Global corporate rating activity turned negative in the first half of 2008 with downgrades leading upgrades 1.9 to 1, the widest margin recorded by Fitch Ratings since 2003.

Downgrades rose 46% compared with the second half of 2007 and nearly doubled from levels recorded in the first half of 2007 while upgrades contracted 37% and 43%, respectively, Fitch said.

Credit quality tumbled most notably among North American and European financial institutions as investment losses and write-downs continued to depress profitability and deplete capital levels, the rating agency said. The ratio of downgrades to upgrades collectively across North American and European financial institutions was 4.2 to 1 in the first half.

“Weak economic growth, ignited by the U.S. housing downturn and worsened by tight credit and high energy costs, also affected industrial issuers, especially in North America which saw industrial downgrades increase 48% compared with the second half of 2007 and 34% year over year,” it said. At the same time, upgrades dropped 39% compared with the second half of 2007 and 50% relative to the first half of 2007.

“In an important and revealing change from the previous year, fallen angels surpassed rising stars by 2 to 1 in the first half, a reversal from the 0.6 to 1 ratio recorded in 2007,” said Charlotte Needham, senior director of Fitch Credit Market Research, “The number of corporate issuers carrying speculative ratings is expanding in 2008.”

Also in the first half, the share of Fitch global corporate ratings with a Negative Outlook or on Watch Negative rose to 17%, up from 12% at the end of 2007 and 11% a year earlier. The share of ratings with a Positive Outlook or on Watch Positive in contrast fell to 8% from 10% at the end of 2007 and 12% as of June 2007, it noted.

“The financial crisis and slowing global economic growth, not surprisingly, is putting downward pressure on corporate credit quality in 2008,” said Mariarosa Verde, managing director of Fitch Credit Market Research, “The steady increase in Fitch’s corporate Negative Outlook and Watch assignments points to more and likely deeper credit erosion over the coming year.”

IE