PNC Financial (NYSE: PNC)/National City (NYSE: NCC)
Fitch: PNC Financial/National City Transaction Positive for NCC’s Ratings; PNC Affirmed (Oct 24)
Moody’s changes PNC’s outlook to negative and reviews National City for upgrade (Oct 24)
Leave a comment : October 27th, 2008 : Credit Research, Industry Research
French bank liquidity is much improved from a year ago when the credit crisis began, and credit ratings remain stable after initial downgrades, but the worsening economy and continued financial market distress are clouding the outlook, said Fitch Ratings Service in a report this week.
Fitch applauded the French government’s commitment to stabilizing the banking system through capital injections to France’s six-largest banks this week, and the agency affirmed the ratings of those banks earlier this week.
Although the outlook for all long-term issuer default ratings assigned to leading French banks is “stable,” Fitch considers market stress to be sufficiently high and warns that rating changes may prove to be more sudden than those experienced in the past.
Among the worrisome economic signs, Fitch said home sales have fallen sharply and retail banks can no longer count on strong real estate loan demand to fuel growth.
The ratings agency said French banks with well-established commercial bank activities outside of France may be in a stronger position than their domestic-only counterparts. However, housing is also slowing in Central and Eastern Europe and Russia, where investment has been sizeable, Fitch said.
Fitch has downgraded a total of 12 French bank and financial company issuer default ratings since the beginning of the credit crisis in mid-2007. Individual bank ratings that were downgraded in the wake of the credit crisis include Natixis (KN), Groupe Caisse d’Epargne (CENCEP), Groupe Banque Populaire (GBP), Calyon and Societe General (GLE).
For details, see “Major French Banks.”
Leave a comment : October 23rd, 2008 : Credit Research, Economic Research, Industry Research
NERA Economic Consulting has put together a helpful compilation and analysis of the policy actions by the US government and central banks to address the credit crisis.
The free paper, A New Playbook for a Financial Crisis, provides a timeline of the extraordinary sequence of policy developments from the Federal Reserve, US Treasury, Federal Deposit Insurance Corporation (FDIC), and central banks abroad. It places particular emphasis on the critical role of the Federal Reserve in creating liquidity domestically and internationally. It also discusses prospective policies to provide relief in the housing market, which remains a subject of active debate.
NERA says that despite the extraordinary magnitude of the current crisis, in many respects it looks much like other banking crises. “While the US has not experienced a full-scale systemic bank crisis since the Great Depression, globally we have seen periodic banking crises in both developed and less developed countries. By one count, more than 100 systemic banking crises have occurred since the late 1970s.”
Soberingly, analysis of these crises has found that on average they lead to fiscal costs greater than 10% of GDP. Were the US to follow that pattern, the total would be about $1.5 trillion.
In response to the increasing aid to the financial sector, calls for housing market relief are growing louder, including support from FDIC head Sheila Bair, NERA says. “The presidential election, now two weeks away, may also influence policy decisions. In such extraordinary times, it does not seem implausible that the President-elect and his Treasury Secretary nominee—candidates include current Treasury Secretary Henry Paulson—may be granted a voice in the policy debate even before the inauguration.”
Leave a comment : October 22nd, 2008 : Credit Research, Economic Research, Public Sector
Standard & Poor’s says there continues to be downward ratings pressure on major US banks, even though the risks of a “credit cliff” have receded in the wake of the government rescue plan.
S&P said it will likely not change banks’ ratings at this time as a result of the government’s actions.
“However, while we believe these actions will help restore confidence in financial institutions and help stabilize funding markets, the very real issue of deteriorating asset quality as the economy slows, continues to pose risks to the banking system in our view.”
We expect earnings to suffer from continued write-downs on market-disrupted securities and, more importantly going forward, from provisions for loan losses.
Thus, there continues to be downward ratings pressure on the major banks, even though the risks of a credit cliff have receded.
S& P said it is in the process of reassessing both industry risk and individual bank and bank holding company debt ratings in light of recent events. Specifically, there are eight issues that we will be addressing in this industry reassessment:
S&P anticipates that the reassessment of the industry and rating actions, if any, will be completed within the next several weeks.
S&P said if banks are permitted to recognize losses over the next few years, rather than having to accelerate lifetime losses on loan portfolios into the current period, capital requirements, at least current regulatory ones, should be manageable. “However, fire-sale valuations could lead to widespread insolvencies not contemplated in ratings. We expect that the recent pronouncements by the Financial Accounting Standards Board and the SEC on mark-to-market valuations of illiquid securities should stabilize the markets even further, as will the confidence-boosting efforts of central banks and market regulators.”
For more, see U.S. Banks: Back to Fundamentals.
Leave a comment : October 16th, 2008 : Economic Research, Industry Research, Uncategorized
Despite the absolute size of the credit crisis in the US, it appears to present a much smaller threat to the overall economy than in many other countries, Floyd Norris points out in the New York Times.
The United States has a banking system that is the largest in the world but is small in relation to the national economy, Norris writes.
In the United States, the banks have total short-term debt that is equal to 15 percent of G.D.P. But in some countries where banking systems have grown to international proportions, the debt exceeds G.D.P. That is true in Switzerland, Belgium, Iceland and Britain.
Norris also looks at the short-term bank debt in relation to each country’s national debt. The relationship is not direct, because a country may have excellent credit that would enable it to borrow much more, but large numbers still raise questions.
“Can they guarantee the deposits if the bank owes 3.5 times the national debt?” asked Bob Prince, the co-chief investment officer of Bridgewater Associates, which provided the data.
Finally, the leverage ratio gives a rough indication of how risky a nation’s banking system might be. It is the ratio of total bank assets to the net worth of the bank. That could be misleading if the assets are very safe — government bonds, for example, versus subprime mortgage loans — but in general the higher the ratio the smaller the margin of safety.
There again, the United States appears to face a relatively small problem, with an average leverage ratio of 12. The figures range up to 52 in Germany. Theoretically, a 2 percent drop in the value of all German bank assets would wipe out the net worth of the banking system.
These figures will be meaningless if the governments retain the trust of depositors and creditors. “It becomes a matter of psychology,” Mr. Prince said. If governments say the deposits are safe “and the market believes them, then they don’t have to have any money to back up their promises.”
Leave a comment : October 13th, 2008 : Credit Research, Economic Research
Recent actions by ratings agencies on financial companies in the news:
Morgan Stanley (NYSE: MS)
Moody’s reviews A1 Morgan Stanley for downgrade; Prime-1 affirmed (Oct 10)
Goldman Sachs (NYSE: GS)
Moody’s affirms Goldman Sachs’ Aa3 long-term ratings and changes outlook to negative (Oct 9)
Moody’s: Iceland - Downgrade Reflects Dislocations from Global Banking Crisis Oct 9)
S&P: Glitnir Bank Rating Lowered To ‘D’ On Receivership (Oct 9
Moody’s downgrades Glitnir’s covered bonds to Ba3 direction uncertain (Oct 9)
Moody’s downgrades Kaupthing to Caa1/NP/E from Baa3/P-3/D+ (Oct 9)
S&P: Icelandic Insurer Tryggingamidstödin Group Ratings Downgraded And Kept On Watch Neg (Oct 9)
Leave a comment : October 10th, 2008 : Credit Research, Industry Research
Recent actions by ratings agencies on financial companies in the news:
BNP Paribas (Euronext Paris: BNP) Fortis (Euronext Brussels: FORS)
Moody’s affirms BNP Paribas’ ratings with stable outlook (Oct 7)
Moody’s downgrades Fortis Group’s ratings after the sale of its main operations (Oct 7)
Moody’s confirms Fortis Bank Nederland (Holding)’s long term ratings at A1, outlook stable (Oct 7)
Iceland
S&P: Iceland Ratings Would Not Default If Depositor Guarantee Fund Obligations Not Honored
Fitch Takes Further Rating Actions on Icelandic Banks (Oct 7)
S&P: Glitnir Bank Downgraded To ‘CCC’; On Watch Neg On Increased Systemic Concerns (Oct 7)
Ireland
Leave a comment : October 8th, 2008 : Credit Research
Bank of America (NYSE: BAC)
S&P: Bank of America Corp. Rating Unaffected By Earnings And Other Announcements (Oct 7)
BNP Paribas (Euronext Paris: BNP) Fortis (Euronext Brussels: FORS)
Fitch Affirms BNP Paribas at ‘AA’ on Fortis Acquisition (Oct 6)
Fitch Revises Rating Watch on Fortis Insurance Units and Holdings Companies (Oct 6)
Hypo Real Estate (Frankfurt: HRX)
Fitch: No Rating Impact on Hypo Real Estate Group from Additional Support (Oct 6)
JPMorgan Chase (NYSE: JPM)/Washington Mutual (NYSE: WM)
Fitch: Washington Mutual Ratings Downgraded and Withdrawn (Oct 6)
Royal Bank of Scotland (London: RBS)
Iceland
S&P: Republic of Iceland Ratings Lowered And Taken Off CreditWatch Negative (Oct 6)
Leave a comment : October 7th, 2008 : Credit Research
Bank of America (NYSE:BAC) will likely continue to have the largest number of online customers across both liquid deposit account customers as well as online customers of any kind, even though the bank mergers will result in a large percentage of new additive customers, according to comScore.
“In terms of existing online customer overlap, the Chase/WaMu and Wells Fargo/Wachovia or Citi/Wachovia mergers have surprisingly little,” comScore said. From a liquid deposit account customer standpoint, the confirmed and proposed mergers are essentially additive in nature with more than 98 percent of customers being incremental. Looking at all types of accounts, which includes credit cards, mortgages, and liquid deposit accounts, there’s somewhat more customer duplication with an 8 percent overlap for Chase/WaMu, 4 percent for Citi/Wachovia and 1 percent for Wells Fargo/Wachovia. ”
Bank of America would continue to lead online banks with 24.6 million unique customers, 17.8 million of which are liquid deposit account online customers.
As a result of the Chase/WaMu merger, Chase stands to add 7.4 million new online customers with 5.5 million of these customers representing online liquid deposit account holders. In terms of online customers of any kind, Wells Fargo stands to gain 6.4 million new online customers if it merges with Wachovia. Citi would gain 5.9 million new online customers from a deal with Wachovia.
Leave a comment : October 6th, 2008 : Industry Research, Market Research
While it may turn out that this is not something to be bragged about, most financial markets grew more rapidly in Europe than in the US, both in 2007 and over the last several years, according to International Financial Services London.
Key findings from IFSL’s annual report Financial Market Trends Europe vs.US 2008 show that in over half indicators - 10 out of 16 - financial markets in Europe grew more rapidly than the US in 2007. Over the longer period since 2001 activity in Europe rose relative to the US in 13 out of 18 markets.
Most of the gains over the past six years have been in 8 out of 9 sectors where activity in Europe is smaller than the US: these include hedge funds, securitisation and equity market turnover, IFSL said. Europe has also made some large relative gains since 2001 in sectors where it has the larger market, including IPOs, cross border bank lending, issuance of international bonds, and insurance premiums.
The US has made up ground in a few areas in recent years, particularly foreign equity trading, where the gap with Europe has been largely closed, as well as OTC derivatives where Europe’s lead has been curtailed.
The report is based on 2007 data when the credit crunch was in its early phase so does not take account of the deterioration in credit markets in 2008. Some indicators such as investment banking revenue, securitisation and IPOs are likely to fall in 2008, but it is not yet clear how this will influence the relative positions of the US and Europe in financial markets, IFSL said.
Leave a comment : October 6th, 2008 : Economic Research, Industry Research, Market Research