In a reminder of the fragility of the Greek credit crisis, and the sovereign debt challenges they still face, Moody’s (NYSE:MCO) downgraded five Greek banks today, citing the debt challenges will eat into the earnings of the companies for a long time to come, while the company will have to endure a long recession.
Moody’s added things will get worse for the banks before they get better, with the macroeconomic situation in Greece heightening over the next year.
They said in a statement, “Today’s rating actions were prompted by the country’s weakening macroeconomic outlook and its expected impact on these banks’ asset quality and earnings-generating capacity. Pressures on the macroeconomic fundamentals have been evident for the past year and are expected to intensify as the year unfolds.”
The legitimate concerns of the European Union is if the Greek crisis is only the tip of the iceberg of countries close to defaulting on their sovereign debt, as Portugal, Ireland, Italy and Spain are high risk nations as well, and much more dangerous to the survival of the EU and the euro if one of them were to collapse, which is a real possibility. This is why there was so much debate and controversy surrounding giving Greek aid and how to do it, as it would be setting a precedent which could be dangerous if other countries started to look for handouts as well.
The five Greek banks downgraded by Moody’s are National Bank of Greece, EFG Eurobank Ergasias, Alpha Bank, Piraeus Bank and Emporiki Bank of Greece. Moody’s signaled there could be more downgrades for them in the future.
