Wednesday, 19 October 2011

Spain Dinged; Is France Next?

Spain’s credit rating downgraded again:
Spain’s credit rating was cut for the third time since June 2010 by Moody’s Investors Service as Europe’s sovereign-debt crisis threatens to engulf the nation. …

Moody’s reduced its ranking to its fifth-highest investment grade, cutting it by two levels to A1 from Aa2, with the outlook remaining negative, the rating company said in a statement today. Standard & Poor’s downgraded Spain on Oct. 14 to its fourth-highest investment grade after Fitch Ratings cut it to the same level on Oct. 7, the day it also downgraded Italy.
Spain’s unemployment rate was 21.2% in July. It might have something to do with the fact that housing prices are falling dramatically, 5.5% in July, and down 18% since 2008.

We have been saying that Greece is just ONE problem that the eurzone is facing. Spain and Italy are much larger economies and thus, much more troublesome.

And no one has been talking about France, the EU’s second largest economy, which just got a warning from Moody’s:
In its annual credit report on France, Moody’s Investors Service said the country may face a number of problems in coming months, such as the possible need to support other European nations or its own banking system, and that this was “exerting pressure on the stable outlook of the government’s [triple-A] debt rating.”

“The situation is fluid as we have a lot of additional risks that we did not have in the past, which means that in addition to the risk profile of the country we have developments within the euro zone,” said Alexander Kockerbeck, Moody’s senior credit officer and lead analyst for France. …

The French government unveiled an austerity package at the end of August, after growth stalled in the second quarter and jitters about France’s rating and the exposure of French banks to Greece and other troubled euro-zone countries fueled financial-market turmoil. The government cut its growth forecast at the time for this year and next to 1.75%. …

A downgrade of France would be devastating to the European Financial Stability Facility, the €440 billion ($604 billion) euro-zone bailout fund that is central to the bloc’s crisis-fighting efforts. Without France at the highest credit rating, the EFSF—as it is currently structured—could lose more than a third of its firepower. …

The impact would be largest among French lenders. At the end of last year, France’s four biggest banks—BNP Paribas SA, Société Générale SA, Crédit Agricole SA and Groupe BPCE SA—were sitting on a total of more than €100 billion of French sovereign debt, according to disclosures included in recent European banking “stress tests.” That is more than the four banks’ combined holdings of sovereign debt issued by Greece, Ireland, Italy, Portugal and Spain.

Other European banks also stand to suffer. In the U.K., Royal Bank of Scotland GroupPLC was holding €15.1 billion of French sovereign debt at the end of last year, whileHSBC Holdings PLC owned €11.2 billion, according to the stress-test data. Dutch lenders ING Groep NV and Rabobank Groep NV were exposed to a total of about €20 billion of the debt. Among the other significant holders of French sovereign debt is Germany’s Deutsche Bank AG, with nearly €5 billion.

by: Jeffrey Harding


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