Sovereign Risk Tied to Banking Sectors, Egan-Jones’ Egan Says
European sovereign-debt risk is linked to losses that those countries’ banks may have to absorb, according to Sean Egan of Egan-Jones Ratings Co.
“History has shown the banks and the sovereign-credit risk have been joined at the hip,” Egan, president of credit-rating firm Egan-Jones in Haverford, Pennsylvania, said today an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “Sovereigns have stood behind their banks for the simple reason that if the banking sector goes, the countries go.”
France’s credit rating was cut one step yesterday to BBB+ from by Egan-Jones, which cited “deterioration” in the nation’s credit metrics and the need for support of the country’s banks. Yields on French government bonds due in 10 years have fallen nine basis points, or 0.09 percentage point, to 2.59 percent since the downgrade.
“You have to solve the underlying problem and that is the fact that you have a heightened debt to” gross domestic product, Egan said. “The trick here is not to issue more debt, but rather to get the debt down to a manageable level, particularly when the GDPs are not growing while interest, funding costs have been growing.”
The company cut the U.K.’s credit ranking on June 4 by one level to AA- on concern the nation will be unable to continue reducing its budget deficit as the economy weakens. Yields on British debt due in 10 years have risen 14 basis points since the ranking change to 1.66 percent.
The Securities and Exchange Commission April 24 began administrative proceedings against Egan-Jones and its president for allegedly making misleading statements in a 2008 filing with the agency.
The SEC order also said that Egan-Jones violated certain conflict-of-interest and recordkeeping provisions required of nationally recognized statistical rating organizations.
Egan-Jones said in a complaint filed June 6 in federal court in Washington that it would be deprived of its rights, including that to a jury trial, if the SEC’s enforcement action was to proceed in an “administrative forum” rather than in court where the company can present evidence of the SEC’s “improper” motive for making the allegations.
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