Moody’s: Credit quality diving
THE QUALITY of credit in Western Europe continued to deteriorate sharply in the second quarter, with a record-breaking 122 financial institutions downgraded, according to Moody’s.
The ratings giant said the deterioration continued to hit most major economies in the region.
In total, 177 bonds were downgraded, amid fears that companies may struggle to maintain repayments as dire economic conditions continue to take their toll.
The agency was alarmed by a rapid deterioration in firms’ loan portfolios, tumbling asset values and dwindling capital reserves which could cause firms to default on bond coupon payments, Moody’s said.
But, investment-grade bonds – highly rated corporate credit – covered by Moody’s continued to recover sharply in the second quarter, the group said.
Investors switched out of government bonds into the investment-grade space during the quarter, the group said, causing investment-grade yields to fall, which in turn triggered healthy rises in the prices of the assets.
“The current macroeconomic landscape is much more positive than at the start of the year,” said Moody’s chief international economist Ruth Stroppiana.
But she added Europe will remain in recession for the rest of 2009, although the pace of economic contraction will continue to slow leading to a gradual levelling off.