fitch ratings fitch risk and performance monitor 09302010

8/6/2019 Fitch Ratings Fitch Risk and Performance Monitor 09302010

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Commentary Fitch Risk and Performance

Monitor

SummaryAs a complement to the Fitch Risk and Performance Platform, FitchSolutions produces aweekly commentary utilizing data from Fitchs Market Implied Rating (IR) and CrediDefault Swap (CDS) Pricing Service. This report provides an overview of this weekssector summaries, big movers, and market underperformers and outperformers. Toreceive highlights of the information on this page delivered directly to your inboxclick here.

Sector Analysis The global CDS spread index widened last week by an average of 1.34%, with nine

out of 11 sectors widening, sovereigns and oil and gas being the exceptions.

The equity market this week continues to demonstrate the positive sentiment itshowed last week, albeit more conservatively, with the five-year Probability oDefault (PD) of each individual sector tightening and the overall index of all sectorsdecreasing 1.58%.

Financial institutions underperformed the broader market last week, as global CDSspreads widened by 2.4%. European financials led the way, widening 4.65%. Eurozone banks are due to roll 440 billion worth of one-year euro loans from the ECBthis week into ECB three-month loans; the size of demand for the service will be akey indicator of market liquidity.

The sovereign global CDS spread index tightened this week by 1.49%; howeverEuropean sovereigns opposed the global trend, widening by 0.5%. Europeansovereign spread movements were dominated by Ireland and Portugal, who widened13.0% and 9.4%, respectively, and Greece and Spain, who tightened by 9.4% and6.3%, respectively.

Week-to-Week Movements in Market-Implied Ratings and CDS Spreads

Sector Type CDS IR CDS IRFive-Year CDS

(% Change) ARD (%) EIR EIR

Five-YePD Inde

(% Chang

Basic Materials 3 10 2.72 1.72 105 26 (0.1

Consumer Goods 3 16 0.92 1.66 153 49 (2.6Consumer Services 4 17 1.70 1.48 116 37 (2.3

Financials 20 18 2.24 4.79 15 2 Healthcare 0 8 1.10 1.20 33 11 (1.4

Industrials 5 16 1.31 0.99 234 88 (1.5

Oil and Gas 0 8 (0.35) (1.37) 8 9 (0.9

Sovereigns 0 2 (1.49) 2.04 Technology 2 6 1.46 (0.42) 84 43 (1.6

Telecommunications 1 3 0.66 4.61 6 2 (0.1

Utilities 3 6 1.16 0.57 17 5 (0.8

Total/Average 41 110 1.34 2.07 771 272 (1.5

CDS Credit default swap. IR Implied rating. ARD Average relative differential. EIR Equity-implied rating.PD Probability of default.

Authors

Mark Lindup+44 20 [email protected]

Jonathan Di Giambattista+1 212 [email protected]

Contactsa

AmericasJonathan Di Giambattista+1 212 [email protected]

EMEACatherine Downhill+44 20 [email protected]

aFor information on Fitchs Risk andPerformance Platform.

Related Research

CDS Implied Ratings Model, June 13,2007

Equity Implied Ratings and Probabilityof Default Model, June 13, 2007

Study: CDS Implied Ratings vs. SpotImplied Ratings

FitchSolutions Probability of DefaultIndex, December 2008

The contents of this commentary arethe result of a periodic analysis ofrecent credit default swap (CDS)market activity and results generatedby Fitch's proprietary Market ImpliedRatings models. All data presented in

this report is derived from CDS pricesprovided by Fitchs CDS Pricing Serviceand Market Implied Ratings models.The contents of this commentary arenot indicative of the opinions,commentaries, or analyses of FitchRatings analysts and, therefore, areseparate and distinct from ratinganalyst activity, actions, and opinions.All references to CDS pricing and CDSmarket implied ratings are as ofSept. 24, 2010.

www.fitchsolutions.com Septem
http://www.fitchratings.com/jsp/corporate/ProductsAndServices.faces?context=2&detail=112http://www.magnetmail.net/forms/display_form.cfm?fid=16453&rtype=nonmmmailto:[email protected]:[email protected]:[email protected]:[email protected]://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=390166http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=390166http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=390170http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=390170http://www.fitchratings.com/web_content/product/cds_vs_spot.pdfhttp://www.fitchratings.com/web_content/product/cds_vs_spot.pdfhttp://www.fitchratings.com/web_content/product/pdindex_methodology.pdfhttp://www.fitchratings.com/web_content/product/pdindex_methodology.pdfhttp://www.fitchratings.com/web_content/product/pdindex_methodology.pdfhttp://www.fitchratings.com/web_content/product/pdindex_methodology.pdfhttp://www.fitchratings.com/web_content/product/cds_vs_spot.pdfhttp://www.fitchratings.com/web_content/product/cds_vs_spot.pdfhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=390170http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=390170http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=390166http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=390166mailto:[email protected]:[email protected]:[email protected]:[email protected]://www.magnetmail.net/forms/display_form.cfm?fid=16453&rtype=nonmmhttp://www.fitchratings.com/jsp/corporate/ProductsAndServices.faces?context=2&detail=112


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Highlighted Sectors of the Week

Relative Differential

By comparing an entitys five-year spread with the median five-year spread of all

entities with the same CDS implied rating (CDS IR), the degree to which an entity isoutperforming (spread is tighter than the median) or underperforming (spread iswide of the median) the marketplace can be measured. This is the relativedifferential. By determining the average relative differential (ARD) for each sector,FitchSolutions is able to observe systematic shifts in market sentiment.

Probability of Default Index

FitchSolutions Probability of Default (PD) Index is constructed as a daily average PDweighted by each entitys outstanding debt level and can be calculated on ageographic market and industry level. The aforementioned PD Index covers globalcorporate entities.

European financial CDS spreads moved the most of any sector last week, widening by4.7%, with its spreads trading 7.8% above historical levels, implying the markets arepricing in higher credit risk. The biggest spread wideners were Irish Life and PermanentGroup and the Bank of Ireland, moving out 26.5% and 20.5%, respectively. On Sept. 10the Central Bank of Ireland told Irish life and Permanent Group they needed to raise145 million euros in additional capital by the end of May 2011 to cover its worst-casescenario for the Irish economy.

The table below shows the top 10 European financials with the greatest differencebetween current and historical CDS spread levels as of Sept. 24 and therefore moslikely to experience a CDS-implied rating downgrade. Irish banks dominate the listpartly on the back of rumors that the Irish government may be seeking to restructurefour billion euros worth of Anglo Irish Bank senior debt, which could result in losses fo

the bondholders. Irish life and Permanent group is the most likely entity on the list interms of getting a CDS-implied rating downgrade, with its CDS spreads trading at twicethe median spread level of other entities in the same CDS-implied rating band.

For each entity, the CDS IR, weekly change in the CDS IR, relative differential, and thegap between its CDS IR and agency rating are included. Based on historical analysisnotch differentials between the CDS IR and agency rating are highly predictive of futurerating agency actions.

European Financials: Substantial Week-to-Week Spread Widening

Companies CDS IRCDS IRDelta

RelativeDifferential (%)

Five-Year CDS(% Change)

Gap (CDSIR/IDR)

Irish Life & Permanent Group 99.92BB 0 26.47 (2)

Espirito Santo Financial Group S.A. BB 0 69.21 0 (4)Anglo Irish Bank Corporation PLC B 0 67.93 11.38 (7)Cimpor Financial Operations BV BBB 0 64.47 (2.93) Bank of Ireland BB (1) 57.86 20.45 (6)Allied Irish Banks PLC B+ 0 55.36 13.41 (7)Deutsche Postbank AG AA+ 0 41.75 0 3Unione Di Banche Italiane SCPA BBB 0 41.11 5.42 ING Verzekeringen NV BBB 0 40.60 4.16 (3)Banco Comercial Portugues SA BB (1) 34.70 17.22 (7)

2Fitch Risk and Performance Monitor September 28, 2010
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Fitch Risk and Performance Monitor September 28, 20103

Relative Performance of Select Entities: Europe/AfricaIn the series of charts below, CDS spreads for certain entities of interest are plotted

against the regional benchmark, composed of median spot spreads for each CDS IRcategory. Using this analysis enables FitchSolutions to determine which credits aredeviating from their historical trading levels and are outperforming or underperformingthe overall market.

050

100150200250300350

400450500

AAA AA+ AA AA A+ A A BBB+ BBB BBB

CDS Implied Ratings

CDS

Spread

(b

ps)

Median Spot Spreads by CDS IR Ireland (140%)Portugal (93%) Cimpor Financial Operations BV (64%)Cadbury Holdings Limited (-39%) Norway (-42%)Cognis Gmbh (-62%)

Relative Performance of Selected Entities Above CDS IR BB+: Europe/Africa

(As of Sept. 24, 2010)

0

200

400

600

800

1,000

1,200

BB+ BB BB B+ B B C/CCC

CDS Implied Ratings

CDS

Spread

(bps)

Median Spot Spreads by CDS IR Espirito Santo Financial Group SA (69%)Anglo Irish Bank Corp. (68%) Irish Life & Permanent Group (100%)

International Power Plc (-45%) Anglogold Ashanti Ltd. (-77%)

Nordic Telephone Company Holdings APS (-38%)

Relative Performance of Selected Entities Below CDS IR BBB: Europe/Africa

(As of Sept. 24, 2010)


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Relative Performance of Select Entities: North America/Oceania

Highlighted Entities

0

100

200

300

400

500

AAA AA+ AA AA A+ A A BBB+ BBB BBB

CDS Implied Ratings

CDS

Spread

(bps)

Median Spot Spreads by CDS IR Block Finanial LLC (127%)

H&R Block Inc. (130%) Sandisk Corporation (78%)

Ontario (Province of) (-63%) Wyeth LLC (-49%)

Associates First Capital Corp. (-42%)

Relative Performance of Selected Entities Above CDS IR BB+: North America/

Oceania

(As of Sept. 24, 2010)

0

200

400

600

800

1,000

1,200

1,400

BB+ BB BB B+ B B C/CCC

CDS Implied Ratings

CDS

Spread

(bps)

Median Spot Spreads by CDS IR Pactiv Corporation (100%)

First Data Corporation (70%) NII Holdings Incorporated (176%)

Republic of Peru (-56%) Mirant North America LLC (-55%)

American General Group Inc. (-35%)

Relative Performance of Selected Entities Below CDS IR BBB: North America/

Oceania

(As of Sept. 24, 2010)

Europe/Africa North America/Oceania

Investment-Grade Below-Investment-Grade Investment-Grade Below-Investment-Grade

Ireland Anglo Irish Bank Corp. Block Financial LLC Pactiv CorporationPortugal International Power Plc H&R Block Inc. First Data CorporationCimpor FinancialOperations BV

Nordic Telephone CompanyHoldings APS Sandisk Corporation NII Holdings Incorporated

Cadbury Holdings Limited Espirito Santo FinancialGroup SA

Ontario (Province of) Republic of Peru

Norway Irish Life & Permanent Group Wyeth LLC Mirant North America LLCCognis Gmbh Anlogold Ashanti Ltd. Associates First Capital Corp. American General Group inc

4Fitch Risk and Performance Monitor September 28, 2010


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