PrefBlog

Even the pretense of independent analysis is being eroded:

Indonesia’s decision to cut business ties with J.P. Morgan Chase & Co. after a downgrade highlights the fine line banks and ratings companies walk.
…
Emerging-country governments often react strongly to sovereign-ratings downgrades, which can raise the cost of borrowing in international capital markets. The offense in this case, though, was a downgrade of Indonesia’s stocks, partly occasioned by Donald Trump’s U.S. election win—a ratings change that the country’s finance ministry said could destabilize the financial system.

The ministry responded by ending all partnerships with J.P. Morgan as of Jan. 1, including the bank’s role as a government-appointed primary dealer in certain bond auctions. For a nation to completely cut off a bank that way appears rare. It was a first for Indonesia.

The decision was the product of several run-ins between Southeast Asia’s biggest country and the largest U.S. bank by assets, the ministry’s director of debt portfolio and strategy, Schneider Siahaan, told The Wall Street Journal.

It was the third time a J.P. Morgan ratings call threatened to exacerbate selloffs, Mr. Siahaan said—in 2008 and 2015 Indonesia issued warnings to the bank after its research division downgraded the government’s rupiah bonds—and the government believes J.P. Morgan has a conflict of interest.

PerpetualDiscounts now yield 5.38%, equivalent to 6.99% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.05%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 295bp, a slight (and perhaps spurious) narrowing from the 300bp reported December 14.

This entry was posted on Wednesday, January 4th, 2017 at 11:28 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.