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Rating Action:

Moody's Reviews Bank Hybrids, Subordinated Debt for Downgrade

Global Credit Research - 18 Nov 2009

Approximately $450 Billion of hybrid and subordinated debt affected

New York, November 18, 2009 -- Moody's Investors Service has placed under review for possible downgrade the ratings of 775 hybrid and subordinated debt securities issued by 170 bank families in 36 countries following a change to its rating methodology for these instruments. A detailed list of ratings affected is available on the company's website at http://v3.moodys.com/page/viewresearchdoc.aspx?docid=PBC_121275.

The reviews follow the rating agency's announcement that it has changed the way in which it rates these securities to take into account the fact that some recent government interventions in troubled banks have not helped, and have even been to the detriment of, the holders of these types of securities. For example, in some cases, support packages have been contingent upon a bank's suspension of coupon payments on these instruments as a means to preserve capital.

Prior to the crisis, Moody's had incorporated into its ratings an assumption that support provided by national governments and central banks to shore up a troubled bank would, to some extent, benefit the subordinated debt holders as well as senior creditors.

The new methodology also better captures the potential for losses that can occur in restructurings outside liquidation, such as through coupon suspension, principal write-downs, good bank/bad bank structures, and distressed exchanges. These risks can be exacerbated by the hybrid's features. Therefore, the review of individual securities will take into account various structural features of the instruments. These include whether or not coupon payments can be skipped and under what circumstances, and whether such missed payments are cumulative or non-cumulative.

Moody's anticipates that 40% of the potentially affected hybrid ratings could be lowered by one to two notches, 50% could be lowered three to four notches, and the remainder could be lowered by five or more notches.

As the likely extent and form of government support -- or intervention— is an important part of the analysis, the reviews will incorporate policy differences between countries and the relationships of individual banks with the government. While it is clear that governments and regulators, to the extent contractually and legally possible, may support coupon skips and/or principal write-downs for hybrids issued by troubled banks, the timing of such actions is uncertain, depending on country-specific considerations.

As a result, ratings on one class of securities, junior subordinated debt, are likely to continue to benefit from the uplift of government support -- at least in the near term. This is especially the case for banks in countries such as Japan, where a previous banking crisis has led to a well-defined resolution process and where junior subordinated debt has been supported during a time of financial distress. It is also the case in certain emerging markets, where banks are an important part of the economic development of the country and therefore likely to benefit from high levels of government support.

For banks in the countries or regions particularly hard hit by the crisis, which have enjoyed extraordinary levels of support, we expect junior subordinated debt ratings to be anchored closer to the intrinsic financial strength of the bank as government support gradually diminishes.

The rating agency expects to complete the reviews of individual ratings over the next three months and will announce the outcome of each review as it is completed. Banks with ratings already under review may be excluded from this review, and the changes to their hybrid ratings will be made at the same time the reviews on their other ratings are resolved.

"Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt" is available on moodys.com. In conjunction with the new methodology, the rating agency has also published a Frequently Asked Questions to address some of the issues that were raised during the comment period.

Moody's will be holding teleconferences about the methodology on Thursday 19 November at 12pm Hong Kong/ 1pm Tokyo/ 3pm Sydney time for the Asian markets and at 10am EST/ 3pm GMT for the Americas and Europe. For more information or to register, go to www.moodys.com/events.

New York
Gregory W. Bauer
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Barbara J. Havlicek
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Reviews Bank Hybrids, Subordinated Debt for Downgrade
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

 


ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable, including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY'S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY'S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.

 


MIS, a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

 


For Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail clients. It would be dangerous for retail clients to make any investment decision based on MOODY'S credit rating. If in doubt you should contact your financial or other professional adviser.

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