European Corporate Credit Quality to Remain Fragile Over Coming Months

The creditworthiness of European companies and financial institutions is unlikely to recover significantly in 2004, even though the low point for corporate credit quality in the region has passed, according to Standard & Poor’s. Among western European corporates, the distribution of Standard & Poor’s outlook and CreditWatch listings – traditionally a good lead indicator of credit quality – is currently slightly more negative than at the same point in 2002. In November 2003, 27 per cent of the nonfinancial European corporates rated by Standard & Poor’s were assigned a negative outlook or were placed on CreditWatch negative, compared with 7 per cent assigned a positive outlook and 65 per cent assigned a stable outlook. Furthermore, the number of rating downgrades has fallen in 2003 compared with 2002, and is likely to decline again in 2004, but the economic and business environment in Europe at present provides limited scope for rating upgrades in many sectors. ‘Without any real growth in consumption and investment, we see little reason to expect a dramatic upturn in credit quality among European issuers in 2004,’ said Barbara Ridpath, Standard & Poor’s Chief Credit Officer for Europe. ‘Creditworthiness is certainly deteriorating less rapidly than a year ago thanks to remedial actions taken by issuers, but companies are reaching the limits of what they can do internally without help from the economy.’


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