I agree with the laser like focus here: this is about Congress doing their damned job and anything else is just distracting blabber. I’m normally a Paul Krugman fan, but I really don’t like the shiny bauble he threw in front of the press because they are just going to obsess over the coin idea now and lose focus of the real story.
Moody’s lowered the credit rating of three major Italian insurers on Tuesday, piling more pressure on the euro zone’s third largest economy after a string of downgrades on Monday and a sovereign downgrade last week.
Italy’s largest domestic insurer Generali Assicurazioni and its subsidiaries were lowered to Baa1, while Unipol Assicurazioni, and Allianz Spa had ratings cut by two notches each.
“The downgrade of Generali reflects the insurer’s direct exposure to Italian sovereign risk in terms of both investment portfolio and business profile,” Moody’s said in a statement.
By the end of 2011, Italian government bonds represented 19 percent or 46 billion euros ($56.18 billion) of Generali’s total fixed-income portfolio, or 253 percent of shareholders’ equity, according to the statement.
Government bonds constituted 47 percent of the fixed income portfolio of Unipol Assicurazioni with 222 percent of shareholders’ equity.
All the institutions mentioned in the statement were given negative outlooks.
France’s credit rating was cut one step to BBB from by Egan-Jones Ratings Co., citing “deterioration” in the nation’s credit metrics and the need for support of the country’s banks.
Yields on French government bonds due in 10 years have fallen 47 basis points, or 0.47 percentage point, since the end of last year. Francois Hollande, who defeated French President Nicolas Sarkozy last month to become the first Socialist in 17 years to control Europe’s second-biggest economy, pledged to push for less austerity and more growth in the region.
“As the crisis evolves, we expect that France will be pressured,” the Haverford, Pennsylvania-based company said today in a statement. “Hollande will be under pressure to keep campaign promises, which will ultimately hurt credit quality.”
The credit rating on Greece’s government debt was downgraded deeper into junk bond territory on Thursday.
Fitch Ratings cited the increased risk that Greece, operating now with a caretaker government, could be forced to leave the eurozone following more elections next month.
An exit from the eurozone would be “probable” if the elections fail to produce a government willing to stand by earlier austerity agreements reached with eurozone leaders, Fitch said.
In turn, the country’s departure from the eurozone would “result in widespread default on private sector as well as sovereign euro-denominated obligations,” the ratings agency said. (Moody’s downgrades Spanish regions)
And all 16 other countries in the eurozone could be dinged.
Standard & Poor’s downgraded Greece’s credit rating Monday to “selective default” after the government took legal steps to impose losses on all holders of Greek government bonds.
The move, which had been expected, was prompted by Greece’s decision last week to insert “collective action clauses” into the contracts of most Greek government bonds, S&P said in a statement.
In March, Greece is expected to finalize a deal with investors to write down 53% of its debt held by the private sector as part of a second €130 billion bailout from the European Union and International Monetary Fund.
The collective action clauses would give Greece the power to force losses on bondholders who refused to take part in the agreement, which involves investors exchanging government debt for securities with lower interest rates.
S&P said that unilaterally changing the terms of the bond contracts constitutes “a de facto restructuring and thus a default” under its definitions.
Greece would face “an imminent outright payment default” if a sufficient number of investors do not accept the debt exchange, S&P said.
Greek bondholders must decide on the offer by March 12 in order for Greece to secure the bailout money it needs to make a €14.5 billion bond payment on March 20.
Meanwhile, S&P said it would likely consider the selective default “cured” once the debt swap is officially “consummated.” At that point, the agency said it could restore the nation’s previous “CCC” credit rating.
Even a CCC rating would signify that Greece still had a bleak economic outlook and unsustainable debt.
Greece gets a reprieve, but crisis not over
Greece has been struggling to avoid a default for over two years as the nation’s economy has sunk deeper into recession and the government has been shut out of the bond market.
To qualify for its second bailout, Greece is scrambling to enact a series of austerity measures linked to its initial 2010 rescue and has pledged to undertake structural reforms to make its economy more competitive.
On Monday, German lawmakers approved the second rescue package for Greece, which is deeply unpopular in Germany.
But many economists say Greece will not be able to avoid a default without more support or additional restructuring.
1. The government is considering filing charges against Standard &Poor’s based on its rating of a mortgage-backed bond issued in 2007.
The bond (a CDO) was structured at the request of a hedge fund called Magnetar, according to the FT. Magnetar profited by betting against the housing market.
We teamed up with ProPublica last year to profile Magnetar on This American Life. (You may remember the show tune “Bet Against the American Dream.”)
ProPublica has more on the potential charges against S&P. Here’s a statement from the company.
2. The SEC may ban certain deals
civil money penalties, disgorgement of fees and other appropriate equitable relief.
McGraw-Hill Receives Wells Notice From SEC Regarding S&P Rating of Delphinus CDO
NEW YORK, Sept. 26, 2011 /PRNewswire via COMTEX/ — The McGraw-Hill Companies, Inc. (NYSE: MHP), today filed a Form 8-K with the U.S. Securities and Exchange Commission (the “Commission”) acknowledging that on September 22, 2011, it received a “Wells Notice” from the Commission Staff stating that the Staff is considering recommending that the Commission institute a civil injunctive action against Standard & Poor’s Ratings Services (“S&P”), alleging violations of federal securities laws with respect to S&P’s ratings for a particular 2007 offering of collateralized debt obligations, known as “Delphinus CDO 2007-1.” In connection with the contemplated action, the Staff may recommend that the Commission seek