Standard & Poor’s (S&P) on Thursday cut its credit ratings on NYSE Euronext and warned of more downgrades after the world’s largest stock exchange moved to end business with a major clearing house.
S&P said in a statement that it lowered its long-term ratings on New York-based NYSE Euronext and its Dutch subsidiary, Euronext, to “AA-minus” from “AA,” and put both firms on credit watch “with negative implications.”
The ratings agency cited Euronext’s announcement on Wednesday that it would sever business with British clearing house LCH.Clearnet and take European clearing operations in-house by late 2012.
“The rating actions follow NYSE Euronext’s announcement that it has served notice to terminate its existing clearing arrangements with LCH.Clearnet Ltd and LCH.Clearnet SA and to build two new clearinghouses in London and Paris by year-end 2012,” S&P credit analyst Charles Rauch said in the statement.
“The building of two clearinghouses in Europe changes the company’s risk profile, introducing a degree of credit and financial risk,” S&P said in taking away the firm’s “A” rating, its third-highest.
S&P said the rating actions also reflected its view that NYSE Euronext “has not made sufficient progress to improve its financial profile” and remained overly indebted.
The agency highlighted that its actions “are not a response” to the market events of last Thursday, when the Dow Jones Industrial Average briefly plunged almost 1,000 points, sending global markets reeling.
“We believe the New York Stock Exchange followed its rules in instituting liquidity replenishment points, and there is no evidence of trading systems failure,” the agency said.
In other news, the euro hovered near 14-month lows in Asian trade yesterday on persistent concerns at Europe’s economic woes, with a US$1 trillion rescue package from the EU and IMF failing to calm markets.
A negative lead from Wall Street also hit sentiment, after US shares fell as investors were spooked by news of a bomb blast outside a prison in Greece and the specter of criminal charges against a group of US banks.
The euro remained depressed in Asian trade, buying US$1.2537 after falling as low as US$1.2517, the lowest since March last year despite efforts by eurozone countries to cut spending and grapple with the region’s debt problem.
“Four days on from Monday’s mega European bailout package the market finds itself pondering the medium-term impact of Europe’s massive debt burden,” said David Croy, strategist at ANZ bank in Wellington.
“The bailout can address liquidity concerns, but austerity is needed to get debt levels back under control. And fiscal austerity implies slower growth, which in turn suggests monetary policy will be looser for longer, with low interest rates adding more downward pressure on the euro,” he said.
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