Portugal and the credit crisis

[jdaw1]

Fitch Downgrades Portugal to 'AA-'

Fitch Ratings has downgraded Portugal's Long-term foreign and local currency IDRs to 'AA-' from 'AA'. The Rating Outlooks on the Long-term IDRs are Negative. Although Portugal has not been disproportionately affected by the global downturn, prospects for economic recovery are weaker than EU15 peers, which will put pressure on its public finances over the medium term.

Password-requiring press release.

[Andy Velebil]

Now if only the Euro would drop in value compared to the dollar by next Sept/Oct I would be elated.

[jdaw1]

Portuguese banks have hit out at credit rating agency Fitch and one lender has terminated its contract in a row over successive downgrades of their ratings due to funding and liquidity risks.

The dispute has been triggered by Portugal’s sovereign debt difficulties, which have virtually cut off access to capital markets for Portuguese banks, forcing them to rely heavily on funding from the European Central Bank.

Banco Espírito Santo, one of Portugal’s top five banks, said it was terminating its contract with Fitch Ratings because there was “no valid justification” for downgrading its credit rating by three notches in less than four months.

(Continued at the FT.)

I have never seen a downgrade to which the downgraded entity responds “not surprising, and a bit overdue”. Never. Stupider sovereigns threaten this and that (Turkey, in the 1990s, threatened a libel suit!); companies claim that the downgrade is unjustified. Always the way.

[jdaw1]

Portuguese rail and other services are grinding to a halt as workers strike over the Socialist government's planned cuts to ease the debt crisis.

Seven hours into the general strike, rail services were paralysed from the north to the south of the country, with nearly 80% of trains not running.

The country's main unions, the UGT and CGTP, hope their action will be the most effective in two decades.

It seems that the unions have decided that reducing Portuguese GDP is the way forward, to national economic suicide. Ludicrous.

[DRT]

It seems that the unions have decided that reducing Portuguese GDP is the way forward, to national economic suicide. Ludicrous.

Perhaps they read the same newspapers are their French commrades?

[jdaw1]

Moody's Portugal: Fundamental Credit Risk Conference - NEW DATE
Wednesday, 19-Jan-2011
09:00
Lisbon, PORTUGAL

[jdaw1]

Fitch has downgraded Portugal’s sovereign debt for the second time this year, citing a difficult financing environment for the government and banks as well as slow progress in reducing excessive external deficits.

The decision, which follows two downgrade warnings by other rating agencies this month, will add to investor fears that Portugal might be forced to follow Greece and Ireland in seeking an international financial bail-out.

[jdaw1]

Portugal’s cost of borrowing brushed close to euro-era highs on Tuesday as Germany resisted calls to bolster the eurozone’s bail-out fund for heavily indebted economies on the continent’s periphery.

Portuguese bond yields jumped above 7 per cent – a level that Lisbon has admitted is unsustainable – after concerns rose that the eurozone crisis could worsen, following comments from Wolfgang Schäuble, the German finance minister.

Mr Schäuble appeared to put the brakes on plans to increase the size and scope of the €440bn ($588bn) European financial stability facility, at the end of ministerial meetings in Brussels.

Ralf Preusser, head of European Rates Research at BofA Merrill Lynch Global Research, said: “Every time policymakers see an improvement in market sentiment, even if in anticipation of policy action, they feel they are justified in stepping back from support. The market had traded positively because of hopes that we would get meaningful changes to the size and scope of the EFSF. This has now not materialised.”

(Continued at the FT.)

[jdaw1]

Rede Ferroviária Nacional (Refer), Portugal’s railway infrastructure operator, has failed to go ahead with plans for a €500m syndicated bond in the first sign that Lisbon’s sovereign debt difficulties are spreading to the public sector.
…
Bankers in Lisbon and London said Refer had mandated …

But Refer decided in recent weeks not to proceed after the five-year government bond syndication traded poorly in the secondary markets, leaving investors sitting on losses. …

Refer is the first state-owned Portuguese company backed by a government guarantee that has had to shelve a planned syndication, …

(Continued at the FT.)

[jdaw1]

Portugal’s market interest rates have been above 7 per cent, a level widely considered unsustainable, for 24 consecutive days – considerably longer than either Greece or Ireland managed before being forced to seek bail-outs.

(Continued at the FT.)

[jdaw1]

Portugal has announced tough new austerity measures including cuts of up to 10 per cent in state pensions in a bid to ease pressure building on the government to seek a financial bail-out.
…
“There can no longer be any doubt that we will achieve our goals,” he said. The minister also announced labour market reforms to improve the competitiveness of the Portuguese economy, which is facing its second recession in three years.
…
But the measures failed to have a positive impact on Portugal’s cost of borrowing with the yield on 5-year government bonds rising to a new euro-era high of just under 8 per cent. The yield on 10-year bonds also rose to 7.565 per cent.

(Continued at the FT.)

[jdaw1]

Portugal’s debt rating was cut by Moody’s Investors Service, which cited a weaker outlook for economic growth, risks to the government’s deficit- reduction plans and a possible need to recapitalize banks.

The rating was downgraded to A3, four steps from so-called junk status, according to an e-mailed statement from Moody’s yesterday, with the outlook on the grade “negative.”

Whole story at Bloomberg News.

[JacobH]

Portugal PM Jose Socrates resigns after budget rejected

Portuguese Prime Minister Jose Socrates has resigned after parliament rejected an austerity budget.

The defeat is likely to trigger a bailout similar to the rescue packages Greece and the Republic of Ireland had to accept last year.

All five opposition parties voted against the austerity measures, which included spending cuts and tax rises.

Presumably, in the good old days, the escudo would have gone through the floor, taking Port prices with it...

[jdaw1]

Standard & Poor’s has cut Portugal’s credit rating by two notches, warning that the country’s political crisis heightened the risk that it would be unable to refinance its debt.

S&P's downgrade in Portugal’s long-term credit rating from A- to BBB is the lowest attributed by any rating agency, bringing Portugal’s credit standing closer to junk status.

S&P also warned that it could cut Lisbon’s rating by a further notch depending on the outcome of negotiations on the eurozone’s bail-out fund.

S&P’s decision on Thursday night came hours after Fitch Ratings downgraded Portugal’s long-term rating by two notches from A+ to A- because of increased financing risks caused by the fall of the Socialist government.

S&P and Fitch have both placed Portugal’s ratings on negative outlook, implying further downgrades could be made in the near future.

…

Interest rates on Portuguese government bonds of all maturities shot up on Thursday amid fears that the political void left by the prime minister’s resignation would make it difficult for the country to meet a total of €9.5bn in debt payments due in April and June.

More in the FT.

[jdaw1]

Standard & Poor’s has cut the credit ratings of Portugal’s five largest banks and warned that it could cut the country’s sovereign debt rating for a second time within a week following the resignation of José Sócrates, the outgoing prime minister.

The bank downgrades follow S&P’s decision to cut Portugal’s long-term sovereign debt credit rating by two notches to triple B on Friday, after the collapse of the Socialist government plunged the country into a period of political and financial uncertainty.

The agency warned on Monday that a further cut in Portugal’s sovereign rating “could take place as early as this week”. That would lower the rating to triple B minus, one level above junk status.
…
S&P lowered the long-term ratings of four banks – Banco Espírito Santo, Banco BPI, Caixa Geral de Depósitos and Banco Santander Totta – to triple B, in line with the agency’s sovereign rating for Portugal. The previous ratings were A for Santander Totta and A minus for BES, BPI and CGD.

More in that article in the FT.

[jdaw1]

Standard & Poor’s has cut Portugal’s credit rating to one level above junk status on concern that commercial investors would suffer under the terms of a Europe-led financial rescue.

Tuesday’s downgrade, the second in a week, comes after the fall of the Socialist government plunged the country into a political crisis. It sent Portugal’s borrowing costs soaring.

Shares in Portuguese banks also fell sharply as S&P said it would assess the impact on lenders of its cut in the country’s sovereign rating. The agency cut the ratings of five Portuguese banks on Monday.

S&P cut Portugal’s rating to the lowest investment grade of triple B minus. Another downgrade to junk would have far-reaching implications for Lisbon as many investors can only buy investment grade bonds.

Greece also saw its ratings cut two grades to double B minus, three levels below investment grade.

More in that FT article.

[jdaw1]

Portugal faces a deep recession and three years of tough austerity measures, according to its €78bn financial rescue package, in spite of the caretaker prime minister’s suggestions that the country has been granted more lenient terms than Greece or Ireland.

The agreement, a copy of which has been seen by the Financial Times, includes a freeze on public sector pay and pensions until 2013, as well as a special tax on pensions above €1,500 a month.

Continued in that FT article.

[jdaw1]

Tuesday’s Portuguese rescue deal is being sold as a way to buy time. The €78bn ($116bn) package, agreed with the European Union and the International Monetary Fund, is welcomed because Portugal will gain a few more years to delay fiscal adjustment. But the victory will be short-lived, for fiscal problems alone are not what ails Portugal’s economy.

The IMF’s acronym is said to stand for “It’s mainly fiscal”. This maxim has certainly been applied by the IMF and the EU to Portugal, just as it was to the other struggling eurozone states. However, Portugal’s problem is one of foreign debt. Its ratios of public debt and deficit to gross domestic product are similar to France’s, yet France is not close to a fiscal crisis. This is because Portugal’s crisis is born not of public borrowing, but the debt of its private sector, in particular banks.

Continued in that FT article.

[jdaw1]

Moody's downgrades Portugal to Ba2 with a negative outlook from Baa1

The credit ratings agency Moody's Investors Service has downgraded Portugal's debt to junk status.

The agency said there was a growing risk the country would need a second bail-out before it was ready to borrow money from financial markets again.

Moody's was concerned that if there was a second bail-out, private lenders might have to contribute.

Portugal's government said Moody's had not taken into account the strong backing for austerity measures.

It said that the programme of economic measures announced last week was "the only way to reverse the course and restore confidence" in Portugal.

[JacobH]

Moody's downgrades Portugal to Ba2 with a negative outlook from Baa1

Apologies for my ignorance, but how does the Moody’s rating system work if it goes from Baa1 to Ba2 (and presumably then on to Ba2 with a negative outlook)...?

[jdaw1]

See Wikipedia, or, far better, Pricing Money (2001), J. D. A. Wiseman.

As well as the rating (described on both of the above), there is also an outlook, which speaks of the likelihood of a rating change in the near future.

[JacobH]

See Wikipedia, or, far better, Pricing Money (2001), J. D. A. Wiseman.

I have been intending to buy a copy of that work for a while but keep holding off on the basis that a new edition is surely just around the corner

As well as the rating (described on both of the above), there is also an outlook, which speaks of the likelihood of a rating change in the near future.

I may not have been paying enough attending in my statistics lessons but surely if you say the outlook (meaning the likelihood of change) is negative, then you mean that it has already changed? And are “Speculative grade” ratings really known as either ‘“High Yield” or “Junk”’, without irony?

[jdaw1]

I may not have been paying enough attending in my statistics lessons but surely if you say the outlook (meaning the likelihood of change) is negative, then you mean that it has already changed? And are “Speculative grade” ratings really known as either ‘“High Yield” or “Junk”’, without irony?

It seems that you were paying plenty of attention. Market participants treat a directional outlook (positive or negative) as a fractional move in rating.

But sometimes companies being taken over have a non-directional ‘events might move this up or down’ outlook, which doesn’t quite fit the same model.

[jdaw1]

See Wikipedia, or, far better, Pricing Money (2001), J. D. A. Wiseman.

I have been intending to buy a copy of that work for a while but keep holding off on the basis that a new edition is surely just around the corner

Guarantee: if a new edition of Pricing Money by the same author is published in or before July 2013, I’ll swap your old for a copy of the new.

[DRT]

Where does one purchase this fine work to ensure that the author receives his appropriate share?