analyses credit market trends in EU
13 May 2002
At the end of the first quarter, there were 418 issuers
in the European Union (EU) with either an Outlook or CreditWatch
listing, says a Standard & Poors (S&P) study.
the 418 issuers, 296 (71 per cent) were stable, 79 (19
per cent) had Negative Outlooks, whereas 18 (4 per cent)
had Positive Outlooks. Twenty issuers were listed on CreditWatch
with negative implications, whereas only five (1 per cent)
were listed on CreditWatch with positive implications.
EU industrial issuers
were spread across both the positive and negative categories.
Eleven of the 23 issuers (48 per cent) listed either on
CreditWatch with positive implications or Positive Outlook
belonged to the industrial category. At the same time,
industrial issuers accounted for 54 of the 99 issuers
(55 per cent) listed either on CreditWatch with negative
implications or Negative Outlook.
This negative bias
is justified by the difficult operating conditions for
the EU industrial sector amid slow economic growth, weak
capital spending, excess capacity and poor business confidence.
Within the industrial category, the highest number of
issuers listed either on CreditWatch with negative implications
or Negative Outlook came from chemicals, packaging and
environmental services (eight), and consumer products
and capital goods (five each).
According to the
study, the balance is similarly biased toward the negative
in the financial institutions (FIs) and telecommunications
sectors. FIs accounted for 11 (11 per cent) issuers listed
either on Negative Outlook or CreditWatch with negative
implications, but only two (9 per cent) issuers listed
either on Positive Outlook or CreditWatch with positive
The negative bias is attributable mainly to the insurance
sector, with several insurers facing potential financial-strength
dilution as a result of recent acquisitions, volatile
capital markets, or losses in the aftermath of 11 September
2001. The corresponding shares for the telecommunications
sectors are 11 (11 per cent) and one (4 per cent), respectively.
By contrast, the
picture is more optimistic for the European banking sector,
as well as for sovereigns. Seventy per cent of outlooks
in the banking sector were stable. Banks accounted for
35 per cent of issuers listed either on CreditWatch with
positive implications or Positive Outlook, and 23 per
cent of issuers listed on CreditWatch with negative implications
or Negative Outlook.
Even though provisioning
for bad loans is expected to rise, factors that have benefited
many European banks include low exposure to commercial
real estate, an increased shift to higher-margin retail
business, better credit risk management, and an environment
of relatively low interest rates. It should be noted,
however, that the discrepancy in performance across countries
is significant. Germany remains the most troubled banking
market in the EU, as a result of overcapacity and poor
domestic market conditions.
Of the banks listed
as either on Positive Outlook or CreditWatch with positive
implications, five are Italian, two French, and one Spanish.
Among EU sovereigns, the Hellenic Republic (Greece; A/A-1)
was listed on Positive Outlook, whereas no sovereign appeared
on the Negative Outlook or CreditWatch Negative listings.
The preponderance of stable outlooks among sovereigns
is largely attributable to the financial discipline engendered
by the EU.
country the S&P study finds Italy, France and Sweden
had the most issuers listed on either CreditWatch with
positive implications or Positive Outlook. Of the total
number of issuers in this category, Italy accounted for
22 per cent, France 17 per cent, and Sweden 13 per cent.
At the other end, the UK, Germany and the Netherlands
had the most issuers represented either on the CreditWatch
Negative or Negative Outlook listings. Their shares were
cent, 13 per cent and 12 per cent, respectively.