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Capital Markets

Watching the watchmen

Euromoney Skew takes a quick look at this morning's ratings news, including the European banking review from Moody's

"Quis custodiet ipsos custodes?" Or in plain English "who watches the Watchmen?"

Well Euromoney Skew does and today it looks like a day like any other - one filled with another slew of downgrades, negative outlooks, watchlists and warnings from various ratings agencies.

The response to Fitch ratings agency's warning to the US can comfortably be described by Marc Ostwald, financial market strategist at Monument Securities who says, "Nothing to add other than ... what else did anyone expect!"

The latest from Fitch ratings agency:

- Fitch warns of US downgrade if no budget deal in 2013
- Fitch revises U.S. credit rating outlook to negative
- Says future of U.S. ratings up to next government
- European crisis unlikely to trigger downgrade in 2012

Meanwhile, Moody's ratings agency issued this report:

Moody's: Outlook for Ukraine's banking system remains negative

The outlook on Ukraine's banking system remains negative, says Moody's Investors Service
in a new Banking System Outlook published today.

The outlook, which captures the credit conditions that the banks will face over the next
12-18 months, is negative due to
(i) an operating environment characterised by a modest economic recovery after a very
deep recession;
(ii) weak profitability;
(iii) a very high volume of non-performing loans, with a substantial overhang of FX loans; and
(iv) the limited availability of local-currency funding, prompting the banks to deleverage.

Following a 15% contraction in 2009, Ukrainian GDP increased by 4% in 2010.
The slowdown in the global recovery will likely squeeze demand for commodities,
including Ukrainian exports such as steel and other metals.

Moody's believes that this will cause GDP growth to decelerate from 4.5% in real terms in 2011,
to 4% in 2012. At the same time, credit growth is likely to remain subdued -- particularly in the
retail segment -- due to the slow recovery in consumption.

Oh, and of course, the biggie of the day from Moody's:

Moody's reviews European banks' subordinated, junior and Tier 3 debt for downgrade

Review focuses on reassessment of government support assumptions

Moody's Investors Service has today placed on review for downgrade all subordinated, junior subordinated
and Tier 3  debt ratings of banks in those European countries where the subordinated debt still incorporates
some ratings uplift from Moody's assumptions of government support, with the potential complete removal of
government support in these ratings.

The review will affect 87 banks in 15 countries in Europe with average potential downgrades of
subordinated debt by two notches and junior subordinated debt and Tier 3 debt by one notch.

The greatest number of ratings to be reviewed are in Spain, Italy, Austria and France. For issuers
whose ratings were already under review prior to today's rating action, the completion of the existing review
will now incorporate these additional considerations for subordinated, Tier 3 and junior subordinated debt.

Today's rating announcements follow on from the removal of systemic support from subordinated debt
in systems including Denmark, UK, Ireland, Germany
and Moody's report "Moody's to re-assess
government support in bank sub debt ratings globally" published February 2011.

Interestingly, France is part of the bumper set of ratings to be reviewed, but as market participants remarked

to Euromoney Skew, despite the threats and warnings, a downgrade could be difficult to pin on the country

- Euromoney Skew Blog

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