Fitch Outlines Major Potential Risks to Credit Quality in 2009
Fitch Ratings’ summary of the potential rating impact of some of the more prominent credit market risks for 2009 makes for depressing, but prudent, reading.
A year ago, Fitch’s 2008 Outlook presentation identified a number of possible developments for the year. These included banking system crises (though the agency was more concerned regarding emerging than developed markets), the failure of a systemically major bank, a run on money market funds and a dramatic
equity market slump. Unrealised developments included a collapse in a major convertible currency, systemic failures in the CDS market through counterparty and/or settlement risks and an economically significant adverse geopolitical event.
These latter unrealized risks have been carried forward into 2009. In addition, Fitch sees the following
potential developments with negative ratings consequences for 2009:
- Broader nationalization of banks
- Prolonged dislocation of capital markets
- Failure of traditional trade finance market for corporate finance
- Negative formal credit growth at the global level
- Government support extension to failing industrial entities
- Market access failure for developed market governments/other ‘AAA’ borrowers
- Further hedge fund failures
- Deterioration in counterparty and settlement risk on credit derivatives
- Precipitous devaluation of a major bloc currency
Finally, as the sum of all these fears, the risk of global or at least regional
deflation is very real.
For details see Prominent Risks in 2009 – Top Risks for the Traditional Debt Sectors.
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