Banking & Finance

Germany Downgrade Rumor, False, Still Spooks (EWG, SI, DB, SAP, GF)

Jon C. Ogg

Germany is supposed to be immune to losing its “AAA” rating.  When we covered “The Nations Which Could Lose Their AAA Ratings” there was no mention of Germany.  That was before the short-selling ban.  We do want to predicate one thing here: this rumor seems to be without merit in the extreme, although perhaps there are far deeper implications on the ‘outlook’ from ratings agencies down the road.  The rumor, run on CNBC, is that Germany could lose its “AAA” rating.

Perhaps the real issues was the short selling ban was the issue.  The iShares Germany (NYSE: EWG) is down considerably by 3.4% at $19.99, despite the notion that regulators have told CNBC that they are not making changes to the short selling ban.  CNBC just reported that Fitch, S&P, and Moody’s are affirming Germany’s AAA rating.  Our take is that Germany is not the real risk in Europe.

Siemens AG (NYSE: SI) is down 3.6% at $99.47; Deutsche Bank AG (NYSE: DB) is down 1.5% at $39.01; and SAP AG (NYSE: SAP) is down 3.3% at $50.91.  The New Germany Fund, Inc. (NYSE: GF) is down 2.2% at $13.83.

Perhaps the biggest issue of them all is that the big bailout from weeks ago in Greece may be falling apart.  That will send chills to the rest of the PIIGS as well.  Greek 10-Year bond yields are back at their highs on concerns that the collateral demands in return for the Greek bailout loans are undermining the bailout.  Finland’s terms may be sought by other E.U. nations and that brings up a question of whether or not the bailout will actually come about.

One thing may be true in the new post-U.S. S&P debt downgrade.  There are just very few real Triple-A ratings out there.

JON C. OGG