Ratings Outlooks

While of no real significance there have been statements today from both Fitch and Moody’s which merit at least a reading.

First out were Moody’s with their annual credit report.  The press release is here.  There is no ratings or outlook action with this report but in a phone interview with a company analyst it is reported that he said the company is monitoring its negative outlook on Ireland.  Moody’s also removed an explicit PSI warning. 

Today’s release was not going to change Ireland’s rating with Moody’s which is Ba1 (‘junk’ status) with negative outlook.  Paddy Power are offering a “novelty bet" on Ireland’s credit rating with Moody’s.  As recently as August the odds were 9/1 that there would be a ratings improvement by the end of the year.  In my opinion a ratings improvement from Moody’s remains unlikely but the odds on it are now in to even money.

This evening Fitch did announce a ratings action with the negative outlook on Irish sovereign bonds improved to stable.  Their statement is here.  Ireland is at BBB+ with Fitch, three notches above ‘junk’ status.  The revision of the outlook is because they judge “that the risks surrounding the adjustment path have narrowed and become more balanced”.

The statement also says that it is not their expectation that there will be “a substantial cut in the public debt through an EU agreement to share the burden on legacy costs of bank recapitalisation”.

53 replies on “Ratings Outlooks”

Good one, Robert!

Ratings agencies are about to be prosecuted ..too late!

Paddy Power should replace the Central Bank?

“Fitch boosts Ireland’s rating level to BBB+

“SIMON CARSWELL, Finance Correspondent

Ratings agency Fitch has raised its ranking of Ireland’s creditworthiness to a level last seen in late 2010, the month after the bailout of the State.

The agency removed the risk of a further downgrade, moving Ireland’s rating to a “stable” outlook, saying the Government was making progress towards an economic recovery.”

Did you ever read such drivel?

They removed the negative rating to stable…nothing more.

As someone said on another thread.. Time to stop buying the paper of record.

Are these guys totally captured by the MOF?

Fiatluxjnr it looks as though the headline writer in the Irish Times did not fully understand the story, but the content of the article is correct.

Given that this is the first upgarde in Ireland credit rating in a few years it should help sentiment a little.

Read Michael Lewis’s book – ‘The Big Short’ – to learn about these ‘rating agencies’ – up to their necks in the U.S. financial scam that has contributed to the current mess.
Zero credibility – but much admired by media!

@ Vinny

“Zero credibility – but much admired by media”

Perhaps not admired by the markets, but they are still a cornerstone of many investment decisions and mandates. So ‘credibility’ is probably the wrong word, but their ‘impact’ on financial markets is still enormous. And yesterday’s positive moves are therefore hugely important for Ireland’s ability to fund itself in the markets going forward, though obviously that viewpoint doesn’t fit into everyone’s particular narrative.

What’s happening out there today with the INM Group. Shares at 5 cent valuing group at 27m…looks ominous.

docm mentioned FTTs somewhere. Looks predictably duff.


“As France begins collecting its financial-transactions tax this month, it is becoming evident that President Francois Hollande’s levy is hitting all but the people it was aimed at: speculators.

Hollande, who called finance his “main adversary” during his election campaign, pushed through in August a 0.2 percent transaction tax on share purchases, making France the first and only country so far in Europe to have such a levy. Many investors have been escaping the tax using so-called contracts for difference, or CFDs, offered by prime brokers that let them bet on a stock’s gain or loss without owning the shares.

The target was supposed to be finance with a capital F, which is sort of a black box,” said Jacques Porta, who helps manage $627 million at Ofi Patrimoine in Paris. “Instead, we are punishing small investors who aren’t to blame and already are frightened off by losses in the market.”

On Nov. 1, the state started collecting the levy on the purchase of 109 French stocks with market values of more than 1 billion euros ($1.2 billion), including Sanofi SA (SAN) and Vivendi SA. (VIV) While the government expects the tax to add 530 million euros to its budget in 2012 and 1.6 billion euros next year, the finance ministry says it’s too early to say if these estimates are realistic.

The ministry concurred with traders’ and analysts’ assessment that market players will use a range of derivatives to skirt the tax, leaving small investors bearing the burden.”


Philip Stephens puts it well:

The economists have a point – but they also miss one. In complaining that the politicians do not understand the economics, they fail to grasp the politics. The idea that Ms Merkel could have told Italy or Spain to forget painful reforms and carry on spending and borrowing, in the expectation that Germany would underwrite the debt, belongs to the realm of political fantasy. 

There is a lot of fantasy about.

Mario Draghi would be expected to accept a unilateral default on the Anglo promissory notes, without any negative reaction, thereby shredding his reputation at a stroke. That is not to argue that Ireland shouldn’t make a strong case, publicly if necessary, that it cannot afford to pay in the short term. Having champagne on ice already for a return to market next year, will make little difference for the unemployed.

Even some of the advocates of international default would domestically use the shield of the Constitution for protection of entitlements such as pension bonanzas.

It’s interesting that in Ireland at least, most of the public debate on austerity is carried on by the well-heeled be they politicians, academics or mainstream media commentators.

“I feel your pain,” puts no bread on the table.

The actual victims of a decade and an half of monumental misgovernance and a culture of scrounging through boom and bust, seldom are heard from.

The Ancien Régime is banjaxed and radicalism can be a lot more than empty slogans.


re FT Stephens article;

I would take the opposite view to you on the FT article. I have no idea why he comes up with the conclusion that ‘Merkel has chosen Europe’ in the choice between hard money and Europe.
The reality is that it was Draghi who kept the show on the road by buying some time. Merkel diddered as usual and finally conceded, reluctantly. Equally the change of view on Greece was a last minute volte face and only because of narrower German interests.

The economic data is dreadful and getting worse. It seems that as a result of Hoover economics we are now heading for a European depression. The telegraph article quotes two economists, DeGrauwe in particular, that are very negative about the economics of where we are headed.
The first real signs of revolt were evident in the this weeks demonstrations.

@ Paul Q

im not saying if ratings agencies are ‘good’ or ‘bad’, simply that because of the structure of our financial system, they still matter. Simply saying “they’re useful fools” rather misses the point.

@ Joseph Ryan

You may be right! Merkel is a phenomenon in European politics. Her stock in trade is not to let her right hand know what her left hand is doing. Stephens may be misreading the situation. But he has identified a key issue.

This is why I have been linking to the debate around the budget 2014-2020. It is fashionable to argue that the UK holds the key to a successful outcome. It is true that Cameron has the biggest domestic difficulty. But it is Merkel that has the financial flexibility to force through an agreement. Such an agreement would be an important boost to confidence and a more reliable indication of what direction Merkel will take generally.

Unfortunately, her hesitation waltz since the crisis began (and Schaeuble is equally guilty), coupled with the decisions of the Constitutional Court, has given rise to a situation where the Bundestag has replaced the executive making for a possible choice for her of deciding between Europe and continued electoral success i.e. the facade of her successful handling of the crisis may collapse.

Meanwhile, the debate in Ireland on what is an almost existential issue – the future of the euro and, with it, that of the EU – seems simply not to exist. Were it not for the work of the Berlin and the Paris correspondents of the Irish Times, one would not even know that anything was going on.

With apologies for going off-topic, herewith a more accessible version of the leaked latest “negotiating box” (on which, curiously, the Commission has issued a bland statement sticking to its position) courtesy the FT Brussels Blog.


The blog post giving the remarks of the President of the EP, Martin Schulz, is also of interest.


In fact, the situation seems to me to be getting more, not less, promising as the question is slowly boiling down to the simple one of which leader will dare walk away at this present fraught juncture from a deal acceptable to everyone else.

@ JR

Simple it may be but happen it will not! In an article in FT Deutschland today (HT Eurointelligence), a noted economic commentator advocates a repeat of the strategy adopted by the duo Merkel-Steinbrueck during the post-Lehmans dip including (i) susbsidisation of short-time working and (ii) accelerated depreciation allowances to stem the drop in industrial investment i.e. solutions tailored soley to internal German domestic concerns.

@ Paul W

“What tosh. the markets are merely gaming Ireland’s current EU /IMF proxy protection”

How does this explain the €4.2bn in long term (5y & 8y) debt sold by the NTMA during the summer?

@ BEB What interest rates and who bought?

But I disagree still. The proxy aspect does explain it. Best of the worst; likely last in any negative cascade. One can agrue that that in itself is positive progress, but it’s not really progress at all. Ireland’s financial position is getting worse, not better. Official projections seem totally at odds with what’s going on externally in particular and how that will further negatively impact on Ireland. EU in double dip…..

The current Irish Govt plan is maintain staus quo, while ignoring the likely impact of the next budget (and subsequent ones). Plus all hoping for some sort of unilateral debt forgiveness….’Christmas /Santa’. Even those supporters of the status quo approach appear to agree that recovery in the medium-to-longer term is not possible without debt restructuring….but expectations of that are far too optimistic, so that is where you and I probably diverge….1H13 will be very informative. Must remember to come back then and update this little chat to see who was (more) right.

@Paul W

I don’t fully understand the media euphoria surrounding the State’s ability to borrow cheaply. It is good news but by no means the full story. The view is Draghi’s OMT will probably backstop all short term government borrowings and that is why their price has come down.

There has been one significant comment that has escaped media attention.
I have had to look up the meaning of ‘dispose’ to see what it means

Of course Ireland could simply tell NAMA to hold any payment of its bonds until the due date, rather than the stupid, supine, early repayment policy that they currently have.


“Simple it may be but happen it will not!”

Your view of the primacy of the political process may be accurate, but the political landscape is about to be changed dramatically by economic events. When it does the politicians, some of them reluctantly, will be forced to change.
I think you are underestimating the effect that heading into a double-dip recession in some countries and into a depression in others is likely to have on the political landscape.

“A rebound in Europe is still far off. The debt crisis that began in Greece in late 2009 is still reverberating around the globe and holding back a lasting recovery from the Great Recession of 2008/09 in much of the world.


“That was the last good number from Germany for the time being,” said Joerg Kraemer, chief economist at Commerzbank. “The business climate. . . has caved in.””

and from the Telegraph (Posted by @Fiatluxjnr)

“There is no relief in sight. The broad M3 money supply for the eurozone contracted over the last two months and is signalling further trouble next year. The ECB’s latest loan survey showed a collapse in credit demand of almost 50pc in Italy and France.”

Europe to survive as a coherent political entity will have to disavow the imposition of the self serving nationalistic policies of Germany and other creditors nations and will have to put employment and particularly youth employment top of the agenda. Above debt/GDP and all the other paraphernalia of creditor agendas.

@ JR

I do not disagree with the view that a counter-cyclical policy by those countries capable of following one is desirable. However, if the political constraints are not taken into consideration, the debate IMHO parts company with reality. This is why much of the economic advice is simply being ignored (apart from the fact that it is often contradictory).

Every journey starts with a single step. If the leaders stumble, over what is a relatively minor issue in the broader context, next week, it will not start at all (leaving aside what they decide in relation to Greece).

There is a clear and present danger that the German political establishment will fall back on the standard remedy i.e. tough it out, keeping organised workers and industry happy with what are, in essence, protectionist mercantilist actions.

That is not to say that the German position on the need for reforms in other countries is not correct. Anything but!

In short, what we have under observation is a see-saw of conflicting interests and any assessment based on the idea that the see-saw has, or must, come to a stop in a desired position may be of interest but is bound to be overtaken by events.

Incidentally, the SPD takes the view that in any banking union in the EU, given the rooted objections to further political integration, must be based on banks funding their own salvation. It is the only way to make sense of the new catch-cry of “breaking the vicious links between banks and sovereigns”. The head of the Bundesbank agrees.


Having trespassed on the patience of the starter of this thread, I should add that I agree with the views of BEB with rgerad to credit agencies. If they did not exist, they would have to be invented. The US retains the advantage of being first in the field. Sovereigns would be incapable of establishing such an edifice without it being compromised even more than the existing private system. And the business and international financial community cannot now dispense with their services.

@Joseph Ryan

Your (DOCM) view of the primacy of the political process may be accurate, but the political landscape is about to be changed dramatically by economic events.

I think this ignores the central flaws of the Kremlinological approach to economics in the European Union (“How much does Merkel like the Euro?”, “Who is winning in inter-institutional turf wars?”, “Was Lorenzo Bini-Smaghi only acting like a buffoon?” and so on), there is a focus on evaluating the intentions and relative powers of players without trying to analyse whether what these players want is possible and what the outcomes of attempting to achieve these outcomes are likely to be.

History is rife with examples where all the political will (or strong determination) in the world failed against the unreasonable biases of reality. Political will could not make the invasion of Iraq a success, or make Soviet Farm collectivization function efficiently, or make the Treasury view anything other than a sad repeating joke.

Political realities do not trump physical ones. Collective austerity was always going to damage Europe’s real economy no matter how sincerely Olli Rehn believed in it. Merkel, the European Commission and the ECB to an extent are still set against reality.

Ireland’s economic policy has to involve distancing ourselves from these dangerous and deluded political extremists, rather than indulging them as we did with the Fiscal Compact and the continuing IBRC leeching.

@ Joseph Ryan

Paul De Grauwe makes some interesting points and it would help if the countries that could afford to, would spend more.

However, there is an inconvenient reality that change in economies run by gouging elites, only happens where there is a crisis…more specifically when there is a dire crisis.

In recent weeks, there has been a litany on the special deals for Irish insiders – – surely brainier people or not than the ones that ushered in the Great Recession and the crash in Ireland, have to be paid excessive salaries!

The High Court this week was involved in a hearing where a partner in a mid-level accountancy firm was seeking €3,200 per day for work on a company liquidation while presumably the creditors were left to go hang.

Even if there was a default in coming years, you can be assured that the people who are advocating it, will not be the ones in the trajectory of the mushroom cloud.

Some will have their savings in euros elsewhere!

We want solidarity but against a backdrop of increasing concern about international corporate tax evasion, we think its unreasonable for outsiders to question the current system.

This isn’t about the 12.5% tax rate; Irish law firms are promoting means of achieving a rate of 2% or none.

We gain little from effectively stealing the taxes that should be paid in other countries.

Like children crying “it’s not fair,” we are the camels who cannot see our own hump.

Dell Products reports revenues of $13bn in Ireland in 2011 but meagre net earnings of $6.1m.

Despite deaths and the blighting of the lives of tens of thousands of families, what would motivate those who have a comfortable existence to change?

In the US the recovery in terms of reverting to previous peaks, is the longest since the Great Depression. In Ireland, it would be good to be surprised by a leprechaun with a sack of gold but delaying reform and tackling the many scroungers at the public trough, could really mean a lost decade.

@Michael Hennigan

In the US the recovery in terms of reverting to previous peaks, is the longest since the Great Depression. In Ireland, it would be good to be surprised by a leprechaun with a sack of gold but delaying reform and tackling the many scroungers at the public trough, could really mean a lost decade.

Local reform is obviously important but the European component of the global financial crisis will continue even if we totally reform governance and taxation. The economic and political consensus at a EU level is simply not “reality based” and every moment we spend spluttering rage at comparatively insignificant local malefactors is a moment we avoid confronting the bigger problems, and perpetrators.

The financial sector and its schills, Angela Merkel and her neoliberal fellow travellers and the architects and proponents of the current flavour of EMU have done more damage to Ireland (let alone the EU) than any amount of local rent seeking, parish pump politics or legalised tax fraud.

There is a bigger fight here and local reform will be pointless without winning it.


“At Leinster House yesterday Mr Noonan said he has signalled to Europe that the government is “not disposed” to pay the next €3.1bn repayment of debt owed to Anglo Irish Bank/IBRC when it falls due in March.”

I’m not sure they were disposed to pay it last year, but they did, managing to spin furiously enopugh that the resultand dust cloud is still there.

@Paul w, vinny

They ratings agencies do not have zero credibility with me wfiw. They do fairly good, logical analysis – often in depth. Like everyone else, they don’t, and don’t claim to, get everything correct.

They do not like the way press and some investors do or have relied on their ratings without doing their own analysis. They are analysing likelihood of actual default – not likely changes in investors’ perceptions of possible default (and therefore market prices).

They were trashed for aaa ratings on tranches of mbs and the like, but the actual defaults on these have not been anything like what pricing has suggested.

@Bond Eoin Bond
The heading on this Dealbook article says it all….”Hunt for yield”.
Robin’s advice should be noted!

“INVESTORS WARM TO EUROPEAN BANK BONDS The hunt for yield continues. The latest target: European bank debt. Such bonds, which recently were considered unpalatable, “will help bolster banks’ capital levels and strengthen their balance sheets,” DealBook’s Mark Scott reports. But risks abound, especially given the economic woes in Europe. “It’s a great time to be issuing high-yield debt but not to be investing in it,” said Robin Doumar, managing partner at the private equity firm Park Square Capital.

The yields may not compensate for those risks. After all, the region is officially in a recession, The New York Times’ Jack Ewing writes. On Thursday, new data showed that the euro zone economy shrank for a second consecutive quarter.”

And the paper of record tamed down the spin today in an article which appears to be a reasonable analysis. We are still rated junk.
And perhaps our Finance Minister should look across the pond if he ever hopes to recover some of our dosh..

@ Fiat

““INVESTORS WARM TO EUROPEAN BANK BONDS The hunt for yield continues. The latest target: European bank debt. Such bonds, which recently were considered unpalatable, “will help bolster banks’ capital levels and strengthen their balance sheets,” DealBook’s Mark Scott reports.”

Two conclusions here:

1. there are multiple errors here with regard to what exactly the impact on a banks’ balance sheet will be from issuing covered bonds (its bad, not good)


2. he’s not referring to a deal like Bank of Ireland’s this week.

@Bond Eoin Bond
Agree. I think he was referring to the subordinated debt issued by Lloyd’s as regards risk, although BOI were mentioned in one article.

c’MON GUYS & GALS! Let’s improve that “human capital” yield …..

The fertility rate in the State continues to remain at a level lower than that required to replace the population over a generation, official figures show.

A report on Vital Statistics 2010 published by the Central Statistics Office notes the average number of children per woman was 2.06 in that year – the same rate as in 2009 and just below replacement level.

A value of 2.1 is considered to be the level at which a generation would replace itself in the long run, ignoring migration, the CSO said.


Carmen Reinhardt has some interesting things to say at a conference in Lisbon ..
“This crisis keeps engulfing more and more countries […] In Europe it first started out with Greece, then in the second round we had Ireland and Portugal. Now in the third round we have Spain and Italy. I think France’s debt keeps building up and is already at significant levels. We in the US are tackling our own debt problem. Japan has a massive debt overhang. So this is an advanced economy issue.”

She also stated that she couldn’t understand why senior bank debt was not subject to haircuts in Spain and Ireland.

I guess if she can’t understand it…………


She (Carmen Reinhardt) also stated that she couldn’t understand why senior bank debt was not subject to haircuts in Spain and Ireland.

The stability of the European social hierarchy had to be protected at all costs.

Sorry, I meant “stability of the Financial System” but you know, same difference.

@ Grumpy
The main values of the credit agencies’ ratings is in relation to (1) legal credit triggers e.g. contractually requiring more collateral to be posted on many (collateralised) transactions, and (2) some legal liquidity triggers and considerations e.g. particularly among institutional investors applying internal funds’ allocations based on criteria that include the ratings.

In themselves, their impact on credit quality/assessment is of less (little) value these days. They do provide ‘independent’ analysis, but their models are more often than not of far less relevance and value than say a bank’s internal credit review process. The problem of course is that many in the banks /elsewhere curtailed or dropped their own evaluation processes, by default seemingly giving the ratings more credence than they should have had.

Again, it is the linking of the credit rating to credit and liquidity triggers in legal docs surrounding debt instruments where they have most impact these days (still).

Quote from Jens Weidmann….
“”One might well wonder whether the leap of faith that one grants if a debt haircut is done today sets the right incentives now, or whether it would not make sense to promise a haircut, which will be necessary at the end to regain access to capital markets, for when the reforms – which are the actual goal – will have been implemented,” Mr Weidmann said.
“A haircut does not yet solve the problems. I can do a haircut today but if the budget as such is not sustainable then I’ll be back in the same situation in 10 years,” he added. “That wouldn’t make sense.”
Mr Weidmann also argued that granting Greece debt relief now would in effect create moral hazard – leading to a situation in which leaders in other bailed-out nations, such as Portugal and Ireland, would no longer be able to push austerity measures and reforms through their parliaments.
“This is what is on my mind,” Weidmann said. “That is, how can you maintain that pressure to act?”

If this reflects German government thinking and Weidmann was very close to Merkel then it would seem we are a long way off getting any relief or perhaps it could be interpreted as assistance will be forthcoming with our bank debt if we attempt to raise money in the bond market on completion of the programme?

@ Paul W

Credit ratings have a different impact depending on who you’re referring to: in Asia they are still the bible, in Europe they’re a good guide, in the US they’re used for a bit of reference material, except in the money market fund industry where they are still hugely important. Regulators also still essentially ‘outspurce’ their prudential assessments of investment quality to them.

@paul w

The main inappropriate use of ratings occurred more than half a decade ago when it was not uncommon for complex structured credit products (which would require a couple of days to a week to properly analyse and understand) to be offered around the market with such ready demand that anyone doing proper analysis would reply long after the event. This resulted in many institutions that were not comfortable being bears-by-default effectively doing little more than looking at the rating.


If you have ‘online links’ for those relevant quotes from ‘those who matter’ pls provide them …. good blog etiquette – Ta!

There’s rumour going round that Jens was spotted smiling last week but I don’t believe it :LOL:

You’re clearly a markets’ guy, certainly not credit banker! Different perspective noted and understood. Just doesn’t matter materially either way re Ireland’s prospects. People can look at the small positive re proxy….but it’s minor in the overall picture. That’s all. I also like reading a positive Metro hororscope (plus those two great cartoon series) when I’m in Dublin!

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