A quick look at what’s on International Treasurer’s radar screen this week.
A couple interesting ideas came out of this week’s International Treasurer editorial meeting. These include a primer on rating agency relations (or how to repair your credit rating). Also, the possibility of a Greek exit (Grexit) from the euro seems to have tilted more decidedly toward “when” than the “if” of a just a month or so ago; so, “when” it does happen, what happens to the payments systems that are in place across Europe?
Ratings relations. At a recent NeuGroup Engineering and Construction Peer Group meeting, one member shared his experience of being downgraded to below investment grade and the long slog of returning to investment grade status that followed.
What was surprising was that interacting with rating agencies was generally not a huge time investment. Rated companies reported that they expend only a fraction (less than half) of a single FTE toward managing rating agency relationships. Even in the presenting member’s near seven-year march toward investment grade status affirmed this. The presentation also discussed what the rating agencies care about. Regardless of whether you are looking to acquire, maintain or improve a rating, it is important to know what factors the agencies are most interested in monitoring.
We’ll take a look at some of the other approaches this member company took to get back to investment grade.
Payment systems and euro disruption.
A recent piece by Peter Boone and Simon Johnson on The Baseline Scenario blog, “The End Of The Euro: A Survivor’s Guide,” mentions the European TARGET2 payments system. Specifically, if Greece defaults, it will do so on billions that are piped through TARGET2. TARGET2, according to the European Central Bank web site, “is the real-time gross settlement (RTGS) system owned and operated by the Eurosystem. TARGET stands for Trans-European Automated Real-time Gross settlement Express Transfer system. TARGET2 is the second generation of TARGET.”
The Eurosystem by the way is made up of the ECB and the national central banks of the countries that have adopted the euro. In the Boone-Johnson piece, the authors note that the Eurosystem and TARGET2 will be out about 110 billion euros if Greece defaults. “As depositors and lenders flee Greek banks, someone needs to finance that capital flight, otherwise Greek banks would fail. This role is taken on by other euro area central banks, which have quietly lent large funds, with the balances reported in the TARGET2 account.”
We’ll explore what it means to some of the other systems, notably EURO1, a euro payments-clearing and settlement service managed by EBA CLEARING (itself a consortium of banks that provides both high-value and low-value clearing and settlement services to banks in the EU). And what will happen to SEPA? Will it go forward amid a eurozone disruption? Some observers don’t think so.