Bund Spread Jumps 10 Bps To 325
And just as Greece was about to launch its 10 year bond offering… Where is Papandreou to claim that Fitch was bought by all the accounts (who may or may not invest in the €5 billion issue) to make the price even better.
Because the spread to Bunds just jumped by about 10 bps to 325 following the news. Fitch notes: “The rating actions reflect Fitch’s view that the banks’ already weakening asset quality and profitability will come under further pressure due to anticipated considerable fiscal adjustments in Greece.
In particular, Fitch believes the required fiscal tightening that needs to be made by the Greek government will have a significant effect on the real economy, affecting loan demand and putting additional pressure on asset quality.
The latter could result in higher credit costs, ultimately weakening underlying profitability.” In the US, where any news is good news, equities jump following the headline.
From Fitch:
Fitch Ratings-Barcelona/London-23 February 2010: Fitch Ratings has today downgraded the Long-term and Short-term Issuer Default Ratings (IDR) of Greece’s four largest banks, National Bank of Greece (NBG), Alpha Bank (Alpha), Efg Eurobank Ergasias (Eurobank) and Piraeus Bank (Piraeus) to ‘BBB’ from ‘BBB+’ and ‘F3’ from ‘F2′ respectively. The Outlook on the Long-term IDRs is Negative.
At the same time, the agency has downgraded the banks’ Individual Ratings to ‘C’ from ‘B/C’, whilst the ratings of the banks’ senior, subordinated and hybrid capital instruments have all been downgraded by one notch. The Support Ratings and Support Rating Floors (SRF) of all four banks have been affirmed.
A full rating breakdown is provided at the end of this comment. Separately, Fitch has also affirmed Agricultural Bank of Greece’s (ATEbank) Long-term IDR at ‘BBB-‘, which is on its SRF, and Short-term IDR at ‘F3’. The Outlook on the Long-term IDR is Negative. ATEbank’s IDRs, Support Rating and SRF are based on sovereign support as the bank is majority-owned by the Greek state (rated ‘BBB+’/Negative Outlook).
The rating actions reflect Fitch’s view that the banks’ already weakening asset quality and profitability will come under further pressure due to anticipated considerable fiscal adjustments in Greece. In particular, Fitch believes the required fiscal tightening that needs to be made by the Greek government will have a significant effect on the real economy, affecting loan demand and putting additional pressure on asset quality. The latter could result in higher credit costs, ultimately weakening underlying profitability.
While the banks’ operations in South Eastern Europe (SEE) and Turkey add revenue diversification, such revenues are derived from more volatile economies – some of which have themselves experienced recessionary pressures.
The banks’ profitability is also likely to be affected by higher funding costs derived from increased funding and liquidity pressures on Greek banks which mostly resulted from the ongoing market perception of elevated risk surrounding the Greek sovereign. The uncertainties surrounding the Greek public finances have to a large extent constrained Greek banks’ access to wholesale markets and, to a lesser degree, interbank markets at reasonable prices. As a result, Greek banks continue to rely to some degree on European Central bank (ECB) funding. While unhindered access to ECB facilities provides short-term liquidity, Fitch would welcome a rebalancing of the banks’ funding and liquidity profiles towards more traditional funding sources. However, on a positive note, Fitch highlights that Greek banks continue to be primarily funded by customer deposits (86% of gross loans on average for the five largest Greek banks at end-Q309), highlighting limited reliance on non-bank wholesale funding. Additionally, wholesale funding maturities for 2010 are manageable and funding needs for the year should be limited.
Excluding ATEbank, the other four banks’ Long-term IDRs remain based on their individual financial strength, as expressed by Fitch’s Individual Rating. This takes into account their well-established domestic banking franchises, which support revenue generation and good deposit bases, sound and in most cases recently strengthened capitalisation and also some degree of geographical diversification.
The Negative Outlook on all the banks’ IDRs could be revised to Stable should Greek banks be successful in reducing ECB funding and be able to rebalance their funding and liquidity position without impairing their profitability, and if their underlying earnings capacity proves to be more resilient than currently anticipated to the expected prolonged recessionary environment in Greece and to a lesser extent in SEE.
The ratings of the Greek banks affected by today’s rating action are as follows:
- National Bank of Greece S.A.Long-term IDR downgraded to ‘BBB’ from ‘BBB+’; Outlook NegativeShort-term IDR downgraded to ‘F3’ from ‘F2’Individual Rating downgraded to ‘C’ from ‘B/C’Support Rating affirmed at ‘2’Support Rating Floor affirmed at ‘BBB-‘Senior notes downgraded to ‘BBB’ from ‘BBB+’Subordinated notes downgraded to ‘BBB-‘ from ‘BBB’Hybrid capital downgraded to ‘BB+’ from ‘BBB-‘
- Efg Eurobank Ergasias S.A.Long-term IDR downgraded to ‘BBB’ from ‘BBB+’; Outlook NegativeShort-term IDR downgraded to ‘F3’ from ‘F2’Individual Rating downgraded to ‘C’ from ‘B/C’Support Rating affirmed at ‘3’Support Rating Floor affirmed at ‘BB+’Senior notes downgraded to ‘BBB’ from ‘BBB+’Subordinated notes downgraded to ‘BBB-‘ from ‘BBB’Hybrid capital downgraded to ‘BB+’ from ‘BBB-‘
- Alpha Bank S.A.Long-term IDR downgraded to ‘BBB’ from ‘BBB+’; Outlook NegativeShort-term IDR downgraded to ‘F3’ from ‘F2’Individual Rating downgraded to ‘C’ from ‘B/C’Support Rating affirmed at ‘3’Support Rating Floor affirmed at ‘BB+’Senior notes downgraded to ‘BBB’ from ‘BBB+’Subordinated notes downgraded to ‘BBB-‘ from ‘BBB’Junior Subordinated notes downgraded to ‘BB+’ from ‘BBB-‘Hybrid capital downgraded to ‘BB+’ from ‘BBB-‘
- Piraeus Bank S.A.Long-term IDR downgraded to ‘BBB’ from ‘BBB+’; Outlook NegativeShort-term IDR downgraded to ‘F3’ from ‘F2’Individual Rating downgraded to ‘C’ from ‘B/C’Support Rating affirmed at ‘3’Support Rating Floor affirmed at ‘BB+’Senior notes downgraded to ‘BBB’ from ‘BBB+’Subordinated notes downgraded to ‘BBB-‘ from ‘BBB’
- Agricultural Bank of Greece (ATEbank)Long-term IDR affirmed at ‘BBB-‘; Negative OutlookShort-term IDR affirmed at ‘F3’Individual Rating affirmed at ‘C/D’Support Rating affirmed at ‘2’Support Rating Floor affirmed at ‘BBB-‘
The rating impact, if any, from the above rating actions on Greek banks’ subsidiaries, securitisation transactions and covered bonds will be detailed in separate comments.
Submitted by Tyler Durden on 02/23/2010 09:52 -0500
Source: ZeroHedge