Moody's: Crisis Fueled Unprecedented Bank Defaults

Friday, 11 Feb 2011 06:12 AM

 

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Between 2008 and 2010, 111 financial companies rated by Moody's Investors Service defaulted, more than the previous 24 years combined, its analysts said in an annual report.

The defaults, including 72 debt issuers holding $318 billion of bonds and loans, dwarfed the $46 billion in debt from the defaults of 96 companies between 1983 and 2007, Moody's said. More than a third of those occurred during the savings-and loan-crisis of 1989-1991.

"Financial institution defaults during the recent crisis were unprecedented both in number and volume," said Sharon Ou, Moody's assistant vice president, who authored the report.

The overall default rate for companies rated by Moody's peaked at a record 2.7 percent in August 2009, the report said, surpassing the 2.3 percent rate during the savings-and loan-crisis.

The two-year spate was more global as well, the report said. More than half of the financial institutions that defaulted were in Europe, a region that historically has seen few, it said. The European defaults were concentrated in the Ukraine, which imposed deposit freezes in October 2008.

North America's share of defaults decreased accordingly, to 37 percent in the current cycle from 79 percent before 2008.

During 2011, the default rate for speculative-grade financial companies that issue debt will most likely stabilize at between 1.5 percent and 3 percent, Moody's said. The default rate for such firms topped out at 11.5 percent during the crisis.

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