About one-third of U.S. local governments may have their credit rating raised by Standard & Poor’s (MHP) under a new methodology that the company is proposing to boost transparency and comparability.
The change would affect about 3,800 issuers, S&P said in a report today. About 65 percent of ratings may remain unchanged under the plan, while 3 percent could drop, typically by one level, S&P said.
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Showing posts with label credit ratings. Show all posts
Showing posts with label credit ratings. Show all posts
Tuesday, March 6, 2012
Wednesday, August 17, 2011
S&P’s $2 Trillion gaffe downgrading democracy and upgrading oligarchy
Eleven days after lowering the credit rating on the U.S. for the first time, Standard & Poor’s is suffering a downgrade among global investors as American bonds are proving world beaters -- undermining S&P’s mathematical assumptions -- and prompting disbelief among political scientists months after the company upgraded China because of the stability fostered by Communist Party rule.
China has been upgraded five times by S&P since 1999, Bloomberg data show. “We believe the Chinese authorities would respond to future threats to financial stability with timely measures, based on our observations over the past two years,” S&P said Dec. 16 in a statement.
Since S&P, the New York-based subsidiary of McGraw-Hill Cos., dropped the U.S. to AA+ from AAA on Aug. 5, the yield on the 10-year Treasury note, a benchmark for everything from home mortgages to car loans, has declined to as low as 2.03 percent from a high this year of 3.77 percent, with American debt on pace in August for the biggest monthly gain since December 2008. Interest rates on American bonds are lower today than on most of the countries with AAA ratings by S&P and the Treasury recently financed its outstanding debt at the lowest cost ever.
If anything, the decision from S&P, the largest ratings provider, resulted in an upgrade of U.S. securities as the American bond market outperformed world bond indexes during the period since the downgrade by S&P. Moody’s Investors Service and Fitch Ratings, the two next biggest rating companies, affirmed their AAA rankings on the U.S.
“The market has upgraded U.S. Treasuries,” said Andrew Johnson, the head of investment-grade fixed-income in Chicago at Neuberger Berman Fixed Income LLC, which oversees $85 billion. “Treasuries are still where people run to hide at least temporarily and that’s what we’ve seen over the past week.”
S&P made its decision, saying the U.S. government is becoming “less stable, less effective and less predictable,” even after acknowledging to the Treasury Department a $2 trillion error in its calculations that by its own methodology could have prevented any change from a AAA rating. Since S&P still insisted on downgrading the U.S. eight months after raising China’s rating, the company’s credibility has come under increasing scrutiny.
“It was really kind of bizarre that they’ve become political analysts,” said Thomas Mann, a congressional scholar at the Washington-based Brookings Institution. “I certainly never look to any of the three rating agencies as a source of expertise, knowledge or wisdom on the political system.”
When Warren Buffett was asked about S&P’s decision, the billionaire chairman of Berkshire Hathaway Inc. said the U.S. should have been upgraded to “quadruple-A.”
The cut left the U.S., whose currency accounts for about 60 percent of the world’s reserves, rated below at least 15 other nations and on the same level as Belgium, which hasn’t had a government since June 2010.
China has been upgraded five times by S&P since 1999, Bloomberg data show. “We believe the Chinese authorities would respond to future threats to financial stability with timely measures, based on our observations over the past two years,” S&P said Dec. 16 in a statement.
Since S&P, the New York-based subsidiary of McGraw-Hill Cos., dropped the U.S. to AA+ from AAA on Aug. 5, the yield on the 10-year Treasury note, a benchmark for everything from home mortgages to car loans, has declined to as low as 2.03 percent from a high this year of 3.77 percent, with American debt on pace in August for the biggest monthly gain since December 2008. Interest rates on American bonds are lower today than on most of the countries with AAA ratings by S&P and the Treasury recently financed its outstanding debt at the lowest cost ever.
If anything, the decision from S&P, the largest ratings provider, resulted in an upgrade of U.S. securities as the American bond market outperformed world bond indexes during the period since the downgrade by S&P. Moody’s Investors Service and Fitch Ratings, the two next biggest rating companies, affirmed their AAA rankings on the U.S.
“The market has upgraded U.S. Treasuries,” said Andrew Johnson, the head of investment-grade fixed-income in Chicago at Neuberger Berman Fixed Income LLC, which oversees $85 billion. “Treasuries are still where people run to hide at least temporarily and that’s what we’ve seen over the past week.”
S&P made its decision, saying the U.S. government is becoming “less stable, less effective and less predictable,” even after acknowledging to the Treasury Department a $2 trillion error in its calculations that by its own methodology could have prevented any change from a AAA rating. Since S&P still insisted on downgrading the U.S. eight months after raising China’s rating, the company’s credibility has come under increasing scrutiny.
“It was really kind of bizarre that they’ve become political analysts,” said Thomas Mann, a congressional scholar at the Washington-based Brookings Institution. “I certainly never look to any of the three rating agencies as a source of expertise, knowledge or wisdom on the political system.”
When Warren Buffett was asked about S&P’s decision, the billionaire chairman of Berkshire Hathaway Inc. said the U.S. should have been upgraded to “quadruple-A.”
The cut left the U.S., whose currency accounts for about 60 percent of the world’s reserves, rated below at least 15 other nations and on the same level as Belgium, which hasn’t had a government since June 2010.
Friday, August 12, 2011
A leak withiin a leak
The Securities and Exchange Commission is reviewing the method Standard & Poor’s used to cut the U.S.’s credit rating and whether the firm properly protected the confidential decision, according to a person with direct knowledge of the matter.
SEC inspectors are examining S&P’s policies for conducting such analyses and whether those procedures were followed when the New York-based firm downgraded the U.S.’s credit rating Aug. 5, said the person, who declined to be identified because the inquiry isn’t public.
S&P’s downgrade of the U.S. for the first time triggered an equity rout that wiped about $6.8 trillion from the value of global stocks from July 26 to Aug. 11. U.S. officials have said the downgrade was based on a flawed analysis which overstated U.S. debt by about $2 trillion, while S&P said the discrepancy doesn’t change projections that the U.S. debt-to-gross domestic product ratio will probably continue to rise in the next decade.
The rating company lowered the nation’s AAA grade to AA+ after warning on July 14 that it would reduce the ranking in the absence of a credible plan to decrease deficits even if the nation’s $14.3 trillion debt limit were lifted.
The decision was at odds with the other two main ratings companies, Moody’s Investors Service and Fitch Ratings, which both said the U.S. continues to deserve the top credit rating.
SEC inspectors are examining S&P’s policies for conducting such analyses and whether those procedures were followed when the New York-based firm downgraded the U.S.’s credit rating Aug. 5, said the person, who declined to be identified because the inquiry isn’t public.
S&P’s downgrade of the U.S. for the first time triggered an equity rout that wiped about $6.8 trillion from the value of global stocks from July 26 to Aug. 11. U.S. officials have said the downgrade was based on a flawed analysis which overstated U.S. debt by about $2 trillion, while S&P said the discrepancy doesn’t change projections that the U.S. debt-to-gross domestic product ratio will probably continue to rise in the next decade.
The rating company lowered the nation’s AAA grade to AA+ after warning on July 14 that it would reduce the ranking in the absence of a credible plan to decrease deficits even if the nation’s $14.3 trillion debt limit were lifted.
The decision was at odds with the other two main ratings companies, Moody’s Investors Service and Fitch Ratings, which both said the U.S. continues to deserve the top credit rating.
Tuesday, July 5, 2011
Fra il dire e il fare c'รจ di mezzo il mare...
What are the implications for the U.S given the weaknesses in Eurozone? Think about the market turbulence over Greece, Ireland and Portugal, and multiply.
All of this means the U.S. needs another round of stress tests. It would be wise for U.S. banks to raise enough capital now to withstand any trans- Atlantic storms, such as say hmmm Italy!
Italy has close to 2 trillion euros in debt outstanding. It’s inconceivable that Germany or the IMF could provide a rescue to protect its creditors. Such a package would have to involve loans and guarantees of at least 500 billion, and possibly 1 trillion, euros to impress the markets. This would be a significant fraction of Germany’s gross domestic product of about 2.5 trillion euros. With a debt-to-GDP ratio of about 80 percent, Germany’s ability to take on new debt is limited. Also let’s not forget east of Berlin issues.
The Netherlands, Finland and Austria, combined with Germany, have a GDP of about 3.5 trillion euros. France adds 2 trillion more, but its debt, already 85 percent of output, is expected to grow over the next several years.
Europe does not have enough fiscal firepower to handle an Italian crisis -- at least in such a way as to protect creditors completely. Why would Germany or other EU countries lend to Italy, particularly when its politicians show no sign of coming to grips with their reality?
Italian banks aren’t likely to fail. Regulators will offer plenty of forbearance, so the banks won’t have to value assets at true market values. But the overhang of sovereign-debt losses and a potential ratings downgrade (after a recent warning on Italy from Moody’s Investor Service) could cause banks to cut back on private-sector lending. This would lower GDP growth and further worsen Italy’s debt-to-GDP projections.
What Italy needs is industry, jobs, real value creation equaling real growth. Debt management without social transformation will only delay an inevitable default.
All of this means the U.S. needs another round of stress tests. It would be wise for U.S. banks to raise enough capital now to withstand any trans- Atlantic storms, such as say hmmm Italy!
Italy has close to 2 trillion euros in debt outstanding. It’s inconceivable that Germany or the IMF could provide a rescue to protect its creditors. Such a package would have to involve loans and guarantees of at least 500 billion, and possibly 1 trillion, euros to impress the markets. This would be a significant fraction of Germany’s gross domestic product of about 2.5 trillion euros. With a debt-to-GDP ratio of about 80 percent, Germany’s ability to take on new debt is limited. Also let’s not forget east of Berlin issues.
The Netherlands, Finland and Austria, combined with Germany, have a GDP of about 3.5 trillion euros. France adds 2 trillion more, but its debt, already 85 percent of output, is expected to grow over the next several years.
Europe does not have enough fiscal firepower to handle an Italian crisis -- at least in such a way as to protect creditors completely. Why would Germany or other EU countries lend to Italy, particularly when its politicians show no sign of coming to grips with their reality?
Italian banks aren’t likely to fail. Regulators will offer plenty of forbearance, so the banks won’t have to value assets at true market values. But the overhang of sovereign-debt losses and a potential ratings downgrade (after a recent warning on Italy from Moody’s Investor Service) could cause banks to cut back on private-sector lending. This would lower GDP growth and further worsen Italy’s debt-to-GDP projections.
What Italy needs is industry, jobs, real value creation equaling real growth. Debt management without social transformation will only delay an inevitable default.
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