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S&P Brings Out The Big Policy Guns - Downgrades Russia To Outlook Negative

Tyler Durden's picture




 

S&P, still deep in the mire of a legal battle with the US government, has decided now is an opportune time to cut the ratings outlook on Russia:

  • *RUSSIAN FEDERATION OUTLOOK TO NEGATIVE FROM STABLE BY S&P
  • *S&P SEES EU-U.S. IMPOSING FURTHER SANCTIONS

Russia remains a BBB credit (but with the outlook shift remains open to a downgrade with 24 months). S&P has cut 2014 GDP forecast to 1.2% and 2015 to 2.2%. Of course, we are sure, this would have nothing to do with currying favors with the US government (who threatened them when they downgraded the USA). Full report below.

 

S&P Reduces Russian Federation outlook to Negative from Stable.

Below is the full report:

OVERVIEW
• In our view, heightened geopolitical risk and the prospect of U.S. and EU economic sanctions following Russia's incorporation of Crimea could reduce the flow of potential investment, trigger rising capital outflows, and further weaken Russia's already deteriorating economic performance.

• We are therefore revising the outlook on our long-term sovereign credit ratings on Russia to negative from stable.

• We are affirming our 'BBB/A-2' foreign currency and 'BBB+/A-2' local currency ratings on the Russian Federation.

As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on the Russian Federation are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see "Calendar Of 2014 Publication Dates For EMEA Sovereign, Regional, And Local Government Ratings," published Dec. 30, 2013, on RatingsDirect). Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case, the reason for the deviation is the material and unanticipated intensification of geopolitical risks since our most recent release on Dec. 13, 2013, the introduction of sanctions, and the increased financial and economic downside risks to Russia related to these events. The next scheduled rating publication on the sovereign rating of the Russian Federation will be on April 25, 2014.

RATING ACTION

On March 20, 2014, Standard & Poor's Ratings Services revised its outlook on the Russian Federation (Russia) to negative from stable. At the same time, we affirmed our 'BBB/A-2' foreign currency and 'BBB+/A-2' local currency long- and short-term sovereign credit ratings on Russia.

We also affirmed our 'ruAAA' long-term national scale rating on Russia.

RATIONALE

The outlook revision reflects our view of the material and unanticipated economic and financial consequences that EU and U.S. sanctions could have on Russia's creditworthiness following Russia's incorporation of Crimea, which the international community currently considers legally to be a part of Ukraine.

In February 2014, pro-Russian forces took control of Crimea. As a consequence, on March 6, the European Union (EU) and the U.S. agreed on an initial round of sanctions, as part of a staged approach to imposing sanctions on Russia. On March 16, a referendum was held in Crimea in which approximately 97% of voters reportedly were in favor of Crimea joining Russia. The following day, the EU and U.S. announced that they viewed the referendum as illegitimate and sanctioned certain Russian and Ukrainian nationals through travel bans and asset freezes. On March 18, Russia's president, Vladimir Putin, signed a decree incorporating Crimea into the Russian Federation which was ratified by parliament today.

We expect that the EU and U.S. will impose further sanctions.

In our view, the deteriorating geopolitical situation has already had a negative impact on Russia's economy. The Central Bank of the Russian Federation appears to have abandoned its policy of increased currency flexibility and limited intervention in the foreign-exchange market. The Central Bank is now focused on stabilizing financial markets in light of the inflationary impact of the around 10% depreciation of the currency so far this year and the significant capital outflow, which we estimate at about $60 billion in the first quarter of 2014, similar to the level for the whole of 2013. The Central Bank also called an extraordinary meeting in March, raising its benchmark interest rate by 150 basis points to 7%.

Economic growth in Russia slowed to 1.3% in 2013, the lowest rate since 1999--excluding the economic contraction in 2009. We expect a further modest deceleration in growth this year and have lowered our GDP growth forecasts for 2014 and 2015 to 1.2% and 2.2%, respectively, from 2.2% and 3.0% in December 2013. In our view, there is a significant downside risk that growth will fall well below 1% if the uncertainties caused by the geopolitical tensions do not subside in the near term.

In our view, there is a material risk that the conflict between Russia and Ukraine could extend beyond Crimea and that violence between pro- and anti-Russian protesters could spread to other cities in Eastern Ukraine. Should the situation deteriorate, we believe further and wider sanctions could be imposed against Russian institutions and individuals, potentially including trade restrictions. In our view, these sanctions could further undermine Russia's economic growth prospects. We note, however, that sanctions, particularly those that might be imposed by EU countries, could be tempered by European economic trade and energy interests.

Our ratings on Russia continue to be supported by its relatively strong external and government balance sheets. The ratings remain constrained by structural weaknesses in Russia's economy, in particular the strong dependence on hydrocarbons and other commodities. Further constraints are what we view as comparatively weak governance and economic institutions that impede the economy's competitiveness, investment climate, and business environment.

The Russian government's finances continue to be buoyed by strong commodity revenues, particularly from oil. These account for almost one-half of the government's budget revenues, but also leave it exposed to swings in commodity prices. To mitigate this vulnerability, the government has instituted a fiscal rule from 2013, which caps government expenditure based on long-term historical oil prices. This fiscal rule is designed to lead to the accumulation of assets in times of high oil prices, and to the drawing on fiscal assets in times of low oil prices, reducing the procyclicality of fiscal policy. In our view, the government's commitment to this fiscal rule will likely be significantly tested by the recent further deterioration in growth prospects, while off-budget measures to support additional spending could also increase. We estimate Russia's 2013 general government budget to have recorded a deficit of 0.6% of GDP. Based on our expectation that commodity revenues will decline slightly on the back of a slightly weaker oil price (falling to $95 by 2015), we think the general government deficit will gradually worsen, reaching 1.5% of GDP by 2016, just outside the level targeted by the fiscal rule, and implying an average annual change in general government debt of 1.5% of GDP over 2013-2016.

Russia's aging population will be a source of considerable medium- to long-term fiscal pressure. In a no-policy-change scenario, we expect the aging of the population to add more than 10% of GDP to government spending by 2050 compared with 2010 levels. While the government has been adjusting pension system parameters, it has so far shied away from more decisively tackling the issue. We now estimate the Russian government to be in a marginal net debtor position due to revised data on the outstanding stock of gross general government debt. Nevertheless, low levels of gross debt imply low general government interest payments at about 2% of revenues during 2014-2016.

Commodity exports are also behind Russia's persistent current account surpluses, resulting in a net external asset position of about 4% of GDP in 2014. Measured in terms of narrow net external debt, that is, external debt minus liquid external assets held by the public and banking sector, we expect Russia to be in a small net external creditor position. This strong external asset position has been declining since reaching a peak of 34% in 2009. We note, however, that due to consistently negative errors and omissions in Russia's balance of payments (averaging almost $8 billion annually, or 1.5% of CAR in 2007 to 2013) the reported net asset position is considerably lower than implied by the large current account surpluses.

We expect the current account surpluses to disappear by 2015, owing to imports rising faster than exports. Further ruble weakness could weigh on imports and keep current account deficits from occurring a little later, but we believe the longer-term trend of a weakening current account will remain in place even so. Gross external financing needs (current account payments plus short-term external debt by remaining maturity) will amount to 70% of CARs and usable reserves in 2014, in our view. Dependence on commodity exports results in terms-of-trade volatility, although past experience has shown that imports tend to adjust strongly, offsetting part of a commodity price-induced drop in export revenue.

Russia's political institutions remain comparatively weak and political power is highly centralized. Protesters, opposition members, nongovernmental organizations, and liberal members of the political establishment have come under increasing pressure. We do not expect the government to decisively and effectively tackle the long-standing structural obstacles to stronger economic growth over our forecast horizon (2014-2017). These obstacles include high perceived corruption, comparatively weak rule of law, the state's pervasive role in the economy, and a challenging business and investment climate.

OUTLOOK

The negative outlook reflects our view that there is at least a one-in-three chance that we could reassess the risks to Russia's creditworthiness based on its deteriorating external profile and reduced monetary policy flexibility. As a result, we could lower our ratings on Russia within the next 24 months. Geopolitical reaction to Russia's incorporation of Crimea could further reduce the flow of potential investment and negatively affect already weak economic growth, which would provide a further basis for lowering the ratings. Similarly, we could equalize the local and foreign currency ratings on Russia if we were to view Russia's transition toward a more flexible exchange rate regime as having stalled.

We could revise the outlook to stable if Russia's economy were to prove resilient to the current challenges, resulting in a return to a policy of a more flexible exchange rate, and if its external and fiscal buffers were to remain in line with our current expectations.

 

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Thu, 03/20/2014 - 13:43 | 4573333 fonestar
fonestar's picture

S&P just downgraded themselves.  Politcal hacks, what a joke!

Thu, 03/20/2014 - 13:44 | 4573343 Soul Glow
Soul Glow's picture

i saw what u did there you period placing idiot

Thu, 03/20/2014 - 13:46 | 4573369 NotApplicable
NotApplicable's picture

You mean the Stalingrad & Poorski?

https://twitter.com/Stalingrad_Poor

Thu, 03/20/2014 - 13:54 | 4573420 HarryWanqer
HarryWanqer's picture

Definitely no bias with this call. I will not buy any Russian bonds after this heads up. Thanks S&P!!!

Thu, 03/20/2014 - 14:26 | 4573590 Manthong
Manthong's picture

Slandered and Whores?

Thu, 03/20/2014 - 14:31 | 4573611 BKbroiler
BKbroiler's picture

In other news, US drops lawsuit against S&P.

Thu, 03/20/2014 - 14:54 | 4573728 aVileRat
aVileRat's picture

Its cool, unless Obama blocks or claws back Barclays & DeutscheBank offshore accounts none of this matters. Taking Gazprom's 19 billion in cash instruments being held in London? Now we're talking.

https://www.youtube.com/watch?v=w2EZK-YQHZo

Every 24 hours another account will be confiscated under NATO article 19, where we consider this a state shadow asset of our enemy, the PACT. We are starting with Gazprom. Bang. 19 billion added to the USA.

Mr. Abromovich? how are you today? you have 23 hours, and the banks are all closed right now, and if you even try to call anyone, we will know about it.

Give CNN the broadcasting rights.

The alternative ?

Putin comes clean on the soldiers, and admits those were Russian Spetnaz who invaded and shot Ukranian troops without caus beli (a warcrime under his orders).

 

Thu, 03/20/2014 - 15:31 | 4573941 Handful of Dust
Handful of Dust's picture

Isn't S&P the company that rated all the Subprime Junk as AAA+ ?

Fri, 03/21/2014 - 02:35 | 4575883 Schmuck Raker
Schmuck Raker's picture

Weak little perv conviction....... FU -1.

AND ZERO creds for sarc.

Thu, 03/20/2014 - 14:00 | 4573449 RSloane
RSloane's picture

"Standard & Poor's Admits Its Claims Of Objectivity, Integrity Are Mere 'Puffery'" -  http://www.huffingtonpost.com/2013/04/23/standard-poors-puffery_n_3139134.html

http://www.reuters.com/article/2013/02/05/us-mcgrawhill-sandp-civilcharges-idUSBRE9130U120130205 - U.S. government slams S&P with $5 billion fraud lawsuit

 

But yah, now we trust em, right?

Thu, 03/20/2014 - 14:15 | 4573535 SamAdams
SamAdams's picture

Sway to the Muppets!  Muppets heart S&P ratings.

Thu, 03/20/2014 - 15:53 | 4574081 TheFourthStooge-ing
TheFourthStooge-ing's picture

Wonder what Egan-Jones thinks of Russia.

Oh, wait, that's right, here in the land of the free, we have to wait another four months before they're allowed to tell us.

Thu, 03/20/2014 - 13:48 | 4573384 wallstreetapost...
wallstreetaposteriori's picture

When does foneystar get downgraded.....?  

Thu, 03/20/2014 - 13:51 | 4573399 Looney
Looney's picture

These retards are giving the Rooskies an excuse to just go into Ukraine… or nuke the Saudis?  ;-)

Looney

Thu, 03/20/2014 - 13:54 | 4573421 McMolotov
McMolotov's picture

You mess with the bear, you get the horns...

Thu, 03/20/2014 - 14:00 | 4573460 StacksOnStacks
Thu, 03/20/2014 - 13:44 | 4573349 McMolotov
McMolotov's picture

S&P = Uncle Sam's bitch.

Thu, 03/20/2014 - 14:01 | 4573475 Renewable Life
Renewable Life's picture

Putin looks like Han Solo more and more each day!!!! The question is, who's going to be Yoda & Luke Skywalker in this Star Wars analogy?? You can't fight the Empire without the "force" and it sure as hell isn't China???

Thu, 03/20/2014 - 16:20 | 4574217 RafterManFMJ
RafterManFMJ's picture

Pretty easy - Michelle as The Wookie "Aaaaaaooooogh!" as she gets her unibrow waxed;

Yellen as Yoda - "Print, I will. Trust in the Fed you must."

Yellen can hide out in the swamp of US Foreign policy.

Thu, 03/20/2014 - 13:45 | 4573352 Real Estate Geek
Real Estate Geek's picture

This is getting pathetic; maybe even worse than pathetic.  Is patheti-sad a real word?

Thu, 03/20/2014 - 13:46 | 4573366 _ConanTheLibert...
_ConanTheLibertarian_'s picture

The US is patheticest.

Thu, 03/20/2014 - 13:56 | 4573437 Crash Overide
Crash Overide's picture

If this is an attempt to suggest that the US sanctions have more impact now that West-side NWO downgrades Russia it's a sad one at best... *yawns*

Thu, 03/20/2014 - 13:46 | 4573357 ZeroPower
ZeroPower's picture

In Soviet Russia, you downgrade issuers.

Thu, 03/20/2014 - 13:46 | 4573365 Stoploss
Stoploss's picture

Somebody's hacked fonestar's acct...

Thu, 03/20/2014 - 14:28 | 4573594 fonestar
fonestar's picture

No, but someone was trying to.

Thu, 03/20/2014 - 13:47 | 4573372 hungarianboy
hungarianboy's picture

Do people still buy the bullshit of credit ratings agencies?

Screw them if I would get a chance to buy Russian bonds and treasuries, I would buy them with both hands and feets. I have more trust in Putin and his policies than that of Obama and his US$.

Thu, 03/20/2014 - 13:50 | 4573397 astoriajoe
astoriajoe's picture

Puffery

Thu, 03/20/2014 - 13:56 | 4573438 hungarianboy
hungarianboy's picture

This picture shows it all. I don't see Obama holding this in his hands, Because the US doesn't have any of it anymore :-)

 

https://lh3.googleusercontent.com/tvzsjAjRSRbupYGGT9E9rnYPJLC6-HugMWgm7bChEa5Vk1DbPCUqdSOiaB9TkAQahnpNXKLR5mVwmdcsjbhdC3JVPsLiy3QKlMAlp2ceeHqgj3j682WLrMLhEc70IA

 

Thu, 03/20/2014 - 13:43 | 4573336 Soul Glow
Soul Glow's picture

They're all aiming at their own feet!  Why are they all aiming at their own feet?

Thu, 03/20/2014 - 13:44 | 4573346 magpie
magpie's picture

Everyone is a Jew. Friendly Fire ueber alles. Skull.

 

Thu, 03/20/2014 - 13:43 | 4573338 max2205
max2205's picture

Tools

Thu, 03/20/2014 - 13:43 | 4573339 PlusTic
PlusTic's picture

Putin should start selling russian govt bonds, get the mkt into freefall from all the western margin calls, then buy'em all up at 10 cts on $  ;)

Thu, 03/20/2014 - 13:44 | 4573347 DavidC
DavidC's picture

Spot on!

DavidC

Thu, 03/20/2014 - 13:47 | 4573358 magpie
magpie's picture

Yes he should, in a BMP coverd in Ukrainian skin...drive back and forth on each bond certificate to make sure.

(i am not mocking a historical incident nor do i wish to do so)

Thu, 03/20/2014 - 13:43 | 4573341 DavidC
DavidC's picture

Sorry, but...

Fucking pathetic.

DavidC

Thu, 03/20/2014 - 13:48 | 4573386 Real Estate Geek
Real Estate Geek's picture

Whoops; sorry for having the same assessment after you, but up-thread.

Thu, 03/20/2014 - 14:03 | 4573487 maskone909
maskone909's picture

No apologies. U two should be high fiving...
I think we all share those sentiments

Thu, 03/20/2014 - 13:44 | 4573345 adonisdemilo
adonisdemilo's picture

More bullshit from the US.

Thu, 03/20/2014 - 13:45 | 4573353 _ConanTheLibert...
_ConanTheLibertarian_'s picture

LOL.

Russia is doing much better than many countries. They even have a budget surplus.

The US is really like a kid shouting nonsense because it can't stand it's a fucking looser.

Thu, 03/20/2014 - 13:49 | 4573389 El Hosel
El Hosel's picture

WTF, we know what it takes to get Rating Change out of S&P... send the cash Bitchez.

Thu, 03/20/2014 - 13:46 | 4573360 ziggy59
ziggy59's picture

Someone at S&P got a call...

Thu, 03/20/2014 - 13:50 | 4573394 NotApplicable
NotApplicable's picture

I would assume these bootlickers know what to do without outside instruction.

Thu, 03/20/2014 - 14:01 | 4573472 CrashisOptimistic
CrashisOptimistic's picture

Someone remind me . . . how many million barrels does the S&P have?

Thu, 03/20/2014 - 13:48 | 4573383 Tracerfan
Tracerfan's picture

Russia is more fiscally solvent than the US.

S&P whores further exposed.  They should go out of business with their politicized and fake ratings.

Thu, 03/20/2014 - 14:07 | 4573502 disabledvet
disabledvet's picture

you sound surprised. hmmm..."Puerto Rico high yield, Russian high yield....Puerto Rico high yield, Russian high yield."

Let me think about that for...five...miliseconds.

Thu, 03/20/2014 - 13:49 | 4573390 yogibear
yogibear's picture

It's a perfect time for Russia, China and the rest of the non-EU countries to dump the petro dollar.

Kill the US dollar. Perfect time for it.

It's a serious economic war now.

 

Thu, 03/20/2014 - 13:53 | 4573413 NotApplicable
NotApplicable's picture

Question is, can China's financial system survive the reboot? Or are they too rotten as well (rehypothetically speaking)?

 

Thu, 03/20/2014 - 13:52 | 4573406 Rising Sun
Rising Sun's picture

Russia schmussia.  Who the fuck cares.  This is a side show.

 

How about China and its pending collapse????  That's worth the price of admission.

Thu, 03/20/2014 - 13:53 | 4573415 semperfi
semperfi's picture

Russian downgrades US dollar - now only accepts rubles or gold for gas & oil.

Thu, 03/20/2014 - 13:54 | 4573416 semperfi
semperfi's picture

Russian downgrades US dollar - now only accepts rubles or gold for gas & oil.

Thu, 03/20/2014 - 13:54 | 4573424 Cupid Stunt
Cupid Stunt's picture

Hey Obama........ Ever heard of Kaliningrad.......You could cut the joint off from the rest of the world in hours..........Guess you aint got the balls.

Now there`s a sanction................

Thu, 03/20/2014 - 14:02 | 4573478 Clowns on Acid
Clowns on Acid's picture

More gay, paper mache sanctions ..... not that there is anything wrong with that....

Thu, 03/20/2014 - 14:03 | 4573482 JohnnyBlaze
JohnnyBlaze's picture

I thought in Russia they downgrade the S&P.  I'm fucking confused now.  Boris????

Thu, 03/20/2014 - 14:05 | 4573494 Dubaibanker
Dubaibanker's picture

What has changed in Russia? Nothing...they gained territory....billions came back from foreign banks thanks to Cyprus and now Obama.....Gazprom signed USD 270bn largest oil deal in history with China..........They sold US Treasuries last week...hmmmmm...probably that's why...because S&P's primary mandate is to ensure that foreigners keep buying US debt else US will default...so they must downgrade foreigners who stop buying US debt else the US ponzi will fail....I get it! 

S&P doesn't look at fundamentals....it gives AAA to US junk debt aka sub prime, brings the entire US economy down and just a couple of mega banks and dozens of countries along with it, doesnt even get sanctioned or shut down but when Russia pays down its debt and has a budget surplus, S&P uses it's pea sized brain to downgrade Russia! http://en.ria.ru/business/20140225/187879818/Weak-Ruble-Could-Push-Russi...

Thu, 03/20/2014 - 14:38 | 4573652 kchrisc
kchrisc's picture

I am updating the old cliché, "Those that live in glass houses shouldn't throw rocks," to, "Those that live off debt ponzies shouldn't throw sanctions."

Russia to the DC US: "What are you gonna do, bleed on me?!"

Thu, 03/20/2014 - 14:10 | 4573510 Downtoolong
Downtoolong's picture

Great, now pension funds will be forced to sell Russian holdings and we’ll get to find out which pension funds were dumb enough to invest their workers money in Russia in the fist place.

Thu, 03/20/2014 - 14:12 | 4573519 agent default
agent default's picture

Remember what happened when they downgraded the US?  There would be hell to pay if they didn't downgrade Russia right now.  In other news, there are people who still give a fuck  what ratting agencies think.

Thu, 03/20/2014 - 14:33 | 4573624 kchrisc
kchrisc's picture

What, did the Russians buy more of the garbage known as "US Treasuries" or something? LOL

Maybe they should look more closely at Belgium.

 

"I upgraded my guillotine."

Thu, 03/20/2014 - 14:49 | 4573711 MFLTucson
MFLTucson's picture

Their balance sheet is better than America. 

Thu, 03/20/2014 - 15:06 | 4573792 U4 eee aaa
U4 eee aaa's picture

I have more faith in Russia paying their debts than I do the US

Thu, 03/20/2014 - 15:12 | 4573828 PLira
PLira's picture

Russia has got big problems long term according to this blogger. An no, it ain't mine.

http://alfinnextlevel.wordpress.com/2014/03/20/potemkin-putin-a-slowly-c...

Thu, 03/20/2014 - 15:46 | 4574039 pupdog1
pupdog1's picture

Drones are hovering outside the windows of the S&P executive suite.

 

Hey, weren't these the same cats that said everything was moo-e-bueno back in 2007?

Thu, 03/20/2014 - 16:04 | 4574140 Mr Giggles
Mr Giggles's picture

These clowns still exist? A dangerous tight rope they walk. Exchange their cheap suits for orange ones.

Thu, 03/20/2014 - 16:10 | 4574159 Duke Dog
Duke Dog's picture

Just remember Bershire/Buffet - if I'm not mistaken from what I read 5 years ago (nothing now), Berkshire has $tens of Billion in put options written on specifically the S&P with the bulk expiriing in 2015.

Now you know where his famous expression "Weapons of Mass Financial Destruction" came from, why he is a fucking Whore, and why the S&P has to be Bought at all Cost.

I do wish Tyler would look into that scam correlation/causation.

Thu, 03/20/2014 - 16:27 | 4574241 The_Ungrateful_Yid
The_Ungrateful_Yid's picture

NWO is going according to plan A

Do NOT follow this link or you will be banned from the site!