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Fitch Follows S&P, Slashes Spain By 3 Notches To BBB, Only Moody Is Left – Step 3 Collateral Downgrade Imminent | ZeroHedge

Posted by satyrikon στο 7 Ιουνίου, 2012

 

Fitch Follows S&P, Slashes Spain By 3 Notches To BBB, Only Moody Is Left – Step 3 Collateral Downgrade Imminent

First it Egan-Jones (of course). Then S&P. Now Fitch (which sees the Spanish bank recap burden between €60 and a massive €100 billion!)joins the downgrade party of rating agencies that have Spain at a sub-A rating. Only Moody’s is left. What happens when Moody’s also cuts Spain to BBB or less? Bad things: as we explained on April 30, when everyone has Spain at BBB or less…

If all agencies downgrade Spain to BBB+ or below, the ECB could increase haircuts by 5% on SPGBs

The key aspect in terms of the Spanish downgrade(s) is the ECB’s LTRO. If all three rating agencies move Spain to BBB+ or below then under the ECB’s current framework it moves into the Step 3 collateral bucket which requires an additional 5% haircut across the maturities. In classifying its risk management buckets, the ECB uses the highest of the ratings to determine an asset’s position (unlike the sovereign benchmark indices which use the lowest rating, in general). Fitch and Moodys currently rate Spain at A and A3 respectively, with both having a negative outlook in place leaving only a small downgrade margin before Spain migrates to the lower ECB bucket.

Italy’s position is marginally more precarious in that it shares Spain’s A3 rating from Moody’s but is rated lower at A- by Fitch, and is similarly outlook negative from both agencies. One would hope ECB pragmatism would prevail and move to be more accommodative on its collateral haircut rules on sovereign debt.

The weakness of the eurozone’s growth outlook is undermining the efforts of many sovereigns to rein in budget deficits, thereby highlighting the self-defeating nature of the fiscal compact as currently defined. Including the political impact, this has potential to lead to further downgrades

via Fitch Follows S&P, Slashes Spain By 3 Notches To BBB, Only Moody Is Left – Step 3 Collateral Downgrade Imminent | ZeroHedge.

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