Egan Jones Cuts Spain For Second Time In Two Weeks, From BBB- To BB+
Even as the SEC is hell bent on destroying Egan Jones as a rating agency, in the process cementing its status as an objective, independent, and honest third party research entity, the firm is just as hell bent on milking its still existing NRSRO status for all it's worth. Because while Egan Jones was the first entity to cut Spain two weeks ago, only to be followed by Spain, it just did so again minutes ago.
From Egan Jones:
Synopsis: KINGDOM OF SPAIN EJR Sen Rating(Curr/Prj) BB+/ BB Rating Analysis - 4/30/12 EJR CP Rating: A3 Debt: EUR643.1B, Cash: EUR95.1B EJR's 1 yr. Default Probability: 3.0% Miserable trend - over the past three fiscal years (i.e., from 2008 to 2010), Spain's GDP declined from EUR1.09 trillion to EUR1.07 trillion. Meanwhile, its debt mushroomed from EUR381 billion to EUR563 billion. The recently-reported quarters are of little comfort since the debt has risen to EUR 641B while GDP has been more or less flat resulting in a 61% debt to GDP and will continue to rise. Increased social benefits are a major problem; while payments to the govt have been more or less flat over the past four years (up EUR 8 billion), payments from the government have been up EUR 44 billion). As a result, Spain is short about EUR50B per year for social payments, EUR20B per year for interest, and an additional EUR 30B for asset growth; hence the EUR100B per annum increase in debt. Unemployment is near depression levels of 23+% while adjusted wage rates have declined. In addition to its social payment/ unemployment problem, Spain is likely to be faced with payments to support a portion its banking sector and for its weaker provinces. Assets of Spain's largest two banks exceed its GDP. We are slipping our rating to " BB+ " ; watch for requests for support from the banks.
Look for more "legitimate" rating agencies to piggy back on the re-cut shortly. And as noted last night, once all rating agencies move from SpAin to SB(BB)ain, the 5% ECB haircut on collateral is next.