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Moody's Downgrades Italy From Aa2 To A2, Negative Outlook - Full Text Of Three Notch Downgrade

Tyler Durden's picture


And here we go again. Ironically, this is nothing. Wait until S&P, which just telegraphed very loudly the next steps earlier, puts France on downgrade review...

Moody's downgrades Italy's government bond ratings to A2 with a negative outlook
Prime-1 ratings affirmed
Frankfurt am Main, October 04, 2011 -- Moody's Investors Service has today downgraded Italy's government bond ratings to A2 with a negative outlook from Aa2, while affirming its short-term ratings at Prime-1. The rating action concludes the review for downgrade initiated by Moody's on 17 June, 2011.
The main drivers that prompted the rating downgrade are:
(1) The material increase in long-term funding risks for euro area sovereigns with high levels of public debt, such as Italy, as a result of the sustained and non-cyclical erosion of confidence in the wholesale finance environment for euro sovereigns, due to the current sovereign debt crisis.
(2) The increased downside risks to economic growth due to macroeconomic structural weaknesses and a weakening global outlook.
(3) The implementation risks and time needed to achieve the government's fiscal consolidation targets to reverse the adverse trend observed in the public debt, due to economic and political uncertainties.
The downgrade reflects the weight of these growing risks relative to some positive credit attributes. These include a lack of significant imbalances in the economy or severe pressure on private financial and non-financial sector balance sheets, as well as the actions undertaken by the government over the summer. Moody's notes that the size of the rating action is largely driven by the sustained increase in the country's susceptibility to financial shocks due to a structural shift in market sentiment regarding euro-area countries with high debt burdens. A country's susceptibility to shocks is a key factor under Moody's sovereign methodology.
The negative outlook reflects ongoing economic and financial risks in Italy and in the euro area. The uncertain market environment and the risk of further deterioration in investor sentiment could constrain the country's access to the public debt markets. If such risks were to materialise and the long-term availability of external sources of liquidity support were to remain uncertain, the country's rating could transition to substantially lower rating levels.
The downgrade stems from three closely related drivers:
1) The fragile market sentiment that continues to surround euro area sovereigns with high levels of debt implies materially increased financing costs and funding risks for Italy. The country is a frequent issuer with refinancing needs of more than EUR200 billion in 2012.
Although future policy actions within the euro area could reduce investors' concerns and stabilise funding markets, the opposite is also increasingly possible. Even if policy actions were to succeed in the short term in returning some degree of normality to euro area sovereign debt markets, the underlying fragility and loss of confidence is deep and likely to be sustained. As indicated by the A2 rating, the risk of default by Italy remains remote. Nonetheless, Moody's believes that the structural shift in sentiment in the euro area funding market implies increased vulnerability of this country to loss of market access at affordable rates that is incompatible with a 'Aa' rating. Moreover, the preponderance of downside risks and the potential for rapid rating transition which those risks imply are not compatible with a rating at the top end of the 'A' range. The repositioning of Italy's government bond rating to A2 reflects Moody's judgment of the balance of long-term risks facing the Italian sovereign. It is consistent with Moody's broader reassessment of sovereign risk in the euro area, focusing on member countries that are more susceptible to confidence-related shocks due to high public debt exposure and/or large fiscal imbalances.
2) The Italian economy continues to face significant challenges due to structural economic weaknesses. These problems -- mainly low productivity and important labour and product market rigidities -- have been an impediment to the achievement of higher potential growth rates over the past decade and continue to hinder the economy's recovery from the severe recession it experienced in 2009. These structural impediments to economic growth cannot be removed quickly. The government's reform plans have only just started to address some of these structural challenges, and they need to be implemented efficiently. Moreover, moderate medium-term growth prospects for the Italian economy have been further revised downwards due to potential adverse effects of a weakening European and global growth outlook. Economic growth will be a crucial factor determining the government's revenues, the achievement of fiscal consolidation targets and, ultimately, its debt trajectory.
3) Finally, there is increasing uncertainty for the government to achieve fiscal consolidation targets. Since more than half of the consolidation measures are based on government revenue growth, the plans are vulnerable to the high level of uncertainty around economic growth in Italy and elsewhere in the EU. Moreover, political consensus on additional expenditure cuts can be difficult to achieve. As a consequence, the government may find it challenging to generate the primary surpluses that are needed to place the public debt-to-GDP ratio and the interest burden on a solid downward trend. Moody's expects Italy's public debt-to-GDP ratio to reach 120% at the end of this year, up from 104% at the start of the global crisis. As well as posing a risk to Italy's financial strength, which is a key consideration under Moody's sovereign methodology, failure to achieve fiscal and debt targets could increase the country's susceptibility to financial market shocks.


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Tue, 10/04/2011 - 16:35 | 1738820 wang (not verified)
Tue, 10/04/2011 - 16:37 | 1738840 Frog-And-Toad
Frog-And-Toad's picture

Remember that whole flash rally thing... How's that going to hold up tomorrow after Asia & Europe get stompped on tomorrow?

Tue, 10/04/2011 - 17:04 | 1738983 tekhneek
tekhneek's picture

"Dead cat bounce"

Tue, 10/04/2011 - 17:19 | 1739033 KenShabby
KenShabby's picture

That cat had springs on.

Tue, 10/04/2011 - 17:24 | 1739047 Frog-And-Toad
Frog-And-Toad's picture

That cat must be bouncing on a frictionless surface... This is unBEARable

Tue, 10/04/2011 - 19:38 | 1739525 CrankItTo11
CrankItTo11's picture

Flubber Cat

Wed, 10/05/2011 - 02:36 | 1740333 Harlequin001
Harlequin001's picture

'slinky springs'... remember them?

Wed, 10/05/2011 - 04:40 | 1740407 Snidley Whipsnae
Snidley Whipsnae's picture

Are the trains running on time? Thats the big deal in Italy... If the trains run on time all is well. If not, look for new leadership... Ill Douchbag 2...Save us!


Tue, 10/04/2011 - 17:33 | 1739093 Hansel
Hansel's picture

This was already priced in.  Do you think the market considered Italy Aa2?  /devil's advocate

Tue, 10/04/2011 - 21:16 | 1739763 Buck Johnson
Buck Johnson's picture

It won't, I was surprised it ended positive after leaving for work seeing that the Dow was -200 and then looking to see it ended positive 150.  This is desperation at it's finest.  The bank in Belgium which their where very very quiet rumors about came into being this week about needing another bailout and then a rumor of a good bank bad bank.  The whole system can't have any of these links go bust, because if it does it takes out all the rest and/or the rest will be everyone for themselves and a mad scramble to the exits.  And also to whatever assets they can steal and borrow.

Tue, 10/04/2011 - 16:38 | 1738821 GeneMarchbanks
GeneMarchbanks's picture

Now I see why we rallied! Makes sense. I swear, at this point what we need is a ZH hedgefund to go around and bring this bullshit to a stop. Tyler as manager.

Tue, 10/04/2011 - 16:49 | 1738862 traditionalfunds
traditionalfunds's picture

They often downgrade in waves. Wonder who is next.

& if the squeeze can hold.



Tue, 10/04/2011 - 16:35 | 1738823 CapitalistRock
CapitalistRock's picture

Doug Kass isn't going to like that.

Tue, 10/04/2011 - 16:39 | 1738867 rocker
rocker's picture

Doug Kass is a worthless asshole pimp for CNBC.  He said the lows were in for the year. Wrong.

Doug Kass said Japan's lows were in after the meltdown. Wrong.

Doug Kass said Gold was done going up when it was 1600 going on to 1900. Wrong Again.

Doug Kass is always wrong.  Cramer is his best friend. Guess it rubs off. Eh. 

Wed, 10/05/2011 - 04:42 | 1740409 Snidley Whipsnae
Snidley Whipsnae's picture

Rock on Rocker!

Tue, 10/04/2011 - 16:35 | 1738826 metastar
metastar's picture

Momma Mia!

Tue, 10/04/2011 - 16:36 | 1738835 Vincent Vega
Vincent Vega's picture

Can't the Europeans just start a "bad bank" and off load all of Italy's debt to it?

Tue, 10/04/2011 - 16:45 | 1738900 rocker
rocker's picture

We already have a "Bad Bank".

It is called  "The FED"

The FED already owns all the bad assets from American Banks and Foreign Banks alike.

Bernanke said, "I will not monetize"    What a joke. No Wonder there are Protest on Wall Street.

Tue, 10/04/2011 - 16:36 | 1738836 GenX Investor
GenX Investor's picture

It is just another hurdle to get over before the DOW hits 13,000

Tue, 10/04/2011 - 16:37 | 1738839 tekhneek
Tue, 10/04/2011 - 16:53 | 1738937 kaiserhoff
kaiserhoff's picture

Greek bonds and extended warranties!  How can I lose?

                                              Homer Simpson

Tue, 10/04/2011 - 16:37 | 1738842 joemayo
joemayo's picture

The shares crash, hopes are dashed.  People forget.

Tue, 10/04/2011 - 16:37 | 1738844 mayhem_korner
mayhem_korner's picture



Italy - toast.  Spain - toast.  France - toast.  UK - toast.  Who the hell's going to win the World Cup in '14?

Tue, 10/04/2011 - 16:38 | 1738854 GenX Investor
GenX Investor's picture

Don't know, but you made me hungry for breakfast.

Tue, 10/04/2011 - 16:39 | 1738868 Iriestx
Iriestx's picture

Vegemite is good on toast.

Tue, 10/04/2011 - 16:40 | 1738877 GeneMarchbanks
GeneMarchbanks's picture

Aussies prolly. Enjoy the vegemite you sick beast.

Tue, 10/04/2011 - 16:42 | 1738886 DutchTreat
DutchTreat's picture

The Dutch TeAAAm

Tue, 10/04/2011 - 16:55 | 1738944 Seasmoke
Seasmoke's picture


Tue, 10/04/2011 - 21:22 | 1739776 prains
prains's picture

New Zealand

Tue, 10/04/2011 - 16:38 | 1738849 scatterbrains
scatterbrains's picture

Good I hope we've shaken off the last of the weak ass bears today. Lets take this bitch back down again like a knife through butter.

Tue, 10/04/2011 - 16:39 | 1738866 GenX Investor
GenX Investor's picture

The weak bears are the ones you see talking on CNBC about what to do in the market.  They are more thinly capitalized than a Greek Bank.

Tue, 10/04/2011 - 16:38 | 1738852 youngandhealthy
youngandhealthy's picture

Who cares?

Tue, 10/04/2011 - 16:38 | 1738855 Edward Fiatski
Edward Fiatski's picture

And the dominoes are off... Enjoy European open tomorrow. U.S. 'investors' are dumb as fuck, I bet you anyone trading the DAX hasn't and will not hear of this FT story.

Tue, 10/04/2011 - 16:38 | 1738856 Finnykins
Finnykins's picture

Bullish spaghetti meat balls and crude comments right?

Tue, 10/04/2011 - 16:39 | 1738860 qussl3
qussl3's picture

Wow that was fun.

Tue, 10/04/2011 - 16:39 | 1738863 CapitalistRock
CapitalistRock's picture

Flash rip. We need an investigation to find out who is to blame.

Tue, 10/04/2011 - 16:41 | 1738880 GenX Investor
GenX Investor's picture

Tune into FAST MONEY in 20 minutes on CNBC to find out...

Tue, 10/04/2011 - 16:43 | 1738884 Pretorian
Pretorian's picture

This was timed exactly to short squeeze with reason. So we got good news then margin call then back where we were and no complains because we have excuse.Iluminati.


Wed, 10/05/2011 - 00:48 | 1740207 stacking12321
stacking12321's picture

hey, you can't say illuminati in a public forum.


Tue, 10/04/2011 - 16:41 | 1738885 BlackSea
BlackSea's picture

Shouldn't they downgrade gold first? After all, it's not backed by anything...

Tue, 10/04/2011 - 16:43 | 1738889 Belarus
Belarus's picture

And the SEC with be immediately investigating this move for wait for it......S + P finally doing their jobs. What a racket this whole thing has become. At least the new CEO at S + P isn't afraid to do his job. He'll be gone though, in 3....2.....1....

Tue, 10/04/2011 - 16:45 | 1738901 Ruffcut
Ruffcut's picture

Fuck Moodys and their perpetual bullshit. A big group of useless cunts.

Tue, 10/04/2011 - 16:47 | 1738909 Edward Fiatski
Edward Fiatski's picture

Went long into close? :)))

Wed, 10/05/2011 - 02:42 | 1740338 Harlequin001
Harlequin001's picture

' A stitch in time gathers no moss!'

Tue, 10/04/2011 - 16:50 | 1738924 PicassoInActions
PicassoInActions's picture

Some1 has to explain in plain English how the rumor squeeze works.

So , let's say FT comes with a msg that some politicians are masturbating and suddenly all at once are reversing positions? Is the actions are coordinated? Some1 gives a command to reverse and all do the same? Is it like a web of viruses? That's the p[art i don't get it. I understand HFT are fucking every1 else but how does it coordinate with so many hedge funds and big investing houses in a matter of seconds? It has to be group thinking or some kind of mechanism to synchronize all that bs in a such a short time.

Am i missing something?

Tue, 10/04/2011 - 16:57 | 1738953 mayhem_korner
mayhem_korner's picture

So , let's say FT comes with a msg that some politicians are masturbating and suddenly all at once are reversing positions?

Thanks for that image...excuse me while I go wash my eyes out with Clorox...

Tue, 10/04/2011 - 17:30 | 1739072 tumblemore
tumblemore's picture

computer programs.

Wed, 10/05/2011 - 02:44 | 1740340 Harlequin001
Harlequin001's picture

Basically it's just a bullshit excuse for the FEd et al to hide the fact that they just interfered with the market...

Tue, 10/04/2011 - 16:50 | 1738925 faustian bargain
faustian bargain's picture

Golly, that only took them 4 months to complete.

Tue, 10/04/2011 - 16:53 | 1738935 Seasmoke
Seasmoke's picture

if you listened closely to Benny Bucks, you will notice he did his best to avoid mentioning Italy, Spain and France regarding banks exposures ......its not always what he says, but what he DOESNT say

Tue, 10/04/2011 - 17:04 | 1738982 fyrebird
fyrebird's picture

He did mention them, except only as he was walking to his car later. "Oh and Italy, Spain and France are tooled and going down like cheap whores." I heard him say it in the underground, I was changing a flat. I had no idea he was just out of a speaking engagement or would have mentioned it earlier. So now you have his full statement. Sorry for taking so long. Hope that clears everything up.


Tue, 10/04/2011 - 17:13 | 1739013 Belarus
Belarus's picture

That's weird, I can't find this news anywhere on the MSM financial websites.

Tue, 10/04/2011 - 17:17 | 1739030 alien-IQ
alien-IQ's picture

I just don't see how rumors of a Dexia "bad bank...whatever" trumps an actual downgrade of Italy?

Maybe I'm just being naive or dense...maybe I should consider breaking out that 4 year old tab of acid in my freezer...I just can't decide.

Tue, 10/04/2011 - 17:21 | 1739037 heatbarrier
heatbarrier's picture

Moody's rating confirmed at C.  Outlook: Stable.

Tue, 10/04/2011 - 17:45 | 1739153 Shvanztanz
Shvanztanz's picture

Schwanztanz's Credit Rating Down-Graded from Total Ignoramus to Just-Plain-Dumb (Ponzi Susceptibility Outlook Negative)

Tue, 10/04/2011 - 19:29 | 1739504 SILVERGEDDON


Tue, 10/04/2011 - 20:04 | 1739599 Shvanztanz
Shvanztanz's picture

political hostage: payoff made, hostage released

nothing to do what so ever with the CIA using the country as a place of business

wonder how much Dept. of State paid to secure a "fair trial"

Don't get me wrong. I believe she was innocent too.

Tue, 10/04/2011 - 19:53 | 1739573 ivars
ivars's picture

I made long term EUR/USD prediction (2011-2017) to see if there is some support t her for ideas to understand better the default/devaluation ( Europe) debt deflation/default  ( USA) sequence I have been looking at lately.

Here it is with explanations:

Here just chart:

It does support debt  deflation in the Usa during 2012-2014 recession. QE3 won't change anything, perhaps delay deflation till June 2012.


Tue, 10/04/2011 - 20:42 | 1739691 slewie the pi-rat
slewie the pi-rat's picture

more debt!  more debt for sale!

get thru the end of they year!

i'll bet the markets rallied b/c the prime corporates just called their banksters and said they'd like to float 5 Tril $ in bonds before thanksgiving!

Wed, 10/12/2011 - 12:08 | 1766069 karmete
karmete's picture

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