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Any Port in a ratings storm

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Amid much turmoil over whether Portugal will lose the one investment grade rating that is keeping it on the European Central Bank’s shopping list, no one is asking a vital question.

That question is why the ECB considers one rating more important than the majority’s stance?

DBRS is entitled to opine that Portuguese sovereign debt is investment grade — just, at BBB (low). But none of the other three agencies approved by the ECB — Moody’s, Standard & Poor’s and Fitch — agree.

That smells of fudge. Where else would one ignore the majority view in favour of an outlier? After a failed coup attempt in July, for instance, strategists fretted that Turkey would lose one of its remaining two investment grade ratings, which could lead to forced selling by funds that need the debt they hold to possess two investment grade ratings.

Surely the ECB, supposed lynchpin of market stability, should be more stringent, not less?

There is also the irony that as recently as July 2010, DBRS was not among the Portuguese supervisory authorities’ approved agencies, according to data in the Eurosystem’s reply to the European Commission’s public consultation on credit rating agencies.

By January 1, 2014, DBRS was among the approved agencies in Portugal — but then that was the case across the continent, as all rating agencies registered or certified with the European Securities and Markets Authority were automatically approved in all European Union countries.

Investors are right to be worried about the prospect of DBRS downgrading Portugal. But there should be a bigger discussion about why the agency’s view has come to be so important in the first place.

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