Tag Archives: Fitch Group

Fitch Places Goldman Sachs on Negative Credit Watch

This is interesting: Fitch Ratings have just announced that the agency has placed The Goldman Sachs Group, Inc.‘s ‘A+/F1+’ long- and short-term Issuer Default Ratings (IDRs) and ‘a+’ Viability Rating (VR) on Rating Watch Negative. A whole bunch of major global banks gets the same treatment. I don’t think it matters that much to Mr. Blankfein & Co, thou – after all they’re just doing “God’s Work” – but it sends a signal to the market, adding a few more drops of uncertainty.

“Any adverse rating outcome would likely be limited to a one-notch downgrade of the long- and short-term IDRs, given the company’s stronger balance sheet and enhanced liquidity position relative to historical norms.”

Fitch Ratings

“In conjunction with a broad, global review of financial institutions and more specifically, global trading and universal banks, Fitch has placed several issuers on Rating Watch Negative, including Goldman Sachs (GS). Refer to the NRAC entitled ‘Fitch Places Seven Global Trading and Universal Banks on Rating Watch Negative,” the rating agency says in a press release.

Fitch believes that GS’s business model, like other global trading and universal banks face structural challenges given its wholesale funding profile and greater reliance on trading revenues.

“Fitch recognizes the steps GS has taken to diversify and extend its funding sources, as well as to de-lever its balance sheet, which will be reviewed in the context of other global financial institutions.”

The resolution of the Rating Watch Negative, which is expected to occur in the near term, will be based upon further analysis of the company and its peers, Fitch adds.

“Any adverse rating outcome would likely be limited to a one-notch downgrade of the long- and short-term IDRs, given the company’s stronger balance sheet and enhanced liquidity position relative to historical norms. This, combined with its leading positions in global capital markets are key franchise strengths supporting the firm’s ratings.”

The Goldman Sachs Group, Inc. is a global bank, providing underwriting, trading, financial advisory, asset management and securities services.

Business activities are now divided into four segments:

–Investment Banking;
–Institutional Client Services;
–Investing and Lending; and
–Investment Management.

Fitch places the following ratings on Rating Watch Negative:

Goldman Sachs Group, Inc.
Long-term Issuer Default Rating (IDR) ‘A+’;
— Long-term senior debt ‘A+’;
— Viability Rating ‘a+’
— Short-term IDR ‘F1+’;
— Commercial paper ‘F1+’;
Short-term debt ‘F1+’;
— Market linked securities ‘A+emr’;
Subordinated debt ‘A’;
Preferred equity ‘A-‘.

Goldman Sachs Bank, USA
— Long-term IDR ‘A+’;
— Long-term senior debt ‘A+’;
— Long-term deposits ‘AA-‘;
— Short-term IDR ‘F1+’;
— Short-term debt ‘F1+’;
— Short-term deposits ‘F1+’.

Goldman, Sachs & Co.
— Long-term IDR ‘A+’;
— Short-term IDR ‘F1+’;
— Long-term senior debt ‘A+’;
— Short-term debt ‘F1+’.

Goldman Sachs Bank (Europe) Plc
–Senior secured guaranteed debt at ‘A+’;
–Short-term secured guaranteed debt at ‘F1+’;
–Short-term debt at ‘F1+’.

Goldman Sachs International
–Senior secured guaranteed debt at ‘A+’;
–Short-term secured guaranteed debt at ‘F1+’;
–Short-term debt at ‘F1+’.

Goldman Sachs Paris inc. et Cie.
— Long-term IDR ‘A+’;
— Short-term IDR ‘F1+’.

Goldman Sachs Capital I
Trust preferred ‘A-‘.

Goldman Sachs Capital II, III
— Preferred equity ‘A-‘.

Ultegra Finance Limited
— Long-term senior debt ‘A+’;
— Short-term debt ‘F1+’.

Fitch affirms the following:

Goldman Sachs Group, Inc.
— Senior unsecured debt FDIC ‘AAA’;
— Short-term debt FDIC guaranteed ‘F1+’;
— Individual ‘B/C’;
— Support ‘5’;
— Support Floor ‘NF’.

Goldman Sachs Bank, USA
— Senior unsecured debt FDIC ‘AAA’;
— Short-term debt FDIC guaranteed ‘F1+’;
— Support ‘1’.

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Fitch: Euro Governments Borrowing To Drop by 9% in 2011

Fitch Ratings says in a statement that gross government borrowing for the EU15 countries will fall by 9.2% this year, to EUR 1.866 billion versus EUR 2.050 billion in 2010. Fitch expects that the run-off of government-guaranteed bank debt will start to eliminate a source of competition for sovereign debt, potentially easing sovereign financing conditions.

“Fitch expects net borrowing by central governments across Europe to fall sharply in 2011 as governments implement budget cuts.”

Douglas Renwick


In 2010 European governments had the largest borrowing requirement for decades. In a new report, Fitch notes that 2011 euro area gross borrowing is down 13% year-on-year to EUR 1.607 billion, or 16.5% of GDP.

In absolute terms, it is largest in France (EUR 386 bn), Italy (EUR 381 bn) and Germany (EUR 292 bn).

As a share of GDP, it is largest in Greece (25%), Italy (23%), Portugal (23%) Belgium (21%), France (18%) and Ireland (17%).

Overall, gross borrowing has fallen y-o-y for most European governments.

Denmark, Greece, and Portugal are the exceptions.

“Fitch expects net borrowing by central governments across Europe to fall sharply in 2011 as governments implement budget cuts,” Douglas Renwick, Director of Fitch’s Sovereign team, says in a statement.

“The dramatic rise in short-term debt issuance by EU15 countries seen in 2009 has also started to unwind, with short-term debt falling 11.2% year-on-year as of December 2010. As a result, medium and long-term debt maturities are up 13% year-on-year in 2011, partly reflecting higher public debt stocks,” Robert Shearman adds.  Shearman is co-author of the report and member of Fitch’s Sovereign team.

Although the marginal cost of funding increased for ‘peripheral’ euro area governments (Greece, Ireland, Italy, Portugal and Spain), yields declined for the EU15 as a whole, on an annual average y-o-y basis, to 3.5% in 2010 from 3.7% in 2009.

The report notes that by maintaining the average duration of their debt, peripheral countries are slowing the feed-through of higher yields to their effective rate of interest.

Fitch expects that the run-off of government-guaranteed bank debt (EUR 242 billion in 2011) will start to eliminate a source of competition for sovereign debt, potentially easing sovereign financing conditions.

(Note: Fitch defines gross borrowing as net borrowing plus redemptions on medium and long-term debt plus the stock of short-term debt at the end of the previous year, which will need to be rolled over at least once during the current year).

Here’s a copy of the report, entitled “European Government Borrowing: Steps in the Right Direction”

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Fitch Place The Entire US Mortgage Industry Under Negative Outlook

Fitch Ratings has Thursday assigned a negative outlook for the entire US Residential Mortgage Servicer ratings sector on increased concerns surrounding alleged procedural defects in the judicial foreclosure process. The industry-wide issue will cause all servicers to be under increased scrutiny from a wide range of state and federal regulators, state attorneys general, and GSE‘s. All servicers will be affected, even those fully in compliance with all foreclosure rules and regulations.

Risks to servicers include cost to research and remediate any errors, additional fees and resources, potential penalties and reputational risk.”

Diane Pendley


This is due to the increased amount of time and manpower it will take to properly address the much higher level of oversight and inquiries that are received, as well as the anticipated additional court delays. ‘Risks to servicers include cost to research and remediate any errors, additional fees and resources, potential penalties and reputational risk,’ said Diane Pendley, Managing Director and head of U.S. RMBS Operational Risk for Fitch.

This industry-wide issue will cause all servicers to be under increased scrutiny from a wide range of state and federal regulators, state attorneys general, and GSE’s. All servicers will be

Fitch’s Rating Outlooks indicate the likely direction of any rating change over a one- to two-year period and may be Positive, Negative, Stable or, occasionally, Evolving.

Fitch has received responses to its recent survey from all of its rated servicers regarding the servicers’ specific internal procedures used to verify and execute foreclosure affidavits.

All servicers have indicated that they are taking this matter seriously and have reviewed or are in the process of reviewing their internal procedures used to verify and execute foreclosure affidavits.

Approximately one-third of Fitch’s rated servicers have completed their reviews of foreclosure processes and the accuracy of their foreclosure affidavits. These servicers do not believe they will need to take any corrective action or make any changes to their current processes at this time.

Some servicers have estimated that they will be able to complete their review within the next several weeks, while others are still unable to give a specific estimate of how long it may take to complete their reviews.

However, ‘all servicers appear to be working towards quantifying and defining their position on foreclosures,’ said Pendley. Therefore, Fitch expects all servicers will have substantially completed their internal reviews by the end of the fourth quarter.

Based on the research that the servicers have completed to date on these issues, all servicers generally maintain the factual accuracy of their affidavits.

However, some have found their procedures for reviewing, signing and notarizing foreclosure documents may require changes and corrective actions. Some servicers have announced publicly that they have halted certain foreclosure and liquidation actions until their reviews are completed.

Many servicers have also stated that they will be resuming the foreclosure and liquidation actions in identified jurisdictions as they complete their reviews and determine that their processes are adequate and any needed corrective actions have been taken.

Fitch has requested its rated servicers to provide estimates on the volumes and timeframes for submitting corrected affidavits when it is found to be necessary and as this information becomes available. However, the servicer’s ability to resolve each corrective action at the local court level will create a wide variety of remedial steps and associated timeframes. ‘Final resolution of the foreclosure affidavit concerns and the multiple resulting investigations, along with assigned ownership rights prior to initiating foreclosure actions, may not occur until well into 2011 and possibly beyond,’ said Pendley.

Fitch has discussed with its rated servicers their ability to track and segregate the additional costs associated with taking any corrective actions.

If corrective actions are needed because of a servicer error, any increased costs should be borne by the servicers and not passed through to the trusts.

These increased costs may include legal costs to correct and file new or amended foreclosure documents and the increased carrying costs for the extended foreclosure and liquidation timelines.

Fitch may place an individual servicer’s ratings on Rating Watch Negative and/or downgrade the ratings if the servicer does not diligently and timely review its processes and take immediate corrective action to remediate any foreclosure action or documentation failures.

Fitch may take similar actions on a servicer’s ratings if the impact of the additional costs that must be borne by the servicer significantly affects its financial condition. Until those conclusions are reached, the Negative Outlook on the sector impacts all U.S. RMBS servicers.

An increase in loss severities on liquidated loans from expected trend lines or any downgrades to servicer ratings may result in negative rating actions on related RMBS classes.

As a direct by-product of the recent foreclosure issues, Fitch currently expects any negative rating actions on RMBS tranches to be limited largely to non-investment grade classes and tranches that currently have a Negative Rating Outlook. Additionally, Fitch does not envision RMBS downgrades to exceed a single rating category in most cases.

(Source: Credit Suisse)

Here’s a copy of the full report: Rating U.S. Residential Mortgage Servicers

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