Credit Rating Agencies: Call the Amnesia Hotline

By: Kurt Schacht

Is it just me, or have credit rating agencies (CRAs) lapsed right back into their old habits? Once upon a time — 4,000 Dow points ago — we at CFA Institute and various governments around the globe lambasted the ratings firms for negligence particularly in how they assigned and monitored ratings to asset-backed debt. Triple AAA ratings were awarded with a “wink and nod,” as it turns out.

Two short years later, we have seen a return of the wink-and-nod agreement in the municipal bond and sovereign debt space. Is it possible for these ratings firms to successfully navigate the politics of putting whole countries, or various states within the U.S., on credit watch? How about a credit downgrade of the U.S. itself?

The impact of such credit actions on the market for existing debt securities — much less the new issues needed to refund and roll over debt to ensure continued solvency for all these parties — can be quite significant. If the raters fear such impact and avoid or defer the hard decisions, we all know the ratings themselves mean little in terms of actual credit quality.

As an example, Moody’s says only that it may lower ratings for Portugal, perhaps as much as two “notches.” Meanwhile, the whole euro zone remains under close scrutiny for similar ratings adjustments. Not much Yuletide cheer there. Clearly they are aware of how “more candid” reflections of credit can erode investor confidence.

In these shaky, economic times, the same governments who complained about the miserable failure of the ratings process back in the day are now a bit more, shall we say “tolerant.” Tolerance, in fact, may be the least of it — they’re begging for restraint in any downgrades. In that spirit, we reserve the right to revise our own ratings of CRAs either lower, or higher, depending on whether they choose to show some spine in this environment. So surprise us CRAs!

Culled from: http://blogs.cfainstitute.org/credit-rating-agencies-call-the-amnesia-hotli

Happy Holidays

Euro Looks For Direction as Concerns Over Greece Wane Read more: DailyFX - Euro Looks For Direction as Concerns Over Greece Wane

The Euro has traded lower on the day despite growing confidence that Greece will be able to correct their deficit issues and measures are being discussed to prevent a repeat amongst other member nations. A European monetary fund is being proposed by the E.C. to act as a lender of last resort, but opposition is already mounting against the proposal which is giving it little weight.

EUR/USD

The Euro has traded lower on the day despite growing confidence that Greece will be able to correct their deficit issues and measures are being discussed to prevent a repeat amongst other member nations. A European monetary fund is being proposed by the E.C. to act as a lender of last resort, but opposition is already mounting against the proposal which is giving it little weight. A pull back in risk appetite has helped drag the EUR/USD lower as the pair continues to see a 42% correlation with equity markets. Meanwhile, the deficit issues in Europe have seen interest rate expectations grow in influence to 28% from 8% a week ago. Slow growth, subdued inflation and the credit issues pushed out the horizon for a rate hike which added to the bearish Euro sentiment. The brighter outlook for Greece helped the Euro and yield expectations regain their footing which has reinforced the relationship between the two.

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ECB Interest Rate Expectations

Overnight Index Swaps turned higher and are now pricing in 63 bps of rate hikes over the next twelve months. This is sharply higher from 49.8 on February 26th, when concerns over Greece’s troubles reached their peak. An improvement in January German industrial production by 0.6% along with a 4.3% gain in German factory orders is evidence that growth is continuing in Europe’s largest economy. The upcoming German trade balance and EZ industrial production are the only upcoming releases that have any potential to impact the outlook for yields. To discuss this and trading ideas join the EUR/USD forum.

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FOMC Interest Rate Expectations

Fed funds futures continue to point toward rates remaining on hold for an extended period of time with a zero percent chance for a hike at the FOMC’s upcoming meeting. The stronger than expected NFP report was only able to raise the chance of tightening beginning in April to 5.8% from 2.9%. Looking out to August, markets are still leaning toward the central bank leaving monetary policy unchanged with a 31.5% chance of a rate hike. Advance retail sales for February has the most potential to alter expectations, the early forecast for a 0.1% decline in consumption may only serve to push out the horizon for future tightening.

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Risk

Stock markets took a breather today after Friday’s rally on the back of the strong labor report which has the Dow threatening a rising trendline. Depending from where you draw the upper bound of the current triangle formation, we may have seen a break above on Friday (which loses weight with today’s subdued price action) or it is currently being threatened and a retracement is still a possibility. U.S. Advance retail sales is the only major event risk on the week which could lead to further consolidation until Friday’s release. Discuss this and other fundamental data join the Economics Forum.

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Read more: DailyFX - Euro Looks For Direction as Concerns Over Greece Wane http://www.dailyfx.com/forex/fundamental/article/drivers_of_price_action/2010-03-08-2003-Euro_Looks_For_Direction_as.html#ixzz0hcps0YjX

Daily Market Summary: Is the dollar reversal in sight?

Fundamentals still remain the key drivers of activities on monday as equities in the US and America saw a surge on monday. European stocks surged on the German Chancellor's victory in the weekend elections in Germany. The DAX had edged up 2.78% by the end of trading while the CAC and the FTSE100 edged up 2.3% and 1.7% respectively. In the US, news of Xerox acquiring ACS buoyed risk sentiments as the DOW, Nasdaq and S&P 500 finished up by 1.28%, 1.9%, and 1.78% respectively. As traders look to market moving fundamentals coming later in the week, technical analysis point to a possible dollar reversal. The euro failed to break through resistance at 1.4675. The graph below shows some form of head and shoulder pattern formed with the bearish trend emerging on the eur/usd 1 hour chart.


Short term resistance might be at 1.4675 while the second short-term resistance is at 1.4725.

Another sign of a possible change in risk sentiments is the fact that the volatility index (VIX) is at a multi-period low and when compared against the S&P 500, there are clear market correction signals on the S&P 500 index.



Traders are keeping their eyes on the volatility index which is at a multi-year low which signifies a possible correction in equities and a collapse of risk appetite which is good news for the dollar.

Traders expect further decline in the sterling as they look to GDP figures due in hours which is expected to show a year-on-year drop of 5.8% in the size of the british economy. For most of the day the sterling traded sideways.

As the dollar comes under more pressure as a global reserve currency, long-term US treasury bonds increased (yield dropped) as investors appear to be moving into US safe haven assets. Eyes are also on commodities especially on oil following geographical tensions that stirred between the US and its allies on one hand and Iran on the other over Iran's suspected secret nuclear bunker in Tehran.

So far, its still very much about the green-back. Happy trading!!!

Daily Market Summary: Its all about the green back

As the G20 meeting gets underway in the Pittsburgh, currency traders are looking out for more tips to signal a dollar pullback. Global equities are said to be overvalued and over the last 24 hours, we have seen the DJIA, FTSE 100, S&P 500 as well as the Nasdaq index pare some of the gains they've mounted over the weeks. As issues of financial regulation and bankers' compensation top the agenda at the G20 meeting, analysts are looking out for any sign of a probable exit strategy from the various stimulus programmes despite regulators in US and UK warning of a slow and uncertain recovery. Contrary to major USD, the sterling got pounded to a multi month low following dovish comments from the Governor of the Bank of England. Here is an
hourly chart of the GBP/USD pair:



The sterling is eyeing the 1.6 support mark as RSI on a 4 hour chart shows the pair in oversold zone. Further downside is expected as recovery in the UK is expected to be slow but a near-term slide will ride on dollar strength. Mid-week reports from the BoE warns of a slow recovery but analysts see an open window for the BoE to expand its asset repurchase programme to further support the recovery process.

In the near-term, the Euro appears to have lost its upside steam. Breaking through the bullish trend line on a thirty minutes chart during New York trading hours point to a possible reversal. The dollar gained against the loonie as investors dumped equities in apparent loss of risk appetite ahead of G20 summit.

Friday the 14th: While bankers slept....(Part 1)

This is my first public reaction to the recent high profile dismissal of 5 Nigerian bank chiefs together with their entire cabinet. My first reaction will not be too analytical as I basically want to lean towards fundamentals this time because that is exactly what matters now. With respect to how the decision will affect investment in banking stocks, that is a bit complex as I will wait for investors and analysts react to what is happening before taking a position for the medium to long term. The decision and action of the CBN under the 'fearful' leadership of Sanusi Lamido Sanusi is a very sensitive one. Very sensitive that it is going to be unfair to refer to his actions as being politically motivated. The sensitivity of this issue emanates from two things: Its timing, and secondly, the persons invloved.

First is the timing. Critics say that 8 weeks is too short a time to take such a very major decision to wipe out the board of directors of 5 banks out of which 4 are mega-banks (in my own view) but let me remind them that Sanusi was a previous colleague to these guys even while he was with UBA and later when he headed First Bank. He has been in the system so he knows where and what are the problems. Dont forget also that we are only 5 months to the deadline for the common year-end policy which I think is probably another nightmare for bankers. But for bankers who had hopes pinned on the fact that the common year-end thing was going to be dumped or postponed, they can begin to have rethink now.

Next key issue for me is the persons involved. Question: If your colleague at work suddenly gets promoted to become your boss and the next day after becoming your boss he sacks you for mishandling the job. Could he have sacked you for mishandling the job while he was your boss or for mishandling the job during the tenure of his predecessor who did nothing to check your excesses? I guess the CBN decision speaks less of the man at the center of it all (Sanusi Lamido) but rather, speaks more of the man who had occupied that office of CBN governor for the past 5 years- Prof Charles Soludo. I remember vividly well Soludo's public defense of Intercontinental bank months ago when news was going around the blogosphere about the bank's illiquidity. Today, Intercontinental is among the banks 'skating on thin ice'. Probably the most high profile sack is that of Erastus Akingbola of Intercontinental bank. This is Nigeria's no1 professional banker in his position as the president of the Chartered Institute of Bankers of Nigeria (CIBN). His dismissal does not carry consequences only for the bank, it does for the Institute and the banking profession in Nigeria as well. At least the, Institute has its guidelines for the professional conduct of members which members are obliged to observe in their career as professional bankers and as long as they continue to be associated with the Institute.

For someone like me, the CBN decision dis not come as a surprise and if you revert to my earlier post titled 'Of CBN test and Nigerian Banks' on 25th June 2009, you will discover the reason why I said this is not a surprise. Barely 12 hours to when the CBN announced the sack of these CEOs, in a discussion with a friend, I said "...what will make up for the long-term sustainability in the Nigerian banking industry are the drivers of business in that sector. Nigerian banks need to change their business model and stop this CABAL banking...". Someone asked 'When issues get to this point, what exactly is fundamentally wrong?' Here's my answer: What is fundamentally wrong is that the fundamentals are wrong. Banks or should I say bankers have literally gone to bed. Over the years, even during the pre-consolidation days, there has been a constant deviation between banks and their traditional and primary role as money creators.

Profiling Nigeria's new bank chiefs

John Aboh- Oceanic Bank

Mr. John O. Aboh, (Oceanic International Bank Plc), was previously Executive Director (Banking Operations & Services) of First Bank of Nigeria Plc, from where he was appointed Ag. Group Managing Director, Wema Bank Plc. in 2008

Born on July 18, 1956. Mr. Aboh holds a B.Sc. degree in Finance and MBA in Finance & Accounts. He has over the years acquired special skills in Structural International Trade Transactions, Computer Literacy and People Management.

He has also attended several proficiency_enhancing courses within and outside Nigeria. A seasoned Banker, Mr. Aboh began his Banking Career in 1981 in First Bank of Nigeria Plc.

He worked as Credit Analyst, Assistant General Manager and as Deputy General Manager & Chief Inspector in Nigeria Merchant Bank Limited, Nigeria International Bank (Citibank) and UBA Plc respectively.

Notable special projects executed by Mr. Aboh include the reorganisation of International Operations System at Nigeria International Bank (Citibank) and the Implementation of the UBA MoneyGram Money Transfer Service. He is was also Executive Director (Banking Operations & Services) at First Bank. He is married with children.

Mahmud Alabi- Intercontinental Bank
Mr. Mahmud Lai Alabi (Intercontinental Bank) is a graduate of Economics in 1975 with 1st Class Division and the best graduating student of the University in that year having won 5 academic prizes. He has a master degree in economics from Yale University, USA in 1979.

He started his banking career with NAL Merchant Bank Plc as Deputy Manager in 1985 and rose to the position of Senior Manager before he joined First bank of Nigeria plc where he rose to the position of Deputy General Manager (Finance & Planning).

He became a pioneer Managing Director of Kakawa Discount House Limited in 1995. The position he occupied before joining Union Bank of Nigeria in 1999 as Executive Director (Commercial Banking) and later moved to Corporate and International Banking. He retired from the services of Union Bank in 2006.

CBN appointed his as the interim Chairman of FinBank Plc in June 2008 and later appointed as the Acting Managing Director and Chief Executive of Wema Bank plc.

Funke Osibodu- Union Bank

Mrs Funke Osibodu studied Economics at the University of Ife and is also an Alumnus of the prestigious Harvard Business School.

With over 27 years of banking experience, she has been the Managing Director of two banks, MBC, and more recently Ecobank Nigeria Plc, before becoming a Director in the parent holding company of Ecobank, Ecobank Transnational Incorporated, a position she left in August 2006.

In addition to an excellent banking career, Mrs. Osibodu has held various positions of prominence in the business community and has served in various government appointed committees. As well being a member Vision 2010, she has been a director of ValuCard, Nigeria Interbank Settlement System (NIBSS), Consolidated Discount House Limited, First Securities Discount House Limited, MBC Securities Limited, and ESL Securities Limited.

A recipient of various awards, in the non-financial realm she is also a director in Nigeria Economic Summit Group, Enterprises for Development International, a Non-Governmental Organisation, and the Centre for Law & Business - a private law university.

Nebolisa Arah- AfriBank
Mr. Nebolisa Arah, was the Managing Director/Chief Executive Officer of Fidelity Bank Plc from where he retired recently.Mr. Arah maintains a strong reputation in the banking industry as an achiever.

He holds a Bachelor of Science Degree in Agricultural Economics from the University of Ibadan, as well as Master of Science (Agricultural Economics), Master of Business Administration from Ohio University of Graduate School, Columbus.He is also a member of several professional bodies including Nigeria Economic Summit Group amongst others.

Sussan Iroche- Finbank
Suzanne Olufunke Iroche, (Finbank PLC) has over twenty four years industry experience. An alumnus of Queens' College Yaba Lagos, University of Lagos, Akoka, Yaba and J.L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois, U.S.A., she has also attended several management and leadership development courses in some of leading business institutes of the world. Suzzane has extensive experience and knowledge in the areas of Corporate Banking, Treasury and international banking. She is currently the Executive Director of Global Bank Directorate.

Source: www.zibb.com

Nigeria's Minister of State for Finance speaks to Financial Times