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April 28, 2016

How China's Rebalancing Shifts The Ground Under All Of Asia-Pacific

The objective of China's leadership to rebalance the nation's economy is well known. While China's rise over the past three decades has been impressive, the sustainability of its current growth path has become more doubtful. Specifically, a period of increasingly credit-fueled investment and GDP growth following the global financial crisis has led to a sharp rise in debt, particularly in the corporate sector. And a lack of market discipline has led to fears of an imminent rise in nonperforming loans and an eventual "hard landing" if the course isn't corrected. China needs slower and more consumption-based, market-driven growth. This process has already begun, although at a more gradual pace than many would like. And China has much work left to do. However, less well known and discussed is the effect that China's rebalancing will have on the rest of the world, particularly in Asia-Pacific.

General Motors Co. And Subsidiary Outlook Revised To Positive On Improving Profitability, 'BBB-' Ratings Affirmed

The outlook revision reflects our belief that General Motors (GM) is well positioned to continue to improve the profitability of its regional operations over the next two years. We expect that the generally positive fundamentals in the global automotive industry will support steady profitability for the company in North America (EBIT margins of about 9%-10%) and improved profitability for its operations in Europe (break-even EBIT in 2016) and the Asia-Pacific region, which will more than offset its meaningful, albeit reduced, losses in South America. We expect that GM's strong liquidity and steady positive free cash flow prospects over the next two years will remain sufficient enough to absorb the outflows related to its restructuring costs, recalls, upcoming launch costs, regulatory compliance costs, technology investments, and planned shareholder actions without impairing the company's credit metrics.


CreditMatters TVHow Rising Deferred Tax Assets Affect Brazilian Banks’ Capital Quality

Edgar Dias

In this segment of CreditMatters TV, Director Edgard Dias and Associate Guilherme Machado explain how the rise in loan loss reserve requirements, adjustments to the fair value of trading securities, and a hike in the social contribution tax have jeopardized banks’ capital quality.

Top Stories


Standard & Poor's Ratings Services Responds To FASB's Proposal For Presentation Of Pension And Postretirement Benefit Costs

The proposed changes prescribing the presentation, disclosure, and capitalization of these costs will add transparency, consistency, and comparability to financial reporting. Our credit ratings are relative and our approach to financial statement analysis is comparative. The comparability of financial information between companies is critical to facilitating this analysis. We note that the proposal to treat all of the components of net periodic cost other than service cost separately from service cost and outside a subtotal of income from operations (where presented), is in line with how we arrive at our adjusted EBITDA and EBIT. The period's current service cost is the only component that we keep in operating expenses. It is important to our analysis that the amount of service costs included in the compensation line item(s) (i.e., exclusive of the amount capitalized), be clearly disclosed.


How We Capture Catastrophe Modeling Uncertainty In (Re)insurance Ratings

The characteristics of reinsurers' catastrophe (cat) exposure are a key factor in our rating analysis, particularly when we assess their capital and earnings and risk position. We use a number of metrics to this end, most of which are based on reinsurers' own assessments of cat exposure according to their view of the risk. Reinsurers typically use models developed by third parties, but some have developed their own models for at least some of their perils. Catastrophe modeling is a complex process that is influenced by numerous estimates, assumptions, and subjective judgments.


International Business Machines Corp. 'AA-' Rating Outlook Revised To Negative On Revenue Declines

On April 27, 2016, we affirmed our 'AA-' corporate credit rating on Armonk, N.Y.–based International Business Machines Corp. and revised the outlook to negative from stable. The outlook revision to negative reflects IBM's protracted revenue and earnings declines. Revenue declined in the low-single-digit percentages in constant currency and EBITDA excluding restructuring charges declined in the low teens digit percentages year over year for the quarter ended March 31, 2016. These declines are sharper than in other recent quarters, as the company continues to reposition its business to meet changing client needs.

Financial Institutions

For Colombian Banks, How Big Of A Threat Is The Oil And Gas Sector?

For countries that depend greatly on oil and natural gas revenues, low energy prices clearly create problems, not the least of which is a hit to their financial systems. Among such countries is Colombia, but the impact of the collapse in oil prices on that country’s banks may not be exactly what some might expect. Granted, we think credit conditions for Colombian entities in the oil and gas sector are weakening, and Ecopetrol S.A., the nation’s largest company with a significant presence in the sector, is no exception But the real questions are: How significant is the Colombian banking system’s vulnerability to Ecopetrol and other oil and gas-related entities? And could such exposures damage banks’ asset quality metrics in the form of higher nonperforming loans or credit losses?