Friday, March 07, 2008
Global corporate finance rating activity continues to show increased signs of stress in 2008, according to a Fitch Ratings review.
Credit quality turned negative in the second-half of 2007 under the weight of rapidly deteriorating housing market conditions, which also points to further credit weakness for the remainder of the year, according to the Fitch report, titled "Fitch Global Corporate Rating Activity: Credit Quality Takes Negative Turn in 2007, Trend Continuing in Early 2008."
"What began as a series of financial market events has begun to take a toll on credit conditions in the broader economy," said William May, senior director, Fitch Credit Market Research. "This evolving story is reflected in corporate rating activity, which illustrates the expanding nature of the credit crisis."
Globally, the downgrade to upgrade ratio was 0.4 for the full year 2006 and then rose steadily over the first three quarters of 2007 before hitting 0.9:1.0 in fourth-quarter 2007. In Western Europe and North America the downgrade to upgrade ratio for the full year 2006 was 0.5:1.0 and 0.8:1.0, respectively, before rising to 1:1 in both regions for the full year 2007. For the fourth quarter, the downgrade to upgrade ratio in Western Europe and North America was 3:1 and 1.1:1, respectively.
"Through the first two months of 2008, Fitch's global rating activity indicates further deterioration in credit quality as downgrades exceeded upgrades by a ratio of 1.6:1," said Charlotte Needham, senior director, Fitch Credit Market Research. "This decline was driven largely by activity in North America and Western Europe where the downgrade to upgrade ratios through February were 5.5:1 and 2:1, respectively."
The most significant deterioration between first- and second-half 2007 credit quality occurred in the financial sector as the ratio of global downgrades to upgrades among financial institutions rose to 0.9:1 in the fourth quarter, up from 0.4:1 in the third quarter and 0.3:1 for the first half.
The effects of the credit market meltdown continued to exact a toll on North American and Western European financial firms in early 2008. Through February, the downgrade to upgrade ratio among North American and Western European financial institutions was 3.7:1 and 2.3:1, respectively.
While financial institutions bore the brunt of the subprime related credit market meltdown in the latter half of 2007, ratings deterioration in late 2007 and early 2008 extended into the industrial sector as well. In the first two months of 2008, there were a total of 35 downgrades among North American industrials versus only 4 upgrades (a ratio of 8.8:1).
Looking ahead, the majority of Fitch's Rating Outlooks remain Stable. However, the mix of Negative to Positive Rating Outlooks across industrial and financial credits in some regions - North America in particular - indicates the likelihood of meaningful deterioration in 2008. At the end of February 2008, for example, 20% of ratings on U.S. banks and financial institutions had a Negative Outlook, versus only 12% with a Positive Outlook.
Across U.S. industrials, the mix of Negative to Positive Rating Outlooks was also negatively skewed but more balanced at 11% versus 8%, respectively. However, within some sectors, notably the building and construction industry and the basic materials industry, the Rating Outlook mix was more heavily tilted towards Negative.
Monday, March 10, 2008
Fed Takes New Steps on Credit Crisis
Friday, March 07, 2008
The Federal Reserve said Friday it is taking bigger steps to ease the nation's credit crisis, including increasing the amount of money it will auction to banks this month to $100 billion.
The Federal Reserve said it will raise its planned March 10 and March 24 auctions to $50 billion each, up from the $30 billion limits it had previously announced. The auctions serve as short-term loans to get banks the cash they need to keep lending to their customers.
Fed officials said in a statement they planned to continue the auctions for at least six months, and would move to even larger auction amounts if needed.
The Fed also said that starting Friday it will enlarge another series of transactions, called repurchase agreements, so that they will pump a net total of $100 billion into the financial system at any one time.
The Fed has been working to pump billions of dollars into the banking system to aid an economy rocked by the subprime mortgage crisis and the severe tightening of credit. The central bank started its new type of auction in December to provide short-term loans to banks in hopes of keeping them lending.
Economists say the nation is teetering on the edge of a recession, if one has not already begun.
The picture worsened just after the Fed's announcement Friday when the Labor Department released a report showing employers slashed another 63,000 jobs in February, the most in five years.
The Federal Reserve said Friday it is taking bigger steps to ease the nation's credit crisis, including increasing the amount of money it will auction to banks this month to $100 billion.
The Federal Reserve said it will raise its planned March 10 and March 24 auctions to $50 billion each, up from the $30 billion limits it had previously announced. The auctions serve as short-term loans to get banks the cash they need to keep lending to their customers.
Fed officials said in a statement they planned to continue the auctions for at least six months, and would move to even larger auction amounts if needed.
The Fed also said that starting Friday it will enlarge another series of transactions, called repurchase agreements, so that they will pump a net total of $100 billion into the financial system at any one time.
The Fed has been working to pump billions of dollars into the banking system to aid an economy rocked by the subprime mortgage crisis and the severe tightening of credit. The central bank started its new type of auction in December to provide short-term loans to banks in hopes of keeping them lending.
Economists say the nation is teetering on the edge of a recession, if one has not already begun.
The picture worsened just after the Fed's announcement Friday when the Labor Department released a report showing employers slashed another 63,000 jobs in February, the most in five years.
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