Wednesday, May 26, 2010

Forget The Rating Agencies: Banks, GS and BNP Paribas Downgraded Nearly 5 Notches Lower By Investors

Bloomberg reports today that bond investors are no longer waiting for ratings companies to act before downgrading Goldman Sachs Group Inc. BNP Paribas, "and the rest of the world’s biggest financial institutions". And the downgrades are near 5 grades lower.

It turns out that bank debt is now yielding 253 basis points more than government securities, with data from Bank of America Merrill Lynch’s Global Broad Market Financial Index.

Given that industrial company notes yield 268 basis point ans those are five grades lower, investors have spoken about what the think about banks and rating companies.

The gap between the two benchmarks was down from 177 basis points at the start of 2009 to about 11 points this month.

"Investors are marking down bank bonds on concern Europe’s sovereign debt crisis will reduce lenders’ creditworthiness and that regulatory efforts to control risk taking will crimp their profits. Banks may have a capital deficit of more than $1.5 trillion by the end of 2011 and some may require state support, according to Independent Credit View, a Swiss rating company".

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