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Moody's Downgrades Greek Covered Bonds
Good thing the ECB (and the IMF) no longer cares about what the Geiger counter reading on its collateralized assets is any longer. The rating agency which also has the last A-rated Greek rating is reviewing the Greek sovereign rating for further downgrades.
Madrid, April 29, 2010 -- Moody's Investors Service has today downgraded the following covered bonds
issued by Greek banks:
- Mortgage covered bonds issued by National Bank of Greece S.A.
("NBG"): Downgraded to A1 and placed on review for further downgrade;
previously on 26 April 2010 downgraded to Aa2 on review for further downgrade.
- Mortgage covered bonds issued by Alpha Bank S.A.
("Alpha"): Downgraded to A1 and placed on review for further downgrade;
previously on 26 April 2010 Aa2 placed on review for further downgrade.
- Mortgage covered bonds issued by EFG Eurobank Ergasias S.A.
("EFG Eurobank") under its first covered bond programme (EUR5 billion
Global Covered Bond Programme): Downgraded to A1 and placed on review
for further downgrade; previously on 26 April 2010 Aa2 placed on
review for possible downgrade.
- Mortgage covered bonds issued by EFG Eurobank under its second
covered bond programme (EUR3 billion Global Covered Bond Programme):
Downgraded to A2 and placed on review for further downgrade; previously
on 26 April 2010 assigned A1 and placed on review for possible downgrade.
- Mortgage covered bonds issued by Marfin Egnatia Bank SA ("Marfin"):
Downgraded to A1 and placed on review for further downgrade; previously
on 23 December 2009 downgraded to Aa2.
Moody's says that the downgrades were prompted by the weakening economic
environment in Greece and the resultant increase in funding costs for
the sovereign. As a result of these increased funding costs Moody's
has increased the refinancing margins used in its analysis of Greek covered
bonds. The ratings have also been placed on review for further
possible downgrade as r(see the press releases
"Moody's downgrades Greece's sovereign ratings to A3; on review for
further possible downgrade" dated 22 April 2010 for further details on
the rating action on Greece, and "Moody's to review six Greek banks
for possible downgrade" dated 23 April 2010 for the rating actions on
the banks).
Against this difficult economic backdrop, and given the exposure
of the covered bonds to refinancing risk Moody's believe any recovery
against the cover pool following an issuer default could be severely distressed.
Refinancing risk arises following the default of the bank supporting the
covered bonds ("issuer default"). Following issuer
default, the covered bonds must be repaid from the assets backing
it. For Greek covered bonds that are either "bullet" bonds or are
exposed to acceleration risk, the natural amortisation of the assets
in the cover pool cannot be relied on to fully repay the covered bonds.
This means that funds may need to be raised against the assets backing
the covered bonds, possibly through a firesale. The discount
on the face value of the assets required to achieve such a sale following
issuer default is referred to as refinancing risk.
In the current volatile environment, Moody's expects that the discount
required to achieve a sale could be substantial. The high level
of the potential refinancing risk faced in Greece is reflected by both
the current government yield, for example the spread over swaps
of the five year government debt is now around 950bps, and the current
CDS premium for Greek government debt which is around 800 bps.
As a result of these increased financing costs, Moody's has
increased the refinancing margins used in its analysis to over 1000 bps
from around 750 bps.
RATING METHODOLOGY
Moody's rating for any covered bond is determined after applying a two-step
process:
(1) Moody's determines a rating based on the expected loss on the bond.
This is modelled as a function of the issuer's probability of default
and the stressed losses on the cover pool assets following issuer default;
and
(2) Moody's assigns a Timely Payment Indicator (TPI) which indicates the
likelihood that timely payment will be made to covered bondholders following
issuer default. The effect of the TPI is to limit the covered bond
rating to a certain number of notches above the issuer's rating.
The principal methodologies used in rating these transactions were "Moody's
Rating Approach to Covered Bonds", published in March 2010,
and "Assessing Swaps as Hedges in the Covered Bond Market", published
in September 2008. These can be found on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issue can also be found in the
Rating Methodologies sub-directory on Moody's website. In
addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
The rating assigned by Moody's addresses the expected loss posed to investors.
Moody's ratings address only the credit risks associated with the transaction.
Other non-credit risks have not been addressed, but may have
a significant effect on yield and to investors.
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Deep Shah.
Warren, Warren, wherefore art thou Warren??
'You're out of order! You're out of order! The whole trial is out of order! They're out of order! It's just a show! It's a show! It's "Let's Make A Deal"! "Let's Make A Deal"!'
-Arthur Kirkland
Since the players are looking to beat the casino, the dealers are watching the players. The box men are watching the dealers. The floor men are watching the box men. The pit bosses are watching the floor men. The shift bosses are watching the pit bosses. The casino manager is watching the shift bosses. I'm watching the casino manager. And the eye-in-the-sky is watching us all. Back home, they would have put me in jail for what I'm doing. Here, they're giving me awards.
-Ace Rothstein
'Well I am certainly wiser than this man. It is only too likely that neither of us has any knowledge to boast of; but he thinks that he knows something which he does not know, whereas I am quite conscious of my ignorance. At any rate it seems that I am wiser than he is to this small extent, that I do not think that I know what I do not know.'
-Socrates
'Instead of rating the man by his performances, we rate too frequently the performances by the man.'
-Samuel Johnson
New York Post via The King Report
By Paul Tharp
'A 90-percent tax on all bonuses in banking and financial services to a quadrupling of dividend taxes on portfolios, to 40 percent...a bedroom in the country's fabled seaside villas will get hit with a 20 percent surcharge -- on top of property taxes that will triple...The new laws forbid cash transactions above $2,000 at businesses, requiring they be paid with checks or credit cards under the threat of seizing shops for violations. Athens also will start paying whistle-blowers a 10-percent bounty on all cash recovered from tax cheats and clawbacks from secret banks abroad...tax breaks are being abolished...the self- employed who'll have to forfeit their long-held income tax rates of as low as 5 percent. They'll now have to pay 40 percent on incomes above about $52,000. ...Any household making more than $82,500 will pay a 40-percent tax, and those with income over $130,000 will pay a new top rate of 45 percent, each amounting to a 5-percent jump. Only those making $15,600 and under will escape the tax ax.'
The above is a description of the reasonable austerity measures that Greece will be expected to implement.
Good luck with that. What is Greek for 'Bazooka meet doom-cycle?'.
Dance recital for a young-un this morning so watching the baby until the sitter arrives...this disclosure for purposes of explaining why your humble blogger had Hee-Haw on without the sound muted.
Anywho caught some kommentator clutching a venti and asking a union leader that was organizing a demonstration outside Wall Street why he was being so... gosh golly... negative?
Can't we all just get along?
I mean, golly gee, the aphorism 'Failure to liquidate the insolvent banksters has led to the liquidation of a large part of the productive economy. A taxpayer financed bailout of rich folks' bad speculative bets has resulted in zombie banks and zombie customers... a fiscal tide that lifts no boats' is well...so...2009! The banks need our support brother cause the demand restoration project ain't workin' yet!
On March 30th your humble blogger posted: 'Soon the debate will fall on the continuum of a double-dip caused by the counterproductive populism of bankster bashing versus the political palliative of misdirection through scapegoating.'
Cue Goldie Scoldie Show Trial puh-lease.
Heard about Ritholz's commentary on Goldie through Honest Abe in Barron's...
He makes 1 point, 'The claim Paulson & Co. were long $200 million dollars when they were actually short is a material misrepresentation — that’s Rule 10b-5, and its a no brainer. The rest is gravy.'
My understanding was that the equity tranche was not part of the final deal, so not sure what the point is. The reference to Paulson being long was conditional, in some initial memo. Yes? Was it in the final structure? Don't think so. That's damn weak stuff. Folks didn't read the final deal? Seriously?
The late great Mark Pittman once wryly noted that almost no one in the media knew what yield was. What do you think the odds are that these same folks have any clue as to how a structured offering is circled?
What other point does Ritholz make?
'What you don’t see are all the emails, depositions, interrogations, phone taps, etc. that the prosecutors know about and GS does not'. Uh.. well neither does Ritholz, so again, what is the point?
For folks that have never participated in a structured bond offering, who never saw the gurus whip up iterations on the back of napkins, who never witnessed slivers of equity being presented as burnt offerings to the rating agency Gods, the current pablum narrative would appear to be unassailable.
Now I wasn't privy to this deal getting circled but will hazard a guess as to what the equity tranche (Paulson going long in the intial) was all about...
Paulson was more than willing to put down a sliver of equity in order to secure the AAA, but once it was confirmed that the rating agencies would give the pixie dust lipstick without it, it went buh-bye...
The ratings agencies are the enemies of the people, the rest was 'enabled' noise.
The 'selection' process on almost any comparable structured product was a reverse engineering of the rating agencies 'models' that had been tinkered over time in collusion with their fee-paying clients for the end goal of getting the AAA on the selected pig.
Will Goldie be found greedy before guilty by an impartial jury? That first assumes you can get an impartial jury, but yeh sure why not? The whole system was guilty of this. This was the game.
However if every other bankster is not brought up on similar charges than this episode is nothing more than a political diversion, the political palliative of misdirection through scapegoating in order to quell the 'counterproductive' populism of bankster bashing.
'Nuff said.
Isn't it curious though that the MSM is highlighting emails of 'French to English' translated puns while giving short shrift to the rating agencies' billowing inferno of melting, not smoking, guns?
S&P employee (2006): “Rating agencies continue to create an even bigger monster — the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters.”
S&P employee(2006): “We rate every deal. It could be structured by cows and we would rate it.”
Moody employee(2006): “I am getting serious pushback from Goldman on a deal that they want to go to market with today."
Moody employee(2006): "They’ve become so beholden to their top issuers for revenue they have all developed a kind of Stockholm syndrome which they mistakenly tag as Customer Value creation."
Oh and get this, as the FT reports today: 'The terms of the CDO contracts highlight how lucrative these instruments were for the agencies, with annual pay-outs of up to $50,000 made to track deals. Ratings surveillance fees are still being paid on CDOs that have suffered "an event of default" ...even toxic CDOs can continue to exist for many years.'
Seriously you can't make this stuff up! These folks are like arsonists who push for the bomb-making material and then, after planting the bombs and lighting the fuses, extort the firemen and get a tax on the water.
Isn't it curious that the accepted 'political' dimension of the SEC's motivations on Goldie was to strengthen financial reform and not obfuscate the hand-slapping being enacted upon the rating agencies on the Hill? A financial reform bill that says nothing, sees nothing, and does nothing about the rating agencies? Yes, I know you're shocked by that.
Isn't it curious that the Grecian, Spanish and Portuguese downgrades were coincident with the purported cessation of our debt monetization? Now that's a real strong dollar policy folks.
As once posted way back when in December 2008 : 'If we can accomplish the Houidini-esque stunt of funding this debt at manageable levels it will only be by literally defining AAA as anything American (i.e. if America becomes AA then literally AA is the new AAA, with the assumption that the reasons for our 'downgrade' would serve as deleterious to all others, except maybe Mr. Gold.)
I believe this vision is playing out. We are the last canary, and the biggest domino. But given the magic of our reserve currency, our 'downgrade' will only occur within the context of the world being downgraded first.'
That is the magic of our reserve currency and the elixir of the rating agencies, ensconced safely on our shores, a fact that is truly in the national security interest of the United States.
At no time do their hands leave their arms.
You should post your own articles. That comment is too long.
This is obviously bullish news. Market recouping all it's previous losses!
It's not that it's bullish news for the US markets, it's just non news now. Two days ago, it looked like the world was imploding. Especially the postings here at ZH. But it was pretty clear with the prevailing psychology of the markets right now, that all would be forgotten by the weekend - as I said on Tuesday.
At some point, it'll end no matter how much juice is thrown in to prop up the system. However, news of this sort fails to rattle anyone chasing the momentum of this market. As I said before, in my opinion this won't end until we test the all time highs. That should put us somewhere by Fall 2011 before we see a pull back of more than 10%.
What does it matter, free money for banksters to play HFT with themselves
Remember, when risk was supposed to be repriced?
Remember when the fed/imf/eu/ecb was not the counterparty to each and every awful decision that a country/bank/hedge fund made?
What an absolute clusterfuck of moral hazard.
That's great. Does this mean I should short Feta Cheese and Gyros?
Fall 2011? I wish I was as optimistic. Things are likely going to falter by summer 2010. Too many leaks in the dam springing up. Gold's continued march is better than watching the VIX at the present moment. Real estate here in Canada is really beginning to weaken. Mortage rates here are above 6% for 5 year fixed.....and climbing.
MOODY'S YOU ARE LATE!!!
The Goldman notes and the rest of the talking heads, all seem to think that the Euro issue is null and void, because a bailout is coming. Yes perhaps, but Merkel seems pretty hardlined against cutting that check unless she sees fiscal exp. cuts on the books. Meantime, the Greek labor unions are smearing the streets with riots and protests. I don't see how this round of talks is any more likely to end up more successful at producing an actual bailout. The CDS on Greek sovereigns are definitely twisting the head press gears, but Germany sees that the PIIGS could all be tethered on one big leash. Think of Bear Sterans who got bailed out, then Lehmen was let go. EU won't make that mistake twice so soon. If Greece is bailed, then so well the PIGGS over the course of the year. Talk about an untreated hemorrhage...
Greece govt. will be overthrown if something like that austerity (there's more to this than what was put down in the article, like privitazation of public utilities and businesses). The Algos may be stopping the shorts, but you have to wonder something from Portugal being downgraded and Spain. If the shorts are having trouble winning trying to dump on a already battered Greece, what can they do. They can start to hit all the PIIGS at once and see if the Western markets are fast enough to protect everyone. Eventually they will miss a catch and one country will fall and that will start the chain reaction of Mark to Myth economics which is going on in the Western world.