Portugal Suffers Ratings Cuts, but Not Expected to Seek Bailout

The Fitch downgrade drops long-term foreign- and local-currency issuer ratings to A- from A+. Short-term issuer ratings fell from F1 to F2, with all new notes classified as “rating watch negative.” The country ceiling remains at AAA. This puts Fitch’s ratings on par with Moody’s, which took its own action last week when it dropped the country two notches to an A3 rating, equal to Fitch’s A-.

S&P’s actions were caused by increased political uncertainty, the agency said as it dropped Portugal to a BBB rating. The outcome of the euro zone summit meeting will most likely determine any additional downgrades; the company issued a statement that said in part, "Based on current information and expectations, we could lower the ratings on Portugal again by one notch once the details of the ESM [European Stability Mechanism] are officially announced. Such a rating action could take place as early as next week."

Filipe Garcia, head of Informacao de Mercados Financeiros consultants in Porto, said in the report of Fitch’s move, "They are only catching up with other rating agencies, and with all ratings still being investment grade I don't think there'll be much impact in the bond market." He went on to add, "But the timing looks strange and their focus on the political issues seems a bit of an exaggeration and premature. The key context is the European summit, which apparently is dominated by the Portuguese crisis, so they at least could have waited for the summit to end."