Moody’s warns of UK banks’ risks
French bond auction dispels some concern
CONCERNS over euro zone sovereign debt and the region’s banks sent the single currency and stocks lower yesterday.
However, the first French bond auction of the year helped dispel some fears about the ability of governments to fund their massive debts.
Yields increased at the auction of 10-year to 30-year French government bonds as the threat of a cut to France’s triple-a credit rating weighed on sentiment. But solid demand was seen with the
7.96 billion (R84bn) sale nearly twice oversubscribed.
Fears that European banks will struggle to raise fresh capital to repair their ravaged balance sheets rose after Italy’s largest bank, Unicredit, had to heavily discount a rights issue to sell the shares on Wednesday.
The French auction was viewed as a key test of market sentiment following the unveiling by EU leaders in December of a plan to resolve the debt crisis and the move by the European Central Bank to pump nearly 500bn into the region’s troubled banks.
Markets have been bracing for France to lose its top-notch rating as well, after ratings agency Standard & Poor’s warned in December of a mass downgrade of euro zone states due to concerns about the bloc’s two-year old debt crisis.
“It (the auction result) is nothing to get excited about. But, at the same time it should be enough to dispel concerns with regards to France’s funding capacity for the time being,” said DZ Bank strategist Michael Leister in Frankfurt. THE OPERATING environment remained negative for British banks which, themselves, were better placed in some respects than EU rivals more directly hit by the euro zone debt crisis, Moody’s said yesterday.
Senior vice president Elisabeth Rudman said Moody’s would not necessarily cut British bank ratings again.
“In the UK, the banks have considerably strengthened their capital levels and liquidity levels. It means the UK banks are relatively well-placed with regards to their peers in Europe,” she said.
As with Germany’s bond auction on Wednesday, the French debt sale was seen as reasonably successful but not impressive.
A sterner test of investor sentiment is expected next week, when Spain and Italy, the two big economies seen as most at risk from the crisis that has already dragged down Greece, Ireland and Portugal, are due to issue bonds.
The euro was down 0.75 percent to $1.2840 to the dollar after the auction, below the September 2010 low of $1.2847.
The Ftseurofirst 300 index of top European shares, which had fallen ahead of the French bond auction, slid further and was down 0.8 percent at 1013.49 points. It hit a five-month high on Tuesday but fell 0.6 percent in the previous session.
The European banking sector was the main drag on stocks, with the Stoxx Europe 600 banks index down more
“But the operating environment which they are in is extremely challenging and we think it will remain so.”
In October, Moody’s cut its ratings on part state-owned banks Lloyds and Royal Bank of Scotland, and downgraded Spanish group Banco Santander’s Santander UK unit, the CoOperative Bank, the Nationwide Building Society and seven smaller building societies.
Negative risks for British banks were rising unemployment and the possibility of an economic recession, Rudman said. – Reuters than 2 percent on the worries about prospects for more capital raising.
The MSCI world equity index edged down 0.5 percent building on losses seen earlier in Asian stock markets.
The difference between Spanish and Italian bond yields and safe-haven German bunds also widened. In the secondary debt market, 10-year French government bonds reversed earlier losses ahead of the auction to be little changed at a yield of about 3.3 percent.
Elsewhere, EU attention was focused on the selloff in Hungarian financial markets, which is forcing investors to weigh the possibility of a default in the EU state and the risk of contagion to other regional economies.
Hungary needs to find $16.5bn (R135.5bn) this year to repay debt owed to bondholders and the International Monetary Fund. – Reuters