While the expected default of Greece is ‘affordable’, a final resolution of the Greek sovereign situation will not be enough to stabilize the rest of the Eurozone, which may have indirect inlays to structured finance transactions in the affected regions as well, according to Fitch Ratings in its latest U.S. and EMEA Structured Finance Snapshot.
Fitch does not expect any systemically important financial institution or sovereign to be allowed to default.
The comments came out of an interview with Tony Stringer, Managing Director in Fitch’s Sovereigns group, and Bridget Gandy, Co-Head of EMEA Financial Institutions, the full transcript of which is available in the latest Snapshot.
The fact that most Eurozone countries either have a Negative Outlook or are on Rating Watch Negative reflects ongoing investor skittishness and financial market volatility, and it does not look like it will improve anytime soon. ‘We continue to believe that the crisis will be protracted, but we still don’t expect any systemically important sovereign to be allowed to default,’ said Stringer.
Nonetheless, pressure will increase on banks in the affected regions. As bank ratings have become less stable, the full recovery of the EMEA structured finance market is still on hold. The strength of the banks is crucial in ensuring that there is a viable number of counterparties eligible to provide support facilities. ‘It doesn’t matter whether you support the bank as a going concern: if someone is going to lose money, we are rating to that loss. This means that the rating is going to come down,’ said Gandy. “We think that states will continue to support systemically important banks in Europe in the near term, though that likelihood may diminish over time".