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 European Union rules came into force this month requiring Standard
and Poor's, Moody's, Fitch and other credit ratings agencies that
operate in Europe for the first time to lay out the dates on which
they review a country's rating.
They could previously conduct and publish their market-moving
reviews at a time of their own choosing and were accused by euro
zone officials of exacerbating the region's debt crisis by
downgrading the ratings of struggling countries at critical moments.
The rules are part of a raft of increased regulation on the
agencies, which also came under fire for underestimating the risks
of mortgage-related securities in the run-up to the 2007/08 global
financial crisis.
All of the big three firms left it right until the year-end deadline
to publish their calendars, resulting in a number of busy schedule
periods that could make for volatile markets.
Mid-April looks particularly hectic; DBRS, a smaller Toronto-based
firm, decides on the 11th whether or not to downgrade Italy and
Spain, and Fitch does the same two weeks later.
If DBRS cuts one or both of them to B-grade territory it would mean
their sovereign bonds would automatically be worth 5 percent less
when swapped for cheap funding at the European Central Bank.
Before that, January gets the new system off with a bang. Moody's
reviews Portugal, which is still working through its EU/IMF bailout,
on the 10th. S&P follows suit on the 17th, the same day Moody's
looks at Ireland, which emerged from its bailout last month, and
Fitch casts the slide rule over the Netherlands.
On the 24th Moody's moves on to both the UK, one of the
fastest-growing industrialized nations, and France, which is under
threat of another downgrade, before February's headline date of the
14th, when it reviews Italy, the euro zone's second most indebted
state relative to GDP.
"The first few months of the year will be quite busy," said Citi
analyst Nishay Patel. "In the first quarter, there are eight
publication dates for European sovereigns who currently have a
negative outlook by either S&P or Moody's."
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DOWNGRADE DIARY
The new rules are intended to make the ratings process more
transparent and reduce the clout of the big three firms, but some
policymakers warn they risk creating what one recently called a
"downgrade diary" that traders could use to bet against vulnerable
states.
Some also wonder whether countries might try to game the new system
by delaying bad news until just after the review dates.
The rating firms will only be able to make changes outside the
pre-set timetable in extreme cases, for example if a government
falls or its finances undergo a significant change, for which the
agency must provide a detailed explanation.
Ratings have to be published on a Friday either an hour before or
after market hours.
One quirk of the new rules is that if a country in another part of
the world is rated by an analyst based in Europe, those ratings are
also subject to the new requirements.
For S&P that is roughly half the 127 countries it rates and includes
most of Africa and the Middle East, and the story is similar for
both Moody's and Fitch.
(Reporting by Marc Jones; editing by
Will Waterman)
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