Greece Default Risk Surges
Greece 5 Year CDS 28 wider to 269 bps. The all time high for the country was on January 20 at 292 bps, which was before Bernanke decided to have US taxpayers bailout the world.
Update: S&P just took Greek Banks to the woodshed:
S&P Takes Neg Rtg Actions On Greek Banks Re Greece Downgrade
-- On Dec. 16, 2009, Standard & Poor's downgraded Greece to 'BBB+' from 'A-', while maintaining the rating on CreditWatch negative. The 'A-2' short-term rating was placed on CreditWatch with negative implications.
-- We are lowering our long-term ratings on Greek banks EFG and Alpha to 'BBB' from 'BBB+' and placing them and the 'A-2' short-term ratings on CreditWatch negative.
-- We are placing our 'BBB+/A-2' and 'BBB/A-2' ratings on Greek banks NBG and Piraeus, respectively, on CreditWatch negative.
-- The actions also incorporate our expectation of the impact on Greek banks of an increasingly negative economic and operating environment--including capital-market disruptions and what we expect to be a more prolonged and deeper economic recession than we initially anticipated.
On Dec. 17, 2009, Standard & Poor's Ratings Services took the following rating actions on Greek banks:
-- Lowered its long-term counterparty credit ratings on EFG Eurobank Ergasias S.A. and Alpha Bank A.E. [RATED BUY AT CITIGROUP, SEE BELOW] to 'BBB' from 'BBB+', and placed them and the 'A-2' short-term counterparty credit ratings on both banks on CreditWatch with negative implications;
-- Placed its 'BBB+' long-term and 'A-2' short-term counterparty credit ratings on National Bank of Greece S.A. [RATED BUY AT CITIGROUP, SEE BELOW] on CreditWatch with negative implications. At the same time, Standard & Poor's placed on CreditWatch with negative implications its 'BBB-/A-3' long- and short-term counterparty credit ratings on NBG's strategically important Bulgarian subsidiary United Bulgarian Bank A.D.; and
-- Placed its 'BBB' long-term and 'A-2' short-term counterparty credit ratings on Piraeus Bank S.A. on CreditWatch with negative implications.
The actions follow our one-notch downgrade and maintenance of the long-term rating on CreditWatch negative of the Greek sovereign (Hellenic Republic; BBB+/Watch Neg/A-2) on Dec. 16, 2009.
Our weak near-term economic prospects for Greece incorporate a more pronounced and faster economic deterioration than we previously anticipated. Moreover, we believe that the challenges Greece faces in terms of fiscal adjustment and structural competitiveness issues increase the likelihood of a protracted hard landing for the national economy. This scenario could lead to a tougher economic and operating environment for Greek banks than the one we have incorporated into the ratings. In addition, we believe this scenario presents the risk of further deterioration in what we already expect to be compressed operating performance and weakened asset quality.
Our actions on the Greek banks also take into account our view that these institutions are exposed, albeit to varying degrees, to the current capital-market turmoil. While the banks maintain cushions in the form of liquid assets, and have access to the facility from the European Central Bank (ECB), we believe that imbalances in their funding profiles--particularly, reliance on wholesale funding and, in some cases, the existence of short-term refinancing needs--expose the banks to capital-market disruption. We will continue to evaluate the longer-term negative implications that we see for the profitability of all of the banks (though to varying degrees) of the eventual unwinding of the funding imbalances and, specifically, the strong reliance on cheap ECB funding.
Greek banks are directly exposed to the sovereign's deteriorating credit quality through their large Greek government debt portfolios. We will continue to assess how the latent market risk embedded in these portfolios materializes and affects the banks' financial profiles.
Any CreditWatch update on or resolution of the CreditWatch listing of the Greek sovereign by Standard & Poor's will likely lead to a CreditWatch update on the rated Greek banks. We could also provide a CreditWatch update on or resolve the CreditWatch listing of any or all of the banks if we revise our expectations regarding the likely magnitude and length of the capital-market disruption and specific banks' exposure to it, and/or if we anticipate an increase in the banks' vulnerability to the deteriorating Greek economy.
In this context, we have also placed under review our banking industry country risk assessment (BICRA) for Greece, which we currently include in Group 4 (out of 10, with 1 being the strongest), as well as our estimate of gross problematic assets (GPA)for the Greek system, which we currently place between 10% and 20% of overall private-sector credit.
The downgrade of EFG reflects our expectation that, given our medium-term concerns regarding a toughening operating environment for Greek banks, EFG's--in our view--already rapidly deteriorating asset quality and pressurized operating performance will likely face greater challenges than we initially anticipated. Our assessment of EFG's financial profile also takes into account our view that EFG's capital position is less robust than its Greek peers'. The CreditWatch listing and negative implications reflect those on Greece. They also reflect the risks we see for EFG's financial profile arising from the current turmoil in the capital markets and potentially harsher economic conditions over the medium term.
The downgrade of Alpha reflects our expectation that, given our medium-term concerns regarding a toughening operating environment for Greek banks, Alpha's asset quality and performance will likely weaken to a greater extent than we initially anticipated. The CreditWatch listing and negative implications reflect those on Greece. They also reflect the risks we see for Alpha's financial profile arising from the current turmoil in the capital markets and potentially harsher economic conditions over the medium term.
The CreditWatch listing and negative implications reflect those on Greece. In line with NBG's performance so far, we continue to view this bank's domestic loan portfolio as less vulnerable to the weakening national economy than that of Greek peers. We also view NBG as the least vulnerable to short-term pressures related to the current capital-market disruption, due to its lower reliance on wholesale funding and to its leading retail franchise. Nevertheless, the negative CreditWatch implications also reflect the possibility, in our opinion, that NBG's performance and asset quality metrics could weaken beyond our initial expectations in the context of a tougher-than-anticipated economic environment, both domestically and internationally. We also factor in latent market risk through what we consider to be NBG's sizable Greek government debt portfolio.
The CreditWatch listing and negative implications reflect those on Greece. We acknowledge that has Piraeus performed relatively well with respect to its Greek peers in the current negative environment, and has maintained asset quality deterioration within more contained limits. Nevertheless, the negative CreditWatch implications also reflect the risks we see for Piraeus' financial performance over the medium term arising from the sharper-than-expected economic deterioration. They also take into account what we view as comparatively higher vulnerability than Greek peers to the current disruption in capital markets given our opinion of Piraeus' higher--in our view--proportion of short-term wholesale financing in the funding base.
And here is proof that Citigroup has proudly desceneded into total worthlessness (from a Citi December 11 report). When even S&P is ahead of the curve, it is time to call it a career: