It may have seemed like the financial crisis is Europe had stabilized. Greece has been somewhat quiet. Portugal hasn’t quite boiled over the way some thought it would. But now all eyes are back on Ireland and they aren’t smiling. The government announced today that it would need to pump additional cash into its struggling banking system to an extent that its budget deficit could stretch to a third of its entire economy. No other country in the eurozone has a deficit that bad.
It all started with the Central Bank of Ireland announcing Thursday that the state-owned Anglo Irish Bank would need close to a EUR30 billion infusion. Although the government and the European Union have ruled out a Greece-like bailout, that certainly must be on the mind of some investors.
Ireland wasn’t the only European country in the news for its fiscal problems Thursday. Spain saw its credit rating downgraded one notch to Aa1 by Moody’s Investors Service Inc. The ratings agency cited the country’s weak growth prospects.
Commercial real estate is the proverbial next-shoe-to-drop corner of the financial markets, and iStar Financial, a real-estate investment trust that specializes in commercial real estate loans, is suffering with the best of the them. The latest news to hit the company was a downgrade by Moody’s Investors Service – the REIT’s senior unsecured debt is now rated Caa1, down fro B2. That’s a rating that really raises questions about an issuers ability to payback loans. Moody’s is concerned about just that and wonders about its ability to meet short-term funding obligations. And to make matters worse, Moody’s is keeping the company’s outlook at “negative.”
The people who ran the infamous Reserve Primary Fund, a money market fund that paid fairly handsome returns and promised your $1 you invested would always be safe, ran afoul of the Securities and Exchange Commission today. They were charged with giving investors false information about their holdings in Lehman Brothers when it went belly up and the funds ability to protect the buck – meaning that even if it lost money on Lehman, every dollar invested would be worth $1. But one of the more fascinating parts of the complaint against the fund has to do with Moody’s Investors Service questioning the fund last summer if it was adequately prepared for a credit problem in its portfolio. Moody’s met with Bruce Bent Sr., 71, and the chairman of the fund company, and his son, Bruce Bent II, vice chairman, on July 18 last year, to see how the fund would deal with an unforeseen credit event.
