As of October 8, 2012 the European Stability Mechanism (ESM) is a fact.
ESM is a European multilateral lending bank that lends money to euro Area Member Countries in order to facilitate them to restructure their debt and financial position.
Please note that the ESM lending is funded by debt only!
Implicitly the first remark implies that if individual AAA countries are downgraded below AA, the Fitch rating is no longer robust. As the probability that such a downgrade might happen, is substantial, it is strange that this 'downgrade risk' is not explicitly valued in the rating procedure.
The second remark implies that a significant risk (1Y default Risk Greece>30%; see also: Default Risk at Risk) as the exit of Greece, has also not been valued in the rating procedure. Not to mention that a possible default risk or exit of Spain has not even come into the mind of the FitchRating scientists.
Perhaps it's also time to fill in the Risk Manager vacancy in the ESM Organization Chart...... ;-)
Sources/Related Links
Aftermath European Crises Explained
Please note that the ESM lending is funded by debt only!
ESM Rating
On October 12, 2012 Fitch Ratings has assigned the ESM a triple-A (AAA) Long-term Issuer Default Rating and a Short-Term IDR of 'F1+'. The Outlook is Stable.
All Hosanna one would say. Well almost....
- The rating is robust to downgrades of 'AAA' shareholders into the 'AA' rating category.
- However, as Fitch has previously commented, in the event that Greece were to exit from the eurozone, the ratings of all sovereign and sovereign-rated entities in the eurozone, including the ESM, would be placed on Rating Watch Negative as Fitch re-assessed the broader political commitment to the euro and the potential contagion and financial implications of a Greek exit.
Implicitly the first remark implies that if individual AAA countries are downgraded below AA, the Fitch rating is no longer robust. As the probability that such a downgrade might happen, is substantial, it is strange that this 'downgrade risk' is not explicitly valued in the rating procedure.
The second remark implies that a significant risk (1Y default Risk Greece>30%; see also: Default Risk at Risk) as the exit of Greece, has also not been valued in the rating procedure. Not to mention that a possible default risk or exit of Spain has not even come into the mind of the FitchRating scientists.
Conclusion
From a risk management and valuation perspective, leaving out both risks in an official rating procedure is ridiculous and looks more like a kind of 'lip service' instead of a serious rating procedure. Above all, it places rating procedures in a bad spotlight.
It's about time to rate the ratings agencies an their rating procedures. Who's willing (or dares) to do so?
From a risk management and valuation perspective, leaving out both risks in an official rating procedure is ridiculous and looks more like a kind of 'lip service' instead of a serious rating procedure. Above all, it places rating procedures in a bad spotlight.
It's about time to rate the ratings agencies an their rating procedures. Who's willing (or dares) to do so?
Perhaps it's also time to fill in the Risk Manager vacancy in the ESM Organization Chart...... ;-)
Sources/Related Links
Aftermath European Crises Explained
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