Tyler Durden's picture S&P Pre-Announces The Bank Christmas Massacre

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Source: Zerohedge



Sovereign credit issues have been front-and-center in terms of recent headlines as cost of funds and the balance between growth and austerity becomes unhinged among the once-upon-a-time risk-free entities. What has had less play very recently is the crisis that is going in the banking systems of the world as investors are as loathed to take any exposure to an opaque and clearly insolvent group of organizations. Credit (and to a lesser degree - equity) markets have shown their disapproval as spreads are as bad (if not worse) than at any time before, and yet the ratings agencies have yet to act - especially in the US. All that is about to change as Reuters gently reminds us that S&P is about to update it bank credit ratings framework. The model is complex by nature but as we have seen time and time again, the agencies tend to lag prices (spreads) and in that case, we can expect downgrades as an early Christmas present.

The ratings will impact some of the largest globally systemically important firms. Credit markets currently have these trading at their widest levels of all time - in many cases beyond the previous crisis.

Regionally, the rise has been quite systemic (among the 30 most import global financials) but we note - rather surprisingly - that US has the largest average spread among the 4 regions. Perhaps even more reason to expect S&P to downgrade.

And while European banks are decompressing rapidly, the US majors have exploded since early January 2011 when S&P last announced the expectations of the ratings framework changes.