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Euro fear as Spain and Italy's debt ratings are downgraded
British banks and building societies lose rating while pressure mounts on EU to restore faith in single currency
7 October, 2011
The eurozone crisis intensified on Friday when Spain and Italy were downgraded by the ratings agency Fitch, heightening fears over the health of Europe's banks.
Fitch's move came at the end of a day which had already seen 12 UK banks and building societies downgraded by the rival agency Moody's and amid speculation about co-ordinated European action to bolster the finances of the continent's banks by next weekend.
The euro fell against most major currencies, piling fresh pressure on European politicians to restore confidence in the single currency. Germany's Angela Merkel said Europe needed to find a solution for its banks by 17 October. Analysts from Capital Economics estimate the total financial package may top €200bn (£172bn).
Merkel and Nicolas Sarkozy of France are due to meet in Berlin on Sunday to discuss the crisis, with bank recapitalisation expected to be at the heart of their negotiations.
George Osborne attempted to distance UK banks from the crisis, despite speculation that there might need to be a fresh capital injection into British institutions, particularly Royal Bank of Scotland. He said: "People ask me how are you going to avoid Britain and the British taxpayer bailing out banks in the future. This government is taking steps to do that … I'm confident British banks are well capitalised, they are liquid, they are not experiencing the kinds of problems some of the banks in the eurozone are experiencing at the moment."
Shares in RBS and Lloyds, both bailed out in October 2008, were the biggest fallers in the FTSE 100 even though the Moody's downgrade was widely expected. The Treasury has prepared contingency plans if Greece is forced to default, and has looked at the scale of the problems facing RBS, but it denies it has been looking at full nationalisation.
Osborne this week raised the idea of "credit easing" to try to boost lending to small businesses.
The Bank of England governor Sir Mervyn King then warned that Britain is in the grip of the world's worst ever financial crisis as he justified pumping another £75bn into the economy through quantitative easing.
Moody's said the downgrade of the UK's banks was necessary because the government was stepping back from bailing out banks when they ran into difficulty. "The downgrades do not reflect a deterioration in the financial strength of the banking system or that of the government," Moody's said.
It was announced this week that GDP was revised down to 0.1% in the second quarter adding to pressure on Osborne to come up with a "Plan B".
Cabinet supporters of a more interventionist economic policy are now considering a major housing construction programme as the next step after QE. Key figures such as Oliver Letwin, David Cameron's key policy adviser based in the Cabinet office, have been working behind the scenes since the summer on the packages announced this week, but they also recognise far more needs to be done to promote growth.
Ministers are looking at putting a limit on how long construction firms can hoard land on which they have permission to build. Firms could be required to release the land for someone else to build on the property.
A new housing programme will be outlined by the coalition in November, and it is viewed as the next major practical step the government can take to boost the economy – apart from pushing for a settlement to the euro crisis
They are confident they can overcome resistance from the countryside lobby by making relatively small changes to the new national planning policy framework.
The 12 institutions downgraded by Moody's were Lloyds TSB, Santander UK, Co-operative Bank, RBS, Nationwide building society and the Newcastle, Norwich & Peterborough, Nottingham, Principality, Skipton, West Bromwich and Yorkshire building societies while Clydesdale bank's rating was unchanged.
In a complex rating action, the agency upped the ratings on the basis of stand-alone financial strength for five institutions – Co-op, Nationwide, Santander and Yorkshire and Principality building societies.Spain, which was stripped of its top notch triple A rating in 2010, has now been cut twice by Fitch, which is concerned about the eurozone crisis. The cut to Italy's rating followed moves by rival agencies in recent days while Fitch also warned it might down grade Portugal.
European markets had closed by the time of Fitch's announcement on Spain and Italy but the news of the downgrades took the heat out of a rally on Wall Street, which had been buoyed by better than expected employment numbers. Bank of America and Goldman Sachs were among those losing 4% or more amid concern about their exposure to the eurozone.
Moody’s Cuts Rating on 12 UK Financial Institutions
7 October, 2011
Moody’s ratings agency lowered the rating of 12 U.K. financial institutions on Friday, saying it sees a decreased likelihood of government support for smaller institutions in particular but specifying the move does not reflect a deterioration in the financial strength of the banking system.
“Moody's believes that the government is likely to continue to provide some level of support to systemically important financial institutions, which continue to incorporate up to three notches of uplift.
However, it is more likely now to allow smaller institutions to fail if they become financially troubled,” Moody’s said in a statement.
For article GO HERE
Moody's Downgrades Nine Portuguese Banks
7 October, 2011
Moody's Investors Service downgraded its ratings on nine Portuguese banks on Friday, citing the increased asset risk linked to their holdings of Portuguese government debt and the sovereign downgrade of Portugal in July.
The ratings agency downgraded by one or two notches the senior debt and deposit ratings of nine banks and the standalone ratings of six of them.
I have just absorbed the news of the downgrades and here is news just through the wires of another potential credit downgrade!
Moody's warns of Belgian credit downgrade
10:19 AM Saturday Oct 8, 2011
Credit ratings agency Moody's has warned Belgium could be downgraded, as the country moved to bail out troubled bank Dexia.
"Moody's Investors Service has today placed Belgium's Aa1 local and foreign currency government bond ratings on review for possible downgrade," the firm said in a statement.
Moody's cited a barrage of potential pitfalls that could beset the small northern European nation.
In particular Belgium could be vulnerable to increases in the cost of market borrowing for indebted European countries, weaker growth and the potential need to spend more bailing out failing banks.
The comments came as the Belgian finance minister, Didier Reynders, indicated Friday that his government is aiming to increase its stake in failing Belgian-Franco bank Dexia.
"In the negotiations with our French partners, we are going to find ourselves putting up great guarantees, but also strengthening our position within Dexia bank in Belgium," Reynders told reporters after a cabinet meeting.
Moody's said: "The likelihood for the need of additional government measures to support individual banks or the system has increased, as illustrated by the significant challenges now facing the Dexia Group.
"It is unclear how far additional support measures would be likely to weigh on the balance sheet of the government
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