Credit Ratings Hit Euro and Greek Bonds Below Belt
Indian market regulator SEBI recently created a flutter of sorts when it asked the rating agencies operating in India to disclose their fees as well as their rating norms, including data about historical default rates. The four credit rating agencies that currently operate in India will now have to make such disclosures at least twice a year to ensure transparency and accountability.
The nexus of credit rating agencies with market makers, (the likes of Goldman’s infamous Fabulous Fab during the housing crisis) has been long a matter of concern, as ratings are timed to often cause stocks or bonds to jump or tumble, which induce extreme reactions at the markets. The current crisis in Europe where the ECB and IMF stands firmly behind Greece, Portugal and Spain, while credit rating agencies keep on downgrading them, is worrying.
It is true that dithering amongst the European powers and indecisiveness of Germany in particular to back Greece during its hour of crisis caused the matter to deteriorate. In comparison the Dubai crisis was swiftly sorted out by the senior partner of the Emirates , and within weeks Dubai is back on the luxury investors map with Armani showcasing the world’s most luxurious night pad in Burj Dubai.
In the eye of the storm is the decision by S&P downgrading Greek debt to junk status on Tuesday besides simultaneously cutting ratings for Portugal and Spain in a series of moves that caught both the ECB and the IMF off guard.This after they had pledged a much larger support fund of Euro 120 Billion to Greece. It pressured the Euro and created opportunities for speculators to go short, in a week when risk actually reduced due to the liberal rescue package that covered debt re-payments for the next three years.
S&P further said yesterday in a statement that Spain's debt rating could be downgraded further if the "budgetary position under performs to a greater extent than we currently anticipate." It was indeed a rather strange timing for such statements, and the ECB reaction was naturally terse. “We, of course, expect that credit rating agencies, like other financial players, and in particular during this difficult and sensitive period, act in a responsible and rigorous way,” said a spokesperson for Michel Barnier, the EU internal market commissioner.