bermuda’s sovereign ratings casey reckman, associate director 30 september 2009
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Bermuda’s Sovereign Ratings
Casey Reckman, Associate Director
30 September 2009
www.fitchratings.com 2
Agenda
Fitch Ratings Overview
Bermuda’s Sovereign Ratings
Fitch Ratings’ Global Economic Outlook
Bermuda’s Economic and Ratings Outlook
www.fitchratings.com 3
Agenda
Fitch Ratings Overview
Bermuda’s Sovereign Ratings
Fitch Ratings’ Global Economic Outlook
Bermuda’s Economic and Ratings Outlook
www.fitchratings.com 4
Fitch Ratings
Fitch Ratings is a leading global rating agency committed to providing
the world’s credit markets with accurate, timely and prospective credit
opinions. Built on a foundation of organic growth and strategic
acquisitions, Fitch Ratings has grown rapidly during the past decade,
gaining market presence throughout the world and across all fixed
income markets.
Fitch Ratings is dual-headquartered in New York and London, operating offices
and joint ventures in more than 50 locations and covering entities in more than 150
countries. Fitch Ratings is a majority-owned subsidiary of Fimalac, S.A.,
headquartered in Paris, France.
www.fitchratings.com 5
> Fitch Ratings helps issuers
– Broaden and diversify investor base
– Enhance liquidity and funding flexibility
– Pay consistent and appropriate yields
> How Fitch Ratings does it
– Timeliness and accuracy of ratings and research
– Recognized expert among investors, issuers, media and the sell side
– Clear and transparent rating methodology
– Analyst accessibility
– Effective communication to institutional participants
Key Points
www.fitchratings.com 6
Fitch Ratings is a global player with offices in all major markets
Mexico City
San Francisco
San Jose
San Salvador
Lima
Santiago
Bogota
ChicagoToronto
Paris
Colombo
Mumbai
Johannesburg
Tokyo
Beijing
Hong Kong
Seoul
Bangkok
Singapore
SydneyBrisbane
Taipei
New YorkMcLean
AustinTampa
Powell
La Paz
Quito
São Paulo
Rio de JaneiroBuenos Aires
Montevideo
Caracas
Frankfurt
MilanBarcelona
Tunis
Warsaw
Istanbul
Moscow
London
KolkataChennai
NewDelhi
Kuala Lumpur
www.fitchratings.com 7
Fitch Ratings disseminates research, and analysts maintain open dialogue with influential investors, banks, and other key market participants
Sample Fitch Ratings clients receiving sovereign reporting and analysis
Investors Banks Other Market Participants
Julius Baer Investment JP Morgan Chase Gov’t of Singapore Investment Corp
Merrill Lynch Asset Morgan Stanley Saudi Monetary Auth.
Deutsche Asset Mgt Citibank US Federal Reserve
Credit Suisse Asset Mgt UBS ECB/EIB/EC
Fidelity Gulf International Bank EBRD/IMF/World Bank
Prudential Goldman Sachs Sony/IBM
California Teachers Kuwait Investment Bank Visa International
AXA Tokyo-Mitsubishi Bank The Economist/EIU
Deka Investment ABN Amro BIS
Pimco Merrill Lynch Bank of Japan
Wells Fargo
www.fitchratings.com 8
Time Line – sensitive to information flow!
Rating Agreement Signed
Primary and Support analysts designated Sovereign
sends required information.
Dates for meeting
Review of available information
Agenda for Rating Mission
Rating Mission
Further analysis
Rating committee presentation and draft report
Rating committee review and decision
Preparation of final rating report and press release
Sent to authorities for factual review and confidentiality
Ratings released to public domain. Full rating report available to subscribers
Ongoing dialogue and application of ratings to new issues
Pro
cess
req
uir
es in
tera
ctiv
e d
ialo
gu
e w
ith
so
vere
ign
Mandate to Publication –The Ratings Process Explained
Authorities informed immediately
Ratings publicly released following agreement with relevant authorities
www.fitchratings.com 9
Sovereign Rating Methodology
> Public Finances
– Fiscal sustainability and flexibility
– Debt dynamics
– Debt profile and management
– Payment history
> External Finances– Gross and net solvency indicators
– International liquidity ratio
– Balance of payments sustainability
– External financing needs
> Macroeconomic Performance and Policies
– Track record of macroeconomic stability
– Capacity to withstand shocks
– Predictability and transparency
– Economic growth and inflation trends
> Structural Characteristics– Political and social stability
– Business and investment climate
– Domestic savings and investment rates
– Financial sector
www.fitchratings.com 10
Agenda
Fitch Ratings Overview
Bermuda’s Sovereign Ratings
Fitch Ratings’ Global Economic Outlook
Bermuda’s Economic and Ratings Outlook
www.fitchratings.com 11
Selected high-grade peers
Sovereign Long-term FC Rating Outlook
Austria AAA Stable
Canada AAA Stable
Germany AAA Stable
Luxembourg AAA Stable
Netherlands AAA Stable
Singapore AAA Stable
Spain AAA Stable
Sweden AAA Stable
Switzerland AAA Stable
United Kingdom AAA Stable
United States of America AAA Stable
Australia AA+ Stable
Belgium AA+ Stable
Bermuda AA+ Stable
Ireland AA+ Negative
New Zealand AA+ Negative
Hong Kong AA Stable
Japan AA Stable
www.fitchratings.com 12
Macroeconomic Performance and Policies – Strength
0
1
2
3
4
5
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
Bermuda AA Median USA
Real GDP (5-yr average % change)
Source: Fitch Ratings
-1
0
1
2
3
4
5
6
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
Bermuda AA Median USA
Consumer prices (annual average % change)
Source: Fitch Ratings
www.fitchratings.com 13
Structural Characteristics – Neutral
Bermuda AA median
GDP per capita (USD, mkt exch. rates) 97,394 38,805
Trade Openness (CXR and CXP % GDP) 56.8 57.5
Gross domestic savings (% GDP) 43.7 28.7
Private credit (% GDP) 141.3 142.1
BSR Indicators C1 n.a.
Bank system CAR 17.0 11.7
Foreign bank ownership (% assets) 30.0 33.0
Public bank ownership (% assets) 0.0 1.0
Political Stability
Gov't
Effectivness
Rule of Law
Control of
Corruption
'AA' Rating Median Bermuda
Governance Indicators (2008) Structural Indicators (2008)
Sources: World Bank, Fitch Ratings
Gov’tEffectiveness
www.fitchratings.com 14
External Finances – Neutral
-5
0
5
10
15
20
25
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
Bermuda AA Median
Current Account Balance(% GDP)
Net Sovereign External Debt (% CXR)
Source: Fitch Ratings
-40
-30
-20
-10
0
10
20
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
Bermuda AA Median
Source: Fitch Ratings
www.fitchratings.com 15
Public Finances – Neutral
General Government Balance(% GDP)
General Government Debt(% GDP)
Source: Fitch Ratings
0
10
20
30
40
50
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
Bermuda AA Median
-6
-5
-4
-3
-2
-1
0
1
2
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
Bermuda AA Median
Source: Fitch Ratings
www.fitchratings.com 16
Agenda
Fitch Ratings Overview
Bermuda’s Sovereign Ratings
Fitch Ratings’ Global Economic Outlook
Bermuda’s Economic and Ratings Outlook
www.fitchratings.com 17
Share Price Indices
20
40
60
80
100
120
Jan
-07
Ma
r-0
7
Ma
y-0
7
Jul-
07
Se
p-0
7
No
v-0
7
Jan
-08
Ma
r-0
8
Ma
y-0
8
Jul-
08
Se
p-0
8
No
v-0
8
Jan
-09
Ma
r-0
9
Ma
y-0
9
Jul-
09
Se
p-0
9
(Jan-07=100)
U.S. Euro area Japan UK
Source: Datastream
www.fitchratings.com 18
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Jan
-07
Ma
r-0
7
Ma
y-0
7
Jul-
07
Se
p-0
7
No
v-0
7
Jan
-08
Ma
r-0
8
Ma
y-0
8
Jul-
08
Se
p-0
8
No
v-0
8
Jan
-09
Ma
r-0
9
Ma
y-0
9
Jul-
09
Se
p-0
9
(pp) U.S. Euro area Japan UK
3-Month Libor-OIS Spread
Source: Bloomberg
www.fitchratings.com 19
100
110
120
130
140
150
160
170
Jan
-03
Ma
y-0
3
Se
p-0
3
Jan
-04
Ma
y-0
4
Se
p-0
4
Jan
-05
Ma
y-0
5
Se
p-0
5
Jan
-06
Ma
y-0
6
Se
p-0
6
Jan
-07
Ma
y-0
7
Se
p-0
7
Jan
-08
Ma
y-0
8
Se
p-0
8
Jan
-09
Ma
y-0
9
Source: Dutch Bureau for Economic Policy Research
(2000 = 100)
Volume of World Merchandise Trade
www.fitchratings.com 20
Industrial Production
-40
-30
-20
-10
0
10
Jan
-07
Ma
r-0
7
Ma
y-0
7
Jul-
07
Se
p-0
7
No
v-0
7
Jan
-08
Ma
r-0
8
Ma
y-0
8
Jul-
08
Se
p-0
8
No
v-0
8
Jan
-09
Ma
r-0
9
Ma
y-0
9
Jul-
09
(% yoy) U.S. Euro area Japan UK
Sources: Fed, Eurostat, Ministry of Economy (Japan), ONS
www.fitchratings.com 21
Manufacturing Purchasing Manager’s Indices
25
30
35
40
45
50
55
60
65
Jan
-07
Ma
r-0
7
Ma
y-0
7
Jul-
07
Se
p-0
7
No
v-0
7
Jan
-08
Ma
r-0
8
Ma
y-0
8
Jul-
08
Se
p-0
8
No
v-0
8
Jan
-09
Ma
r-0
9
Ma
y-0
9
Jul-
09
(Index) U.S. Euro area Japan UK
Source: Bloomberg
www.fitchratings.com 22
Services Purchasing Manager’s Indices
35
40
45
50
55
60
Jan
-07
Ma
r-0
7
Ma
y-0
7
Jul-
07
Se
p-0
7
No
v-0
7
Jan
-08
Ma
r-0
8
Ma
y-0
8
Jul-
08
Se
p-0
8
No
v-0
8
Jan
-09
Ma
r-0
9
Ma
y-0
9
Jul-
09
(Index) U.S. Euro area UK
Source: Bloomberg
www.fitchratings.com 23
Fiscal Policy will Gain Traction
0
1
2
3
4
5
6
U.S. UK France Germany
Automatic Stabilizers Stimulus Measures
Automatic Stabilizers and Fiscal Policy Easing in 2009
Sources: IMF, Fitch Ratings
Imp
act
on
fis
cal d
efic
it, %
GD
P
www.fitchratings.com 24
Consumer Confidence
-40
-30
-20
-10
0
10
Jan
-07
Ma
r-0
7
Ma
y-0
7
Jul-
07
Se
p-0
7
No
v-0
7
Jan
-08
Ma
r-0
8
Ma
y-0
8
Jul-
08
Se
p-0
8
No
v-0
8
Jan
-09
Ma
r-0
9
Ma
y-0
9
Jul-
09
(Index) U.S. Euro area Japan UK
Sources: Conference Board, European Commission, Cabinet Office (Japan)
www.fitchratings.com 25
The Growth Forecast
-5
-4
-3
-2
-1
0
1
2
3
4
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009f 2010f 2011f
GDP Growth in U.S., Euro area, UK, Japan %
Source: Fitch Ratings
www.fitchratings.com 26
June GEO Against Previous Recoveries in GDP
90
95
100
105
110
115
q0 q1 q2 q3 q4 q5 q6 q7 q8 q9 q10 q11 q12 q13 q14
3Q53 4Q57 4Q69 3Q74 2Q80 4Q90 3Q08/June GEO
GD
P in
qua
rter
prio
r to
rec
essi
on =
100
Source: Fitch Ratings
U.S.
www.fitchratings.com 27
Household Sector Deleveraging Pressures
* Interest + ‘regular’ mortgage repayments + unsecured debt payments assuming 5 year maturity Sources: Fed, ONS, BOE, Fitch
8
10
12
14
16
18
Q1
87
Q3
90
Q1
94
Q3
97
Q1
01
Q3
04
Q1
08
UK (Fitch Ratings calculation*) U.S .
40
60
80
100
120
140
160
180
Q4
99
Q2
01
Q4
02
Q2
04
Q4
05
Q2
07
Q4
08
Euro U.S. UK
Household Debt(% of Disposable Income)
Debt Service Burden(% of Disposable Income)
Sources: ECB, Fed and ONS
www.fitchratings.com 28
UK Unemployment Should Peak Below 1980’s
-5
0
5
10
15
1Q71 1Q74 1Q77 1Q80 1Q83 1Q86 1Q89 1Q92 1Q95 1Q98 1Q01 1Q04 1Q07 1Q10
2
4
6
8
10
12
GDP growth (LHA) Unemployment (RHA, inverted)
Unemployment Rate and Annual GDP growth
% %
Sources: Datastream, Fitch Ratings
www.fitchratings.com 29
-5
-2
1
4
7
10
3Q64 4Q67 1Q71 2Q74 3Q77 4Q80 1Q84 2Q87 3Q90 4Q93 1Q97 2Q00 3Q03 4Q06 1Q10
0
2
4
6
8
10
12
GDP Growth (LHA) Unemployment (RHA, inverted) % %
Unemployment Rate and Annual GDP growth
Sources: Datastream, Fitch Ratings
U.S. Unemployment More Stable Through Time
www.fitchratings.com 30
5
10
15
20
25
Jan
07
Jun
07
De
c 0
7
Jun
08
No
v 0
8
Ma
y 0
9
Fed ECB BOE
-2
-1
0
1
2
3
4
5
Ap
r-0
8
Jul-0
8
Oct
-08
Jan
-09
Ap
r-0
9
UK U.S.
What Impact From Quantitative Easing?
Central Banks Balance Sheets(% of GDP)
Bond Market Implied Inflation(5 years ahead)
Source: Fitch Ratings Source: Bloomberg
www.fitchratings.com 31
30
40
50
60
70
80
90
100
2007 2008 2009f 2010f 2011f
UK U.S. France Germany (% GDP)
Fiscal Policy Easing Has Its Limits
General government Gross Debt
Source: Fitch Ratings
www.fitchratings.com 32
The June 2009 Global Economic Outlook Forecast
> Green shoots in financial sector and in confidence
> Stabilization of the world economy in mid-2009
> Return to positive growth in 2009H2 and 2010 driven by:
– Normalization of trade finance – Inventory cycle– Policy stimulus
> But projected recovery is anemic and very weak by historical standards
– Households are deleveraging – Unemployment still rising well into 2010 – Credit supply is constrained
> Monetary policy will remain expansionary until late 2010
> 2011 – can the private sector take over?
www.fitchratings.com 33
Global Forecast Summary
2006 2007 2008 2009f 2010f 2011f
Real GDP Growth (%)
World 3.9 3.6 1.7 -3.3 1.4 2.5
United States 2.7 2.1 0.4 -3.1 1.3 1.7
Euro Area 3.1 2.7 0.6 -4.6 -0.3 1.9
Japan 2.0 2.3 -0.7 -6.9 0.9 1.5
Commodities
Average Oil Price – Brent (USD/barrel) 65.4 72.6 97.0 55.0 65.0 70.0
www.fitchratings.com 34
Agenda
Fitch Ratings Overview
Bermuda’s Sovereign Ratings
Fitch Ratings’ Global Economic Outlook
Bermuda’s Economic and Ratings Outlook
www.fitchratings.com 35
Key Indicators: Bermuda (‘AA+’, Stable)
2006 2007 2008 2009f 2010f 2011f
Real GDP Growth (%) 5.5 4.6 2.0 -2.0 1.0 2.5
Annual Average Inflation (%) 3.1 3.8 4.8 0.5 1.5 2.0
General Government Balance (% GDP) -1.5 -2.3 -3.1 -3.2 -2.7 -1.8
General Government Debt (% GDP) 4.8 5.9 8.6 11.6 13.7 14.8
General Government Debt (% Revenue) 29.0 37.2 55.4 79.9 92.3 96.7
Current Account Balance (% GDP) 18.3 23.1 19.8 19.5 19.8 20.1
Net External Debt (% CXR) 114.4 323.8 1,252.2 1,208.6 1,066.4 902.1
Sources: IMF IFS, National Authorities, Fitch Ratings
www.fitchratings.com 36
Macroeconomic Performance and Policies – Stable Trend
-3
-2
-1
0
1
2
3
4
5
6
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
20
11
f
Average Inflation Real GDP Growth
0
1
2
3
4
5
6
7
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
Bermuda AA Median
Source: Fitch Ratings
Inflation and GDP Growth (%)
REER Volatility(10-yr rolling SD)
Source: Fitch Ratings
www.fitchratings.com 37
Structural Characteristics – Stable Trend
0
20,000
40,000
60,000
80,000
100,000
120,000
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
Bermuda AA Median
GDP per capita(USD, mkt exchange rates)
10
20
30
40
50
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
Bermuda AA Median
Source: Fitch Ratings Source: Fitch Ratings
Gross Domestic Savings(% of GDP)
www.fitchratings.com 38www.fitchratings.com 38
-600
-300
0
300
600
900
1200
1500
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
Bermuda AA Median
0
20
40
60
80
100
120
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
Bermuda AA Median
External Finances – Stable Trend
Source: Fitch Ratings Source: Fitch Ratings
Net External Debt(% of CXR)
Liquidity Ratio(%)
www.fitchratings.com 39
0
10
20
30
40
50
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
Bermuda AA Median
0
20
40
60
80
100
120
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
f
20
10
f
Bermuda AA Median
Public Finance – Stable Trend
Revenues and Grants(% of GDP)
Source: Fitch Ratings Source: Fitch Ratings
General Government Debt(% of Revenues)
www.fitchratings.com 40
> Sizeable fiscal slippage which results in a sustained increase in the
sovereign’s debt burden could put downward pressure on Bermuda’s ratings.
> Changes in Bermuda’s tax regime which result in erosion of the territory's
attractiveness as a domicile for international companies could also be
negative for creditworthiness.
> Fulfillment of the government’s expressed commitment to fiscal consolidation
and debt reduction when the economy recovers would help uphold Bermuda’s
ratings.
Key Rating Drivers
Fitch Ratings
www.fitchratings.com
New York
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