds jumped 12 basis points to 5.59pc.

The renewed jitters chilled the torrid summer rally on global bourses. The FTSE 100 slipped 21 points to 6,002, while Milan fell 2.4pc. A quarter-point rate rise in China added to the mood of caution, capping commodity gains.

David Owen, of Jefferies Fixed Income, said concerns are growing the crisis could spread to bigger economies as growth falters across Europe's southern arc. "The risk of cross-over into Spain and Italy is very serious. The fear is what will happen if Spanish 10-year yields rise above 5.7pc and stay there for a few weeks. Spain also has €2.5 trillion of private sector debt, and a rise in rates risks pushing the country into recession."

Portugal's new premier, Pedro Passos Coelho, said Moody's downgrade was a "punch in the stomach" at a time when the new government has done everything demanded by the EU/IMF inspectors.

The rating said it had little choice once EU leaders began to insist on "burden sharing" for private holders of Greek debt, raising the spectre of default. It is almost certain any Greek formula will be extended to Portugal.
The European Central Bank has cautioned EU leaders from taking a hard line on private creditors, warning it would destroy confidence among the very investors needed to fund Europe's deficits. The net effect would be destructive. This is exactly what has occurred.
The Institute of International Finance (IIF) representing 400 global banks has floated the idea of a bond "buy-back" on a voluntary basis that would help Greece lower its debt burden, but this has not been enough to satisfy German demands for more creditor pain.
The IFF said yesterday it was studying a "menu of options to help Greece", including variants of a complex French plan for debt rollovers. The original plan was widely deemed too harsh on Greece.
Jose Manuel Barroso, the European Commission president, questioned Moody's motives and said it had fanned the flames of "speculation" with an unwarranted downgrade. "It seems strange there is not a single rating agency coming from Europe. It shows there may be some bias in the markets when it comes to the evaluation of the specific issues of Europe," he said, seemingly unaware that Fitch Ratings is French-owned.
The Commission is drawing up laws to clamp down on the agencies. These will now be tougher. "Developments since the sovereign debt crisis show we need to take a further look at reinforcing our rules," said Mr Barroso.

Europe declares war on rating agencies - Telegraph

I think they should send in Nato to bomb Moody's.

Originally Posted by harrybarracuda

because most of their dirty lying took place in Europe

Most ratings companies, who calculate publish the generally/globally accepted ratings, are in the US and are subject to US laws and oversight by the federal agencies.