Moody’s Cuts Greece, Calls Greek Default Odds 50-50… Lessons For Other PIIGS (NBG)

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If you wonder why ratings agencies are still hated so much, just wait until the Greek government comes out attacking Moody’s now that a fresh downgrade has been seen.  Moody’s Investors Service has downgraded Greece in its local and foreign currency bond ratings.  The new rating is Caa1, down from B1.  Moody’s also assigned a negative outlook on Greece’s ratings.  The decision to downgrade was after the negative review was started back on May 9.

Moody’s sees higher risks that Greece will not stabilize its debt without restructuring.  Moody’s also noted the Troika group supporters like the ECB, IMF, and the E.U. Commission will likely require private creditors to participate in a debt restructuring.  Moody’s calls it “at least an even chance of default over the rating horizon.”

Moody’s says that about 50% of Caa1 sovereigns, non-financial corporate and financial institutions met their debt servicing.  Unfortunately, half did not.  It is almost sad that today’s assumption is based on the notion that Greece will get further official support, but this also assumes additional austerity measures and structural reform measures.

The negative outlook just implies more pain ahead.  The action is a formal one rather than a new one based upon the review being almost a month old.  It is probably not really a surprise.  National Bank of Greece SA (NYSE: NBG) is still up by 2.8% at $1.39 today.  If this was a new issue, that ADR would be trading lower.

As we have warned before, the ratings agencies are still behind when it comes to the lands of the PIIIGS.  If you have exposure in Portugal, Ireland, or Spain, you might want to consider that the ratings agencies are not really ahead of the curve there either.

JON C. OGG

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