Moody’s: You Can Count On Future Bailouts

Moody’s, is taking the recent financial crisis it may or may not have borne any responsibility for seriously...in one respect.
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Ready for you to believe them again.

Depending on who you ask, ratings agencies were somewhere between completely at fault and totally innocent in the matter of the recent financial crisis, the argument for those on the former side going something like this: The three big raters would slap a triple-A rating on any pile of securitized garbage if you paid them enough, and then stupid investors relied on those ratings, which helped create a huge credit bubble, and the rest is history. To date, legally-speaking, this has only proven allegedly improper if you later downgraded the U.S. sovereign debt rating, but it’s a fun debate all the same.

Fast-forward to 2015: One of the big three, Moody’s, is taking the recent financial crisis it may or may not have borne any responsibility for seriously in one respect: It doesn’t believe that the government will really let several notable banks go belly-up, no matter what the FDIC guy says. And so it’s decided to take the government support it is presuming into account when rating those banks’ debt, which of course means higher ratings. And who doesn’t like a higher rating?

The ratings agency assumed that the bank subsidiaries of Wells Fargo & Co., Bank of New York Mellon Corp. and State Street Corp. would be less affected and record lower losses than other institutions in the event that the Federal Deposit Insurance Corporation put their holding companies into receivership.

That prompted Moody’s to upgrade its ratings for the deposits, bank-level senior debt and operating obligations of Wells Fargo and Bank of New York Mellon as well as the operating obligations of State Street Corp….

The moves mostly affect midsize and smaller banks. Moody’s said it hasn't yet finished its reviews Bank of America Corp, Citigroup Inc, J.P. Morgan Chase & Co, Morgan Stanley and Goldman Sachs Group, Inc. using this new methodology.

Moody’s Serves up Ratings Changes for Banks [WSJ]

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