More Banks — 11 in Brazil — Face Credit Downgrade
Bruce Walker
The New American
Friday, June 29, 2012
Moody’s downgraded the credit ratings of 11 Brazilian banks on June 27 — some a single level, and some three levels. This action was tied to the sovereign debt credit rating of the government of Brazil. All major banks that had credit ratings higher than the Brazilian sovereign debt rating of Baa2 were affected, and these included Banco do Brasil SA, Banco Sanfra, Banco Santander (Brasil), HSBC Bank Brasil — Banco Multiplo SA HSBAR.UL, Banco Bradesco, Banco Itau and Banco Itau Unibanco SA. Moody’s put it thus: “Our review indicated that there are few, if any, reasons to believe that these banks would be insulated from a government debt crisis.”
The number of loans defined as “bad loans” in the Brazilian banking system hit as 10-year high in May to $1.03 trillion. Dilma Rousseff, the president of Brazil, had been encouraging banks to grant more loans in order to stoke the economy and this was following the policies of her predecessor, former President Luiz Inada Lula da Silva.
This action by Moody’s comes on the heels of a review of the ratings of European banks. On June 25, Moody’s reduced the credit ratings of 28 out of 33 Spanish banks which had ratings. The reduction, in some cases by as much as four levels, came a few weeks after Moody’s reduced the sovereign debt credit rating of the government of Spain to a level just above junk bonds.
Moody’s concerns about Spain were similar to those related to Brazil: “The reduced creditworthiness of the Spanish sovereign … affects the government’s ability to support the banks. The banks’ exposures to commercial real estate will likely cause higher losses, which might increase the likelihood that these banks will require external support.”
In May 2012, Moody’s downgraded the credit rating of 26 Italian banks. Perhaps more ominously, Moody’s also in February 2012 announced that the credit ratings of 114 different financial institutions in 16 different European nations were on review for possible downgrade, citing the sovereign debt crisis of the eurozone as a primary reason for the possible downgrades.
There has been action by Moody’s since February. On March 28, seven Portuguese banks were downgraded one to two levels. On May 17, Moody’s downgraded 16 Spanish banks by one to three levels. At the end of May, Moody’s had downgraded the credit rating of nine Danish financial institutions by one to three levels. On June 6, Moody’s downgraded the credit rating of the three largest Austrian banks by two levels.
Not only Europe has been affected by these downgrades in credit rating. On June 22, 2012 Moody’s reduced the credit rating of 15 banks, five of which are American banks, including Bank of America, Goldman-Sachs, J.P. Morgan-Chase, and Citicorp group.
Other rating services, notably Standard & Poor’s and Fitch, had already downgraded many European banks last year. This past AprilStandard & Poor’s downgraded the credit rating of 16 different Spanish banks. Last December Fitch downgraded the credit rating of seven very large banks on both sides of the Atlantic. Moody’s actions reflect a general concern by private credit rating services.
Analysts are not viewing these downgrades as anything but bad news. Phllipe Boderau of Pacific Investment Management in London stated: “I’d like to say the views of the rating agencies don’t matter anymore but, unfortunately, they do. This is a setback for the banks, particularly when you consider how much progress they have made in making themselves safer and more transparent.”
Huw van Steenis, a banking analyst at Morgan Stanley in London, notes: “The more the cost of wholesale funding goes up, the more likely it is that banks will want to retreat closer to a loan- to-deposit ratio of one. That adds to the intense pressure to deleverage, which will be a drag anchor on European economic recovery.”
The interconnectivity of banks and governments compounds the problem of these credit reductions. When the sovereign debt of government bonds of European nations is downgraded, then the value of those bonds as assets in bank portfolios drops, when means that the asset-to-debt ratio of banks holding the sovereign debt of these nations drops too and the ability of the banks to loan money shrinks (or the credit rating of banks which continue to have loans at the same monetary level is downgraded).
Banks also hold assets in the form of various corporate security interests such as stocks and bonds. The general decline economically caused by the sovereign debt crisis in Europe means that the value of these assets drops too. Stock loses market value and debt instruments of private corporations held by banks is downgraded.
The light at the end of the tunnel, if there is any, is faint and very far away.
Stocks surge after eurozone agreement???
Brendan Mcdermid / REUTERS
Traders work on the floor of the New York Stock Exchange.
Updated at 12:45 p.m. ET: Stocks moved sharply higher Friday, mounting one of their strongest rallies of the year after eurozone leaders agreed to allow rescue funds to be used to stabilize the region's banks.
Details of the agreement, which includes the creation of a single supervisory body for euro area banks, remain to be worked out.
Still, Italian and Spanish borrowing costs fell as market expectation for any action during a two-day European Union summit had all but vanished.
The Dow Jones industrial average was lately up over 200 points.
"We've gotten used to being underwhelmed by the outcomes, so with little to no expectations for success, the fact that it appears we are going to get something substantial is a real important positive for the market in the near term," said Art Hogan, managing director of Lazard Capital Markets in New York.
"It's inching closer to a banking union and the closer we get to a banking union would put (the EU) well on the road to a fiscal union."
Jason Pride, director of investment strategy at Glenmede, called the EU agreement is “another of those incremental steps in the right direction.”
“The EU gets together and puts together an extra step toward fiscal union,” he told CNBC. “We are getting closer and closer to a final solution, but were not there yet.”
Equities and other risky assets have recently been weighed by concerns that stubbornly high borrowing costs in Spain and Italy could force the fourth- and third-largest economies in the bloc to seek bailouts.
Trading could be volatile and see higher volumes as managers square positions ahead of the end of the second quarter. The outperformance of bonds in the past three months could trigger inflows into stocks and extend the expected rally.
In economic news, a report showed consumer spending was flat in May for the first time in five months as Americans eased off on vehicle purchases amid tepid wage growth, but subsiding inflation pressures should keep demand supported.
The Commerce Department said April's consumer spending was revised down to show only a 0.1 percent rise instead of the previously reported 0.3 percent gain.
Weak consumer spending in May also reflected tepid sales at service stations as the pump price of gasoline fell from lofty levels early in the year.
Hospitals and insurers providing Medicaid plans for the poor were the main corporate winners from the U.S. Supreme Court's decision Thursday to uphold President Barack Obama's Affordable Care Act, as they prepare to see an influx of customers with no prior access to healthcare.
U.S.-traded shares of Research in Motion tumbled in the wake of the company's decision Thursday to delay the make-or-break launch of its next-generation BlackBerry phones until next year.
Nike shares dropped one day after the world's largest sportswear maker missed quarterly profit estimates for the first time in at least two years.
Shares of KB Homes rallied after the fifth-largest U.S. homebuilder reported a narrower second-quarter loss, helped by higher sale prices and net orders.
Reuters contributed to this report.
Great Depression #II
Great change is coming that’s for sure
It’s going to be a world tour
NWO (New World Order) is pulling the strings
They want to take away all our things
They print the paper you call money
Its promissory note’s, sorry honey
The U.S. dollar is play money, my child
The more they print doesn’t fix it, it’s wild
The monopoly game is near its end
Only the big guys left to win
Winner takes all, it’s a draw
Come rescue wall street and it’s great down fall
How did they get us in such a fix
Making bad loans and playing those tricks
It’s all planned for it to fall
Like a domino game, only one starts it all
Humpty Dumpty sat on a wall
Humpty Dumpty had a great fall
All the king’s soldiers and all the king’s men
Couldn’t put Humpty Dumpty back together again
Stock market crash, the worst in history
Who’s behind all the conspiracy (NWO)
No need to look very far
The many changes are hiding behind the door
They create invisible money out of thin air
It’s failing because nothing was really there
They’re wolfs in sheep skin
When it’s all over they plan to start again
What’s the name of the game you say
Knock them down and haul them away
Funny thing is they’ve done this before
But we seem to forget history even more
They’ve taken all the world’s riches
Giving us play money, a hole in our britches
No matter what we do or say
They won’t stop until we play it their way
New World Order is the name of their game
Plan to kill most of us off, isn’t it a shame
You won’t be able to buy or sell
The 666 is coming straight from hell
We were warned in all the prophecies
Too late you say, I couldn’t see
God’s children won’t endure this alone
Follow Jesus's way, we will be shown
Don’t play with fire or you’ll get burned
Find another way, it’s your turn
The game’s over if you play it their way
Come together now, there’s another day
Gold and silver are good means of exchange
Watch out for NWO, they’re really strange
Food, housing, is what you need most
Gods protection, take that away, you’re their host
It’s never too late to start anew
But you must remember what our parents knew
Community is everything now
We must pull together and fix it all somehow
By Rev,Joshua Skirvin copyright Dec. 2008
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