S&P warns US business risks failures, German banks exposure manageable

S&P warned that corporate America is about to be hit by a wave of business failures and that there is a risk of a full-blown debt crisis as in 2001-02. In contrast, the ECB have continued to talk tough and it seems as though the significant EUR liquidity injections at the beginning of this crisis has done them well, especially when compared to the BoE who have stepped in a little too late.

In light of the U.S. subprime mortgage market disruption and the near failures of Germany-based IKB (never rated by Standard & Poor’s Ratings Services) and Landesbank Sachsen Girozentrale (BBB+/Developing/A-2), market uncertainty has increased, Standard & Poor’s Ratings services noted in a report titled “German Banks’ Subprime Mortgage And Structured Vehicle Exposure Concerns Are Overstated,” published yesterday on RatingsDirect.

Investors remain particularly focused on German banks’ exposures to U.S. subprime mortgages and their liquidity facilities granted to structured vehicles. Standard & Poor’s continues to be in regular contact with its rated banks, has analyzed these exposures, and has discussed updated reports on liquidity management and stress testing.

“Based on our analysis, we consider that credit risk in the German banking sector from U.S. subprime mortgage exposures is limited as it is generally concentrated in the ‘AAA’ and ‘AA’ rated tranches,” said Standard & Poor’s credit analyst Stefan Best. “In addition, we consider the potential market valuation effects to be manageable,” he said.