• 22 Jun 2012 at 10:03 AM
  • Banks

Moody’s Slightly Reduces Overrating Of Banks

Are we supposed to care about these downgrades? I like Glenn Schorr at Nomura, emphasis mine:

We think the net financial impact of these downgrades will be manageable as 1) potential collateral calls are small percentages of these firms’ liquidity pools; 2) counterparties have been preparing for this for some time and ratings downgrades have been an issue for the last 2+ years (there was little impact on Citi and BAC when they were downgraded back in September of 2011); 3) ratings are a relative game: given that Moody’s downgraded all capital markets firms, no single-firm is an outlier, so we don’t expect to see one company uniquely impacted. Yes, we get that counterparties looking to do long-dated derivatives might prefer a single-A rated entity, but as Basel III is implemented and more derivatives move to central clearinghouses, counterparty ratings should become less meaningful and clients will adapt (and not do all their business with JPM and GS).

It would be a serious misinterpretation of credit ratings to think of them as a global rank ordering of risks in the world. “A-rated things are of course safer than BBB-rated things,” you say, and get punched in the face repeatedly by life. A-rated things are not safer than BBB-rated things. A-rated RMBS CDOs were not safer than BBB-rated corporates, A-rated corporates are not safer than BBB-rated municipalities, and A-rated banks are it goes without saying not safer than BBB-rated software companies. Nobody really suggests otherwise – if they did, this graph would be a huge embarrassment to Moody’s: Read more »

Moody’s Investors Service downgraded the debt ratings of 15 major international banks and securities firms on Thursday, a move that could cost the banks billions of dollars in extra collateral…U.S banks that were downgraded included: Bank of America, Citigroup, Goldman Sachs, JPMorgan, and Morgan Stanley. “All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities,” Moody’s said in a statement. “However, they also engage in other, often market leading business activities that are central to Moody’s assessment of their credit profiles,” the firm added. “These activities can provide important ‘shock absorbers’ that mitigate the potential volatility of capital markets operations, but they also present unique risks and challenges.” [CNBC, related]

  • 13 Feb 2012 at 8:03 PM

Moody’s Treads Where No Other Rating Agency Dare

“Moody’s Investors Service downgraded six European nations and became the first ratings firm to warn the U.K.’s rating could be at risk, citing the area’s weakening ability to implement measures aimed at reducing debt…Where Moody’s did deviate from recent actions by other ratings firms was in changing the outlook for the U.K. There had been no indication the U.K.’s outlook was necessarily in danger based on how other ratings firms view U.K.’s debt. Both S&P and Fitch have a stable outlook on their U.K. rating.” [WSJ]

Michael Feroli at JPMorgan had an interesting note this morning (via ZH) on the Republican letter to Bernanke, pointing out that this sort of saber-rattling against easing might actually make it more likely as a way for the Fed to assert its independence.

Moody’s downgrade of BAC/WFC/C, on the other hand, may have the opposite effect, precisely because the government hasn’t yet been able to declare its independence from the ratings agencies. Moody’s cut the banks’ credit ratings because they think the government is less likely to bail them out if they run into trouble. And that downgrade itself may have the effect of making the government less likely to bail out the banks if they run into trouble.
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Don’t Ask To Speak With Brian Moynihan Today

He may be in a mood. Read more »

  • 19 Jul 2011 at 2:51 PM

Moody’s Puts 5 States On Notice

Apparently Maryland, South Carolina, New Mexico, Tennessee and Virginia should be preemptively quaking in their boots. Read more »

  • 14 Jul 2011 at 1:49 PM

Credit Ratings Agencies May Want to Tread Carefully

It turns out that when you say things like “let’s not pay back our debts, what’s the worst thing that can happen?,” one thing that does happen is that the credit ratings agencies start worrying that you might not pay back your debts. Weird. From Reuters:

Standard & Poor’s has warned lawmakers privately that it would downgrade the country’s debt if the Treasury Department is forced to prioritize payments because Congress does not raise the debt limit, a congressional aide said on Thursday.

That is, cutting off Social Security checks could avoid a technical default but not a downgrade. Moody’s yesterday threw out its own threat of pre-default downgrade.

You know who else had ratings agencies all up in their shit threatening downgrades just because of massive fiscal and political-will problems? Europe. And they have some ideas on how to deal. Short version: insert fingers in ears, close eyes, hum noisily. Longer version:
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