Netherlands AAA Outlook Cut as Fitch Cites Shocks to Economy

The Netherlands had the outlook on its top credit rating cut to negative by Fitch Ratings as the Dutch economy suffers from a deepening housing slump and persistent bank system woes.

The ratings company maintained the country’s grade at AAA while removing its designation as stable, according to a statement released yesterday in London. As reasons for the move, it cited the level of public debt, problems at some Dutch banks and a property-market slump which may shave a total of 25 percent off values from their peak.

“The outlook revision to negative from stable reflects Fitch’s view that the leveraged Dutch economy has suffered a number of shocks,” it said.

Investors often ignore ratings, evidenced by the rally in Treasuries after the U.S. lost its top grade at S&P in 2011.The action by Fitch comes days after the country took control of its fourth-biggest lender, SNS Reaal NV, for 3.7 billion euros ($5 billion). While that alone isn’t enough to trigger a downgrade, Fitch said the move will add 1.6 percentage points to public debt this year, reaching a total of 74.4 percent of gross domestic product.

“The government’s multi-year fiscal consolidation plan is challenged by the difficult economic conditions,” Fitch said. “As highlighted by last week’s nationalisation” of SNS, “some banking system problems persist, with three of the four major banks having faced severe financial difficulties and needing external support since 2008.”

Dutch 10-year bonds were little changed as of 7:56 a.m. London time, with the yield at 1.84 percent.

Fiscal Measures

Fitch said the Dutch government probably won’t adopt additional fiscal measures and it therefore expects a general government deficit of 4 percent of GDP in 2013. There are still sufficient reasons to support the current sovereign rating, Fitch said.

“The sovereign rating is underpinned by the country’s flexible, diversified, high value-added and competitive economy as well as the current account surpluses and positive net international investment position,” the ratings company said.

Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of 32 upgrades, downgrades and changes in credit outlook last year, according to data compiled by Bloomberg published on Dec. 17. Investors ignored 56 percent of Moody’s Investors Service rating and outlook changes and 50 percent of those by S&P. That’s worse than the longer-term average of 47 percent, based on more than 300 changes since 1974.

Before it's here, it's on the Bloomberg Terminal.