Moody’s cuts credit rating for European nations, banks

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Moody’s credit rating agency has cut down ratings of six European countries including Italy, Portugal and Spain and revised its outlook on the AAA ratings of France, the United Kingdom and Austria to negative over worsening economic performances.

The agency said weak growth in Europe was hampering efforts to deliver economic reform and austerity measures.
Moody’s downgraded Spain and Italy two notches to A3, and Portugal was downgraded to Ba3.

However, Spain has criticised the downgrading decision from credit rating, citing Moodys own welcoming of Spanish financial reform.They say that yes, they welcome reforms and then they decide the apposite according to their criteria, its fairly paradox, said Finance Minister Cristobal Montoro.

It is good they do their work, their valuations, but the truth is that it is bit contradictory. They take decision in which they say, We value the reforms they are making but they are not going to achieve their goals, added Montoro.

The agency however has also cut down the ratings of two leading British banks, on presuming less state support in future crises as British sought to reassure investors the sector was well capitalized.

Earlier this year in January, three credit rating agencies downgraded France to top notch AAA. Standard and Poor blamed the European nation for failing to battle debt crisis effectively.

DEGRADES

Shares of Portugals biggest bank, Millennium bcp, fell 2.8% after the downgrades. Moodys said it expected the fall due to weak economic growth and liquidity strains because of the lack of wholesale funding.

Banks have to boost their capital ratios under the bailout terms after becoming overly dependent on European Central Bank.
The agency said: The key driver for the downgrades of most banks’ debt and deposit ratings is Moodys assessment of deterioration of their unsupported financial strength.

The agency has cut down the standalone rating and debt and deposit ratings of six state-controlled banks are: Caixa Geral de Depositos, Millennium bcp, Banco Espirito Santo, Banco BPI, Banco Santander Totta and Caixa Economica Montepio Geral.

There is a growing concern that banks may need more capital as part of wider European move to shore up the industry.
Moodys has also cut down its rating on Royal Bank of Scotland by two notches and Lloyds TSB by one notch. Ratings were also cut on Santander UK, UK arm of Spains Santander, Co-operative Bank, Nationwide Building Society and seven other British building societies.

NON-EFFECTIVE MOVE

With the latest downgrade rating from Moody’s has been greeted with muted reaction, as many analysts arent so surprise with the ratings.

Anyone observing the markets had to expect further rating agency downgrades and in the end Moodys only followed S&Ps previous step, analysts atCommerzbank said.

According to the Bank of Italy, Italy raised 6bn in an auction of mediumterm bonds in which rates fell. Rates on bonds which will be maturing in 2014 have been dropped from 3.14% to 4.83%.

Similarly, Spains borrowing costs also fell as it raised almost 5.5bn in an auction of 12-18 months of bond. Comparing rates with a similar auction four weeks ago, costs fell to 1.89% from 2.04% for the 12-month bonds and to 2.30% from 2.39% for the 18th month bonds.

However, this downgrade rating from Moodys is another reminder for European policymakers.

The picture is very bleak. The economies in the euro zone arent improving. Italy in the fourth quarter of last year has gone deeper into recession. In Spain there is no longer growth this year and the unemployment numbers have been rising,Martin Hennecke, associate director of Tyche Group, said.

BANK RECAPITALISATION

The recapitalisation of bank is the heart of the issue that has led downgrade across sector in Europe in recent months, even though European banking sector was successfully refinanced after 2008 crises.

British banks have raised over $120bn, forced by the government to raise low capital levels. During the same period, German banks also raised $40bn while Italian banks raised $29bn, and French banks raised $22bn.

Meanwhile, Germany and European Commission welcomed Greece’s approval of the austerity steps for financial timeline, and hoped that austerity measures will pull Greece back from the brink of collapse in near future.

Sources: Al-Jazeera, BBC news and Bloomberg

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