Wednesday, January 25, 2012

Italy Attacks the Messenger (Fitch)

Guardia di Finanza
As Sophocles said, "No one loves the messenger who brings bad news".  Yes, it has always been considered tacky in the extreme - not to mention counter-productive - to attack the bearer of bad news.  But yesterday it wasn't the Greeks reacting to a credit downgrade (laughable as that would be given their present sovereign-default-that-can't-be-called-a-sovereign-default), it was the Italians. The Italian financial police ("Guardia di Finanza", no I'm not kidding) raided the offices of Fitch Ratings agency in a classic "shoot the messenger" scenario - and this time they did it pre-emptively.  From Thomson Reuters: "Fitch analysts have said they expect to cut their rating on Italy by up to two notches this month. “Men from the financial police are at Fitch in Milan,” Carlo Maria Capristo, chief prosecutor in Trani, told Reuters. Trani prosecutor Michele Ruggiero, who is leading the investigation and was in Milan for the police operation, declined to comment. An investigative source said that, after placing S&P and Moody’s under investigation last year, the prosecutors had extended their probe to Fitch for alleged market manipulation and abuse of privileged information. European policymakers struggling to contain a debt crisis have grown increasingly critical of rating agencies, saying they have been too quick to downgrade indebted EU states despite bailouts and austerity programmes. The Trani prosecutors allege that reports by Standard & Poor’s and Moody’s on Italy and its banking system provoked sharp losses on the Milan stock market. The probe was extended to S&P’s decision to downgrade Italy earlier this month, and now to Fitch’s threatened ratings cut. Last week’s search order for S&P’s offices, said S&P’s downgrade of Italy’s sovereign rating on Jan. 13 was based on “untruthful, tendentious, incoherent and unfair” assessments and dataIt also said news of the imminent downgrade was leaked when markets were still open, adding the agencies’ actions and reports on Italy caused “real damage to the financial market, with a slump in the share price of banks and/or of public debt.” S&P rejected the allegations. “S&P did not divulge any of its own ratings decisions on the sovereign debt of European countries before the official release of Jan. 13,” it said. It also dismissed as groundless the prosecutors’ assertion that its ratings decisions were based on incorrect information. Moody’s has said it takes the dissemination of market sensitive information very seriously and is cooperating with authorities. The probe in Trani, a small town in southern Italy, was opened after a complaint by two consumer groups. They said they had first contacted prosecutors in Milan and Rome but had been turned down. Judicial sources said Milan’s chief prosecutor believed there was not enough information to warrant a probe."  So a small town prosecutor is leading the charge after the big city boys wouldn't touch the case?  Hmmm ...