Fitch

  • 22 Sep 2014 at 5:55 PM

Fitch, Moody’s Still More Patriotic Than S&P

Neither are going to make that double-A-plus mistake that a certain ratings agency made, and while they’re at it, they have some kisses to blow in Washington’s direction. Read more »

The liquidators want $1 billion for investors and the name of the rating agencies’ dealer for a friend. Read more »

  • 15 Oct 2013 at 5:33 PM

Fitch May Or May Not Downgrade U.S.

Fitch Ratings placed the U.S.’s pristine triple-A rating on watch for downgrade Tuesday as the federal government runs short on time to raise the nation’s borrowing limit. The Fitch warning comes as the House and Senate work on competing plans to raise the U.S.’s borrowing limit and fully reopen the federal government. The Treasury Department, which has used extraordinary steps to continue paying its bills for roughly two weeks, says it will exhaust those powers on Thursday…Fitch said a failure by the government to honor interest or principal payments on U.S. Treasury securities would lead it to downgrade the U.S.’s sovereign issuer-default rating to “restricted default.” It would also slash the affected issues to B-plus from triple-A. [WSJ]

Bloomberg has a delightful story today about a new JPMorgan RMBS transaction, its first non-agency deal since the crisis. Specifically about this:

The bonds are made riskier by the New York-based bank and other originators of the mortgages offering weaker promises to repurchase misrepresented loans than those on similar deals, Fitch Ratings said today in an e-mailed report. Lenders and bond sponsors have been seeking to trim potential liabilities in such deals as the market revives after suffering billions of dollars of losses from debt sold before the collapse in home prices.

The value of the so-called representations and warranties in the JPMorgan transaction is “significantly diluted by qualifying and conditional language that substantially reduces lender loan breach liability and the inclusion of sunsets for a number of provisions including fraud,” New York-based Fitch analysts including Roelof Slump wrote in the presale report.

So naturally the deal is limited to an Aa rating, as it would be at Moody’s based on those sort of rep and warranty weaknesses, right? Errr not so much:

The classes of the deal expected to receive top credit ratings carried loss buffers of 7.4 percent as Fitch said it adjusted its analysis to reflect the greater investor dangers created by the weaker contracts, according to the report.

So 92.6% of the deal will be AAA rated at Fitch and Kroll, the other rating agency on the deal. Here’s the cap structure from Kroll’s report: Read more »

Bloomberg has an editorial today about how the government is subsidizing the top ten U.S. banks by $83 billion a year and maybe it should stop doing that. Because the editorial is getting a lot of attention, and because it is wrong, let’s discuss it.

Here is Bloomberg:

Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers — Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz — put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.

Here are Ueda and di Mauro:

[W]hen issuing a five-year bond, a three-notch rating increase translates into a funding advantage of 5 bp to 128 bp, depending on the riskiness of the institution. At the mid-point, it is 66.5 bp for a three-notch improvement, or 22bp for one-notch improvement. Using this and the overall rating bonuses described in the previous paragraph, we can evaluate the overall funding cost advantage of SIFIs as around 60bp in 2007 and 80bp in 2009.

Let’s break that down. Their paper: Read more »

Fitch Ratings is showing the U.S. some tough love. Read more »

  • 02 Aug 2012 at 1:13 PM
  • Banks

Shadow Banking Is Just Like Regular Banking, Only Darker

It feels virtuous every so often to take glance over at the triparty repo market. You get a nice dose of horrified vertigo and then go back to your life and don’t think about it for a while and that always feels better. Now is a good time to get back to it, what with continued worrying about money-market funds – a core player in the market – and two interesting things this week about triparty repo: this testimony from Matthew Eichner of the Fed to a Senate subcommittee, and this report from Fitch.

Here is how I imagine triparty repo:

  • A bunch of money market funds and other cash investors keep $1.8 billion of cash at JPMorgan and Bank of New York Mellon, the “clearing banks” in the triparty system.
  • A bunch of securities dealers keep a pile of securities – worth, on a good day, more than $1.8bn – to JPM and BoNY Mellon.
  • The dealers need money to fund those securities, because what are they going to do, pay for them themselves?
  • Every afternoon, the cash investors and the securities dealers frantically negotiate which dealers swap their securities (at negotiated haircuts) for which cash investors’ cash.
  • Every night, the cash sleeps in the (notional) arms of the securities dealers, while the securities (and a promise to buy them back in the morning) sleep in the (notional) arms of the cash investors.
  • Every morning, the cash wakes up and springs from the dealers’ beds back into the waiting arms of the cash investors, and vice versa etc.
  • Which means that the dealers need to borrow cash to be able to give it back to the investors. Where do they get the money?
  • Well, from JPMorgan or BoNY.
  • Where do JPM and BoNY get the money?
  • Well, from deposits.
  • Whose deposits?
  • Well, the deposits of the cash investors.

More or less, right? Read more »