Moody's said on April 13 that it would begin downgrading banks, including BNP Paribas, France's biggest lender, Germany's Deutsche Bank and New York-based JPMorgan and Morgan Stanley, by early May. Yesterday, Moody's spokeswoman Kirsten Knight said the firm's schedule for concluding bank rating reviews hadn't changed.

Moody's expects to conclude the reviews by the end of June, she said in an emailed statement. Moody's declined to elaborate beyond the statement or comment on when the first downgrade would occur.

It's the second time Moody's has delayed publishing details of the downgrades in a month. Any ratings cuts could push up bank funding costs, heaping further misery on the industry as the boost that followed the European Central Bank's cash injections in December and February wears off and policymakers struggle to extinguish the sovereign-debt crisis.

On the eve of the Greek default I wrote regarding the possibility of the Greece action becoming a Black Swan, now it is clear that Europe is on the edge of a Black Swan Event.

As deleveraging pressures grew towards the end of 2011, European banks offered for sale a significant volume of assets, notably those with high risk weights or market prices close to holding values.

Offerings with high risk weights included low-rated securitised assets, distressed bonds and commercial property and other risky loans. Although some such transactions were completed, others did not go through because the offered prices were below banks' holding values.

Strong deleveraging pressures during the final quarter of 2011 were also associated with weak or negative growth in the volume of credit extended by
many European banks. Credit extended by financial institutions in the euro area, for example, turned down during this period, with credit to non-bank
private sector borrowers in the area falling by around 0.5%, while assets vis-àvis non-euro area residents declined by almost 4%. Outstanding loans to euro area non-financial corporations grew by just over 1% and loans to households for house purchases by around 2%, while consumer credit declined by just over 2%.

European banks also cut lending to emerging markets. Their consolidated foreign claims on emerging Europe, Latin America and Asia had already started to fall in the third quarter of 2011.

New syndicated and large bilateral loans from EU banking groups to emerging market borrowers then fell in the final quarter of the year. This was in contrast to lending to western Europe and other developed countries, which was essentially unchanged . At the same time, banks tightened terms on new loans to corporations and households in emerging markets. The more pervasive tightening in emerging Europe than elsewhere may have reflected the widespread ownership of banks in the region by EU banking groups. Reduced lending to emerging Europe may also reflect lower demand, however, as the region's economic growth forecasts fell by more than those for any other during the final quarter of 2011.

Spain is in extreme difficulty, Prime Minister Mariano Rajoy said April 4, raising the possibility of a bailout for the second time this week. The government has widened its budget deficit target to 5.3 per cent of gross domestic product from 4.4 per cent and warned on April 3 that public debt will surge to a record 79.8 per cent of GDP this year.

Spain sold 2.6 billion euros of bonds, near the minimum target for the sale on April 4. Borrowing costs rose in its first auction since the country said public debt will jump to a record this year. The Treasury had set a range of 2.5 billion euros to 3.5 billion euros for the sale.

In the US, the Federal Reserve is holding off on increasing monetary accommodation unless US economic growth falters or prices rise at a rate slower than its 2 per cent target, minutes released from a March 13 policy meeting showed on April 3.

The European Central Bank left its benchmark interest rate unchanged at a record low of 1 per cent on April 4. The euro-area's economic outlook remains subject to downside risks, President Mario Draghi said at a press conference later that day in Frankfurt.

The remaining tensions in euro area sovereign-debt markets are expected to dampen economic momentum, he said.

Euro-area services and manufacturing output contracted for a second month in March. A composite index based on a survey of purchasing managers in both industries dropped to 49.1 from 49.3 in February, London-based Markit Economics said on April 4. That's above an initial estimate of 48.7 on March 22. A reading below 50 indicates contraction.

Shayne Heffernan

Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.Read the Terms of Service