Credit Rating Agencies Could Feel An Immediate Impact From Brexit

Credit issuance is typically negatively impacted by uncertainty, Barclays’ Manav Patnaik said in a report, while reducing the EUR issuance forecasts by ~20 percent on Brexit news. The analyst commented that Moody's Corporation MCO and S&P Global Inc SPGI are likely to “feel the most immediate impact.”

Analyst Manav Patnaik maintained Overweight ratings on both the credit rating agencies, with price targets of $95 for Moody’s and $115 for S&P Global, saying that he would wait for “the dust to settle” before evaluating the ratings and price targets.

Expectations Lowered

Global credit issuance for 2016 is now expected to decline 10 percent y/y, compared with the prior forecast of a decline of 5 percent and the "flat to modestly up" expectations at the beginning of the year.

Related Link: HSBC Gets An Upgrade From JPMorgan Despite Brexit-Led Onslaught Of Bank Rating Cuts

The EPS estimates for Moody’s for FY16 and FY17 have been reduced from $4.60 to $4.40 and from $5.20 to $4.85, respectively, while those for S&P Global have been lowered from $5.15 to $5.00 and from $5.75 to $5.55. Patnaik noted that the downward top-line revisions had been partially offset by FX benefits.

“We would also note that there are likely many other moving parts that would impact our numbers - and unfortunately initial indications suggest more downside than upside. As a result, we wonder if we are entering a similar period to 1Q16, when MCO/SPGI shares were down 20%+ peak-to-trough (vs. SPX -12%),” the analyst added.