And The Euro Downgrade Hits Just Keep On Coming, This Time Fitch

Tyler Durden's picture

Never a dull Friday when dealing with continents that have a terminal solvency, pardon, liquidity crisis.


Shockingly, French-owned Fitch has nothing to say about... France.

Full statement:

Fitch Ratings-London-16 December 2011: Fitch Ratings-London-16 December 2011:
Fitch Ratings has placed the ratings of all investment grade rated eurozone sovereigns and their debt with Negative Outlook onto Rating Watch Negative (RWN). The euro area country ceiling of 'AAA' is unaffected. The rating actions are as follows:
- Belgium 'AA+'/'RWN from 'AA+'/Negative Outlook ('F1+' Unaffected)
- Spain 'AA-'/'F1+'/RWN from 'AA-'/'F1+'/Negative Outlook
- Slovenia 'AA-'/'F1+'/RWN from 'AA-'/'F1+'/Negative Outlook
- Italy 'A+'/'F1'/RWN from 'A+'/'F1'/Negative Outlook
- Ireland 'BBB+'/'F2'/RWN from 'BBB+'/'F2'/Negative Outlook
- Cyprus 'BBB'/'F3'/RWN from 'BBB'/'F3'/Negative Outlook
The RWN indicates that the above ratings are under active review and are subject to a heightened probability of downgrade in the near-term. Fitch expects to complete the review by the end of January 2012. If the review concludes that a downgrade is warranted, it is likely be limited to one or two notches.
Following the EU Summit on 9-10 December, Fitch has concluded that a 'comprehensive solution' to the eurozone crisis is technically and politically beyond reach. Despite positive commitments by EU leaders at the Summit, notably the decision to accelerate the creation of the European Stability Mechanism (ESM) and to place less emphasis on private sector involvement (PSI), the concerns held by Fitch prior to the Summit remain pressing and have not been materially eased by the Summit outcome (also see, 'Summit Does Little To Ease Pressure on eurozone Sovereign Debt,' 12 December). Of particular concern is the absence of a credible financial backstop. In Fitch's opinion this requires more active and explicit commitment from the ECB to mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent Euro Area Member States (EAMS).
Fitch recognises that the policy authorities in all of the countries with sovereign ratings subject to review have embarked upon significant fiscal consolidation and structural reform and these efforts will be taken into account in the review.  However, the systemic nature of the eurozone crisis is having a profoundly adverse effect on economic and financial stability across the region and for some EAMS poses near-term risks that are beginning to dominate the sovereign-specific risk fundamentals. Today's announcement is focused on those sovereigns that are potentially vulnerable to the worsening external economic and financial environment as indicated by previous negative rating actions and rating Outlooks.
The RWN is prompted by the following risk factors:
- In the absence of greater clarity on the ultimate structure of a fundamentally reformed Economic and Monetary Union and the recognition by political leaders of the potential for an EAMS to leave the eurozone, Fitch will review its assessment of the balance of risks associated with eurozone membership, especially for sovereigns potentially subject to funding stresses.
- While acknowledging the extraordinary measures the ECB has adopted to provide liquidity to the European banking sector, its continued reluctance to countenance a similar degree of support to its sovereign shareholders undermines the efforts by EAMS to put in place a credible financial 'firewall' against contagion and self-fulfilling liquidity and even solvency crises.
- The intensification of the eurozone crisis since July constitutes a significant negative shock to the region's economy and the stability of its financial sector with potentially adverse consequences for sovereign credit profiles across the region, most immediately for those placed on RWN today.
- In the absence of a 'comprehensive solution', the crisis will persist and likely be punctuated by episodes of severe financial market volatility that is a particular source of risk to the sovereign governments of those countries with levels of public debt, contingent liabilities and fiscal and financial sector financing needs that are high relative to rating peers.
In light of these heightened risks, Fitch will re-consider the assumptions and analysis that underpin its current sovereign ratings of Belgium, Slovenia, Spain, Italy, Ireland and Cyprus to ensure that the above risk factors are appropriately reflected in its sovereign ratings in accordance with its sovereign rating methodology.
The focus on investment grade rated sovereign governments with Negative Outlooks reflects previous research and analysis that indicates specific weaknesses that render them especially vulnerable to the intensification of the eurozone crisis.
However, the outcome of the review will also incorporate Fitch's current assessment of the strength of their underlying economic and credit fundamentals as reflected in their current sovereign ratings as well as recent policy measures adopted at the national level.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Popo's picture

If everyone is on credit watch negative.... is anyone on credit watch negative?

GeneMarchbanks's picture

Are you calling it? Cause I think you're way early.

JPM Hater001's picture

Meh- let's get real.  This is like calling water wet and the sky blue.

"Captain Obvious here.  Remember kids, water will get you wet."  A little too obvious even for todays news.  Drop them to Junk where they belong and then we can talk about real downgrades.

Jlmadyson's picture

Oh so lucky Mr Sarkos. Or later today perhaps not.

JSD's picture

Not allowed when the markt is open.

Temporalist's picture

Liquidity = "Fixable" 

Insolvency = "Well say it's liquidity"

ebworthen's picture

Ma foi!  No downgrade of insolvent France and French banks?!

What has the world come to?  2008?

transaccountin's picture
Horror as Walmart stays open after husband 'stabs wife to death in front of shoppers in the middle of the store'

ebworthen's picture

Walmart:  "Our thoughts and prayers go out to the family of the victim (but we couldn't possibly jeopardize half a day's worth of receipts over a human life)."

HelluvaEngineer's picture

"We have a blood spill on aisle 12.  I repeat, a code 22 on aisle 12"

sabra1's picture

no more $2 waffle makers?

valley chick's picture

Just "shocked" I tell you! /sarc

Credit rating agencies have lost their creditiblilty.  /sarc off

GeneMarchbanks's picture

Nico-SEE YA!

Poor Cyprus. God only knows how many Greek/Turkish/other tycoons evade taxes through them...


Waterfallsparkles's picture

Thank God they finally downgraded them.  This has been a hangover for the Market.  Now we can get over the worry about the downgrades.

machineh's picture

'Shockingly, French-owned Fitch has nothing to say about France.'

Well, they have to give 12 hours notice, you know.

Check back in after midnight.

Dr. Engali's picture

Does anybody else out there get sick of thinking...This is it? This is the one. Then nothing happens. I feel like we are living on a knifes edge daily yet nothing pushes us over the either side.

Schmuck Raker's picture

Sorta like I'm at a train station waiting for my ship to come in.

CClarity's picture

If Sovenia is there, count on Croatia, Austria, Hungary, Romania, Serbia, Montenegro, Bulgaria, Moldava which will continue to weaken the entire region, and leak into further eroding Europe.  The talking heads can make fun of the "little" countries, but people, this is really adding up now.  It doesn't have to be a big country to start the default avalanche.

GeneMarchbanks's picture

'If Sovenia is there, count on Croatia, Austria, Hungary, Romania, Serbia, Montenegro, Bulgaria, Moldava which will continue to weaken the entire region, and leak into further eroding Europe.'

That's a broad list there, pal. Several of those nations aren't even in the EU so you're stretching it. Austria is actually quite solid outside a few banks and Montenegro is like the Monaco of the Balkans. A country outside of the EZ defaulting only means the IMF takes the hit. It does need to be one of the PIIGS for things to get ugly fast.

CClarity's picture

Doesn't have to be in EU to put additional pressure on EU banks and financial system.  And Austria is very exposed to housing and economy in Hungary and Romania what with their banks making many Swiss Franc denominated loans to them.  Greek also owns a lot of Romanian and Hungarian debt.  And Montenegro - have you been there lately?  Everything is for sale.  Unfinished building projects litter the coast.  

Point is, only one card falling in this house of cards can bring it all down.  Or not.  But there isn't enough bailing wire to hold this all together anymore.  It isn't just about the EMU, a currency, a few banks or peripheral countries anymore.  They are intertwined and the overwhelming debt saturation is going to quicksand most of them.  The governments and banks are also so interconnected now that most must reset.  That will translate into default for many.  

GeneMarchbanks's picture

'Everything is for sale.'

Think that statement about sums it up but you have to include the politicians as well. Simple arithmetic says Greece defaulted some time ago. Trust me when I tell you that nothing changes unless Ireland, Greece or Portugal have a debtors revolt. Nothing happens until then. Remember the EUcratz have chosen a path of austerity for us... and that always ends in one way.

Caviar Emptor's picture

And Ukraine! lots brewing there. Don't forget the Baltic States that nearly had a bank run this week. And Denmark! in deep for a few years, flying below the radar. 

Waterfallsparkles's picture

Fast Money thought it was a real riot with the downgrading of Solvenia, Belgium and Cypress.

navy62802's picture

Of course they'll blame the UK.

Mark123's picture

I wonder how much these genius's were paid to come up with this insightful analysis?  Was it done by a coop student....maybe the product of "bring your daughter to work day"?



BluPoint's picture

Likely limited to be just one or two notches.  Makes me feel much better about things going forward.

Mike2756's picture

It's a known gnome at this point.

dereksatkinson's picture

Rating downgrades are a lagging indicators IMO..  Sentiment is compelling.. 

sabra1's picture

the soon to be in hell globalists are buying up all debt, no matter the price, to finally send the bill to collect. the rating agencies help ther cause by making that debt truly unpayable. they want our souls, but it ain't gonna be easy, right? well, right?

Jlmadyson's picture

"Comprehensive solution for euro zone crises technically and politically beyond reach."

"Europe lacks credible financial backstop."

Really now. Really.

Aunty Christ's picture

The dirty li'l secret is that the downgrades are MORE than priced in already. France CDS trade >200, which is where a TON of BBB rated countries trade. Even if the rating agencies downgrade France a notch or two ( which they love to do after the market closes), don't be surprised to see a rally in risk assets/Euro...

YesWeKahn's picture

In a sane time, S&P would have been down more than 20%, but it is still resisting. People are still affraid of missing a "rally".

you enjoy myself's picture mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent Euro Area Member States...


umm, thanks for that there hillarity Fitch.  would you be so kind as to name those mythical "solvent" states that you're so concerned about?


navy62802's picture

It's only a matter of time before actual downgrades start coming across the tape from S&P.

you enjoy myself's picture

thereby commencing a massive plunge of 10 points on ES.  to be made up (plus some) over the next couple days after everyone digests/ignores it, and the Fed continues pumping behind the scenes. 

this is really starting to resemble an awful Rocky scene, where he takes 27 direct head shots and the only result is an occasional stumble backwards.

Dick Darlington's picture

OT: The government of Goldman Sac... err Italy received "xmas presents" early this year. But but but, i was told ALL italians LOVE their new unelected leaders. Was i lied again? Tell me it ain't so!

eri's picture

Somebody still gives a flying f*** about Fitch or S&P downgrading anybody?

nonclaim's picture

In general, no.

But still many funds may be restricted from adding positions on those countries cutting demand from future auctions. Some may actually have to close positions depending on strategy/legal reqs.

Snakeeyes's picture

Yields dropping on bad Gyro news. Looks like ECB is asking Eurobanks to buy sovereign debt. QUANTITATIVE EASING, GYRO-STYLE!!!!!

Fitch Hints at Italy and Spain Downgrade, Euro Drops, But Yields Drop Too!

Quinvarius's picture

Where is one to stuff all their pilfered loot, now?  So many inflationary reservoirs cracking wide open.  Ahh.  The credit bust will be even better with the Fed/ECB buying all that garbage for top dollar as the bankers dump it in a panic.

aldousd's picture

FUCK! Cypress?!? Not Cypress!

LookingWithAmazement's picture

Hat tip 2012: the Dutch housing bubble.