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Fitch Ratings-London-14 March 2012: Fitch Ratings has affirmed the United Kingdom’s (UK) sovereign ratings as follows:
–Long-term foreign currency Issuer Default Rating (IDR) affirmed at ‘AAA’
–Long-term local currency IDR affirmed at ‘AAA’
–Country Ceiling affirmed at ‘AAA’
–Short-term foreign currency rating affirmed at ‘F1+’
The Outlooks on the Long-term IDRs have been revised to Negative from Stable.
The affirmation of the UK’s ‘AAA’ ratings reflects the progress made in reducing the government’s structural budget deficit and the credibility of the fiscal consolidation effort. The UK’s ‘AAA’ rating is underpinned by a high-income, diversified and flexible economy as well as political and social stability. The UK sovereign credit profile also benefits from the macroeconomic and financing flexibility that derives from independent monetary policy and sterling’s status as an international ‘reserve currency’. However, the government’s structural budget deficit is second in size only to the US (‘AAA’/Negative) and indebtedness is significantly above the ‘AAA’ median, although currently broadly in line with France (‘AAA’/Negative) and Germany (‘AAA’/Stable).
Fitch judges the government’s fiscal consolidation plans to be credible, reflecting the strong political commitment and institutional capacity. The forthcoming Budget is expected to reaffirm the government’s commitment to deficit reduction as set out in the 2010 and 2011 budgets, the 2010 Spending Review, and the 2011 Autumn Statement. The adjustment is focused on permanent reductions in current spending underpinned by structural reform to public services and welfare. The front-loaded fiscal consolidation is proceeding broadly in line with the path set out by the government. The cyclically-adjusted primary deficit halved over the past two years, to 3.5% of GDP in 2011-12 from 7% of GDP in 2009-10, although the government’s plans include further reductions in spending beyond the term of the current parliament.
The mix of tight fiscal and ‘loose’ monetary policies allowed for by the flexible monetary and exchange rate regime, including ‘quantitative easing’ (QE), is supportive of the necessary rebalancing of the UK economy. Although Fitch recognises that the purpose of QE is to forestall deflationary pressures and promote the flow of private credit, it has also reduced the government’s cost of fiscal funding and its reliance on the market, at least over the short to medium term. Combined with an average maturity of government debt of over 14 years – around double that of its ‘AAA’ peers and a rating strength – on current policies the risk of a fiscal financing crisis is assessed to be negligible.
In Fitch’s opinion, the credibility of the government’s fiscal commitment was further enhanced by the announcement in the Autumn Statement of additional measures to ensure that the government’s target of a cyclically-adjusted current budget surplus by 2016-17 and public sector net debt (excluding financial sector interventions, PSND ex) is falling in 2015-16 in response to the Office for Budget Responsibility’s (OBR) substantial re-assessment of the UK’s economic growth potential and growth prospects. Nonetheless, general government gross debt (GGGD) and the government’s preferred measure – PSND ex – are forecast by the OBR to peak in 2014-15 at 93.9% and 78% of GDP, respectively, compared to its previous forecast of 87.2% and 70.9% in 2013-14 at the time of the March 2011 Budget and Fitch’s previous formal review of the UK’s sovereign ratings. Consistent with Fitch’s sovereign rating criteria and historical and international precedent, the projected peak for government indebtedness is at the limit of the level consistent with the UK retaining its ‘AAA’ status. With debt not expected to peak until 2014-15, three fiscal years from now, the risks and uncertainty surrounding the realisation of debt reduction by the middle of the decade are material.
The evolution of the eurozone debt crisis has significant implications for the UK in light of the substantial trade and financial linkages between the two. The easing of financial market tensions in the eurozone in recent months has diminished the risks to the UK, but in Fitch’s opinion, the crisis is not resolved and could once more intensify. Fitch’s current assessment is that UK banks are relatively well placed to absorb future episodes of financial market turmoil and losses on eurozone exposures without additional recourse to the UK taxpayer for capital. UK banks have strengthened their capital positions in recent years and they have reduced their exposures to the weaker eurozone economies over 2011. In addition, the UK government has announced its intentions to reform the banking system to make future crises less frequent and costly. Both these factors should help reduce future fiscal risks. Of greater concern would be the broader economic impact of an intensification of the eurozone crisis on the UK government’s ability to meet its deficit reduction targets and place the debt to GDP ratio on a downward path in 2015-16.
The revision of the rating Outlook to Negative from Stable reflects the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery. In light of the considerable uncertainty around the economic and fiscal outlook, including the risks posed to economic recovery by ongoing financial tensions in the eurozone and against the backdrop of a still large structural budget deficit and high and rising government debt, the Negative Outlook indicates a slightly greater than 50% chance of a downgrade over a two-year horizon.
The triggers that would likely prompt a rating downgrade are as follows:
— Discretionary fiscal easing that resulted in government debt peaking later and higher than currently forecast;
— Adverse shocks that implied higher levels of government borrowing and debt than currently projected; and
— A material downward revision of the assessment of the UK’s medium-term growth potential.
Conversely, economic and fiscal performance in line with Fitch’s baseline expectations with general government gross debt peaking at around 94% in 2014-15 would likely result in the stabilisation of the rating Outlook. In the absence of adverse shocks, Fitch does not expect to resolve the Negative Outlook until 2014. The agency’s medium-term economic and fiscal projections are set out in a new Special Report on UK Public Finances, available at www.fitchratings.com.
Fitch last formally reviewed the UK sovereign ratings on 14 March 2011 and has completed the current review in a manner consistent with its regulatory obligations.
+44 20 3530 1081
Fitch Ratings Limited
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+44 (0)20 3530 1175
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Media Relations: Mark Morley, London, Tel: +44 0203 530 1526, Email: [email protected]
Additional information is available at www.fitchratings.com. The ratings above were unsolicited and have been provided by Fitch as a service to investors.
Applicable criteria, Sovereign Rating Methodology dated August 2011 are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Sovereign Rating Methodology
Read more: http://www.businessinsider.com/fitch-revises-uk-outlook-to-negative-2012-3#ixzz1p7kmRAa0Comments »
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The SEC has opened up an investigation on Sharespost and other broker dealers, who have used the private markets to peddle shares.
UPDATE: Here is the SEC statement
SEC Announces Charges from Investigation of Secondary Market Trading of Private Company Shares
FOR IMMEDIATE RELEASE
Washington, D.C., March 14, 2012 — The Securities and Exchange Commission today charged two managers of private investment funds established solely to acquire the shares of Facebook and other Silicon Valley firms with misleading investors and pocketing undisclosed fees and commissions. The SEC alleges that the fund managers collectively raised more than $70 million from investors.
Administrative Proceeding: Sharespost, Inc. and Greg B. Brogger
Administrative Proceeding: Laurence Albukerk and EB Financial Group, LLC
Separately, the SEC charged SharesPost, an online service that matches buyers and sellers of pre-IPO stock, with engaging in securities transactions without registering as a broker-dealer.
The charges stem from the SEC’s yearlong investigation of the fast-growing business of trading pre-IPO shares on the secondary market.
“While we applaud innovation in the capital markets, new platforms and products must obey the rules and ensure the basic fairness and disclosure that are the hallmarks of sound financial regulation,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.
“Fund managers must fully disclose their compensation and material conflicts of interest. Investors deserve better than the kind of undisclosed self-dealing present in these cases,” said Robert Kaplan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.
SEC v. Frank Mazzola, Felix Investments LLC, and Facie Libre Management Associates LLC
The SEC alleges that Mazzola, who lives in Upper Saddle River, N.J., and his firms created two funds to buy securities of Facebook and other high profile technology companies. However, Mazzola and his firms engaged in improper self-dealing — earning secret commissions above the 5 percent disclosed in offering materials on the funds’ acquisition of Facebook stock and on re-sales of fund interests to new investors. The hidden charges essentially raised the prices paid by their investors for Facebook stock because it created a disincentive for Mazzola and his firms to negotiate a lower price for fund investors. They also sold Facie Libre fund interests despite knowing the funds lacked ownership of certain Facebook shares.
According to the SEC’s complaint filed in federal court in San Francisco, Mazzola and his firms also made false statements to investors in other funds they created to invest in various pre-IPO companies. For instance, they misled one investor into believing a Felix fund had successfully acquired stock of Zynga. They also made false representations about Twitter’s revenue to attract investors to their Twitter fund.
The SEC’s lawsuit against Mazzola, Felix Investments, and Facie Libre seeks court orders prohibiting them from engaging in securities fraud and requiring them to disgorge their ill-gotten gains and pay financial penalties.
In the Matter of EB Financial Group LLC and Laurence Albukerk
According to the SEC’s administrative proceeding against Laurence Albukerk, who lives in San Francisco, he and his firm hid from investors significant compensation earned in connection with two Facebook funds they managed. In written offering materials for the funds, Albukerk told investors he charged only a 5 percent fee for an initial investment and a 5 percent fee when the shares were distributed to fund investors upon a Facebook IPO. However, Albukerk obtained additional compensation by using an entity controlled by his wife to purchase the Facebook stock and then buying interests in that entity for the EB Funds while charging investors a mark-up. Albukerk also earned a brokerage fee on the acquisition of Facebook shares from the original stockholders. As a result of the fee and mark-up, investors in Albukerk’s two Facebook funds ultimately paid significantly more than the fees disclosed in the offering materials.
Without admitting or denying the SEC’s findings, Albukerk and EB Financial consented to entry of a SEC order finding that they violated Section 17(a)(2) of the Securities Act of 1933 and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Albukerk and EB Financial also agreed to pay disgorgement and prejudgment interest of $210,499 and a penalty of $100,000.
In the Matter of SharesPost Inc. and Greg Brogger
According to the SEC’s administrative proceeding against SharesPost and its CEO Greg Brogger of Park City, Utah, the online platform facilitated securities transactions without registering with the SEC as a broker-dealer. SharesPost engaged in a series of activities that constituted the business of effecting securities transactions and thus were required to register as a broker-dealer. SharesPost held itself out to the public as an online service to help match buyers and sellers of pre-IPO stock and allowed registered representatives of other broker-dealers to hold themselves out as SharesPost employees and earn commissions on transactions they facilitated through the SharesPost platform. SharesPost and affiliated broker-dealers also created a commission pool that was distributed by an executive to employees who were representatives of these broker-dealers. The company also collected and published on its website third-party information concerning issuers’ financial metrics, SharesPost-funded research reports, and a SharesPost-created valuation index. Additionally, the SharesPost platform was used to create an auction process for interests in funds managed by a SharesPost affiliate and designed to buy stock in pre-IPO companies.
“The newly emerging secondary marketplace for pre-IPO stock presents risk for even savvy investors,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “Broker-dealer registration helps ensure those who effect securities transactions can be relied upon to understand and faithfully execute their obligations to customers and the markets. SharesPost skirted these important provisions.”
SharesPost and Brogger consented to an SEC order finding that SharesPost committed and Brogger caused a violation of Section 15(a) of the Exchange Act of 1934. They agreed to pay penalties of $80,000 and $20,000 respectively. Subsequent to the SEC’s investigation, SharesPost acquired a broker-dealer and its membership agreement was approved by the Financial Industry Regulatory Authority (FINRA).
These cases were investigated by Michael E. Liftik, Erin E. Schneider and Robert S. Leach of the San Francisco Regional Office. Ms. Schneider and Mr. Leach are members of the SEC’s Asset Management Unit. Fred Jolivet of the San Francisco Regional Office’s broker-dealer program conducted an examination relating to the SharesPost matter. The SEC’s litigation effort will be led by Robert L. Mitchell and Robert L. Tashjian of the San Francisco Regional Office.
The SEC thanks FINRA for its assistance in this matter.
# # #
For more information about this enforcement action, contact:
Robert Kaplan (202-551-4969) and Bruce Karpati (212-336-0104)
Co-Chiefs, Asset Management Unit, SEC Division of Enforcement
Marc J. Fagel
Director, SEC San Francisco Regional Office
Michael S. Dicke
Associate Director (Enforcement), SEC San Francisco Regional Office