Banks Face Ratings Downgrade in Moody's Review

Monday, 14 Feb 2011 02:39 PM

 

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Some banks' credit ratings will be cut as governments make it easier to wind up failing lenders and force debtholders to pay for rescues, rating agency Moody's said on Monday.

Policymakers in the U.S., European Union and elsewhere want to avoid taxpayers shoring-up troubled banks in a future crisis.

They are introducing measures such as speedier insolvencies and restructurings so that no bank is "too big to fail."

Other measures include allowing banks to top up their regulatory capital with hybrid debt known as contingent capital, or CoCos, which turn into an equity boost in a crisis.

Credit Suisse said on Monday it planned to issue 6 billion Swiss francs ($6.2 billion) of CoCo bonds.

Moody's, one of the world's top three rating agencies, said it was reassessing the subordinated debt, including CoCos, of 177 banking entities in 46 countries to see how much they benefit from government willingness to prop them up in a crisis.

The reassessment would take up to nine months and future ratings would be based purely on a bank's standalone financial strength, with any "uplift" from likely government help stripped out where appropriate, resulting in a downgrade.

"We have already taken action in the UK to reflect a combination of factors and right now we are looking across the piste," Alastair Wilson, chief credit officer at Moody's in Europe, told Reuters.

Germany has most banks, 17, with outstanding subordinated debt whose ratings benefit from government support, followed by Italy with 11, Japan and Austria nine each, and Australia eight.

Moody's also sees the potential for losses to be imposed on senior debt, but with no global consensus among governments on this it was too early to reassess ratings in this respect.


© 2014 Thomson/Reuters. All rights reserved.

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