This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Italy Downgrade Not Warranted: Opinion

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Win Thin

NEW YORK ( BBH FX Strategy) -- Here are some thoughts regarding Standard & Poor's announcement late Friday that it cut its outlook for Italy's single-A-plus rating to negative.

Although we remain negative on the ratings for peripheral eurozone countries, we don't think a downgrade of Italy by S&P is clearly warranted. Our sovereign ratings model currently has Italy at A+/A1/A+ for S&P, Moody's and Fitch, respectively, vs. actual ratings of A+/Aa2/AA-.

If anything, we had expected a move by either Moody's or Fitch, not S&P. With rating agencies still clearly on the warpath, we can't rule out a downgrade here, but the case for a downgrade of Italy just isn't as glaringly obvious as the others in the periphery.

Indeed, Italy's numbers have always been bad, and have in fact stayed remarkably stable during this crisis even as the rest of the periphery blew up.

As a point of reference, the implied ratings for Italy, Ireland, Portugal, and Greece all started out at A+/A1/A+ when we began our model in June 2009.

But since then, Italy's implied rating has remained at A+/A1/A+ even as those for Portugal, Ireland, and Greece have sunk precipitously to junk levels. Spain's implied ratings started off in June 2009 at AA/Aa2/AA but have since fallen to A/A2/A.

Clearly, the downgrade story will remain in play for the periphery for much of 2011. Other weak eurozone credits to watch out for are Belgium and France, with both facing some mild downgrade pressures.

Our model has France as a borderline AA+/Aa1/AA+ credit vs. actual ratings of AAA/Aaa/AAA, and also Belgium as a AA/Aa2/AA credit vs. actual ratings of AA+/Aa1/AA+.

Last week's downgrade of a major French bank due to its exposure to Greece is a warning sign that the sovereign rating itself for France may come under greater vulnerability.

With regards to Belgium, we suspect that if there is still no government in Belgium by mid-June, it will likely be downgraded by S&P, which it threatened to do near the start of this year. In other words, it is possible that the next country that gets its rating cut could very well be a core one, not a peripheral one. That would certainly get the market's attention.

--Written by Win Thin of BBH Forex Strategy.

>To contact the staff member responsible for this article, click here: Ross Snel.

>To submit a news tip, send an email to:

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs