Reports » US
US stock market daily report (December 02, 2013, Tuesday)
The European Securities and Markets Authority that oversees Fitch Ratings, Moody’s Investors Services and Standard & Poor’s, said the firms have failed to keep ratings decisions secret, before publishing them. In a statement today, the firms reportedly breached guidelines on conflicts of interest and gave too much responsibility to junior staff members when deciding on the creditworthiness of Europe’s governments. The findings come after a six-month investigation. ESMA found “several instances of disclosure of upcoming rating actions to an unauthorized third party”, “before publication and in some cases, before the rating committee had taken place.”
Steven Maijoor, ESMA chairman, said in the statement, “The focus on the sovereign-rating process in this investigation stems from their increased volatility over the past few years, the importance of sovereign ratings from a credit market and financial stability perspective.” If the agencies do not improve in following guidelines, they will face penalties from the ESMA.
Per the ESMA, credit-rating agencies are not meeting standards when they grade sovereign debt. In March, ESMA said the methodology the agencies used to evaluate EU banks was inaccurate. The indifference is evident with investors becoming increasingly indifferent to ratings after French bonds and U.S. Treasuries both hosted gains after France and the USA were stripped of their AAA ratings.
S&P cut the AAA rating for the Netherlands just last week, citing a weaker outlook for the fifth-biggest economy in the euro area. At the same time, S&P raised its grade for Cyprus to B- from CCC+ and adjusted its outlook on Spain. Fitch raised its outlook on Spain’s BBB rating to stable from negative on November 1, and Portugal’s outlook was revised to stable from negative by Moody’s on November 8. Moody’s improved Greece’s ranking by two levels on November 29. Euro zone nations maintaining S&P AAA rating include Finland, Germany and Luxembourg. Fitch and Moody's maintain a top rating for the Netherlands.
By the end of December, rating firms must publish announcement schedules for 2014, under European Union rules introduced in the wake of the region’s debt crisis. Assessors will be restricted to three judgments per year on sovereign borrowers that haven’t asked or paid for a grade, and will need to review ratings at least every six months. For the year of 2013, Fitch, Moody's and S&P announced 18 ratings cuts or increases.
Rating agencies will be required to notify issuers of their new level at least one full working day before the announcement, effective June 2014, per ESMA rules. Publication of sovereign ratings will only be permitted on Fridays, either after markets close or at least one hour before trading starts in the EU.
Bank of America Settlement to Freddie
Bank of America Corporation (BAC-NYSE) announced a settlement with Federal Home Loan Mortgage Corporation (FMCC-OTC BB) Monday to the tune of nearly $404 million. The settlement is the second for BofA with Freddie since 2011 and is to resolve outstanding as well as potential residential mortgage repurchase, other claims related to loans sold to Freddie from 2000 to 2009, plus compensation for some past losses and potential future losses. The settlement will most likely shield BofA from any future repurchase demands from Freddie Mac, stemming from loans sold before 2012. According to federal filings, Freddie Mac had $1.4 billion in BofA repurchase demands, the largest for any bank, as of September 30 and nearly 42% of total outstanding repurchase demands.
Since 2009, Freddie Mac and Federal National Mortgage Association (FNMA-OTC BB) have demanded lenders repurchase tens of billions of dollars in soured loans made as the housing boom turned to bust. Freddie Mac and Fannie Mae are able to force banks to repurchase loans that don't adhere to agreed-upon standards.
BofA reported the settlement funds are fully covered by existing reserves.
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