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Global Credit Research - 13 Nov 2012
New York, November 13, 2012 -- Any future regulatory fines against banks from their alleged manipulation
of the London Inter Bank Offered Rate (LIBOR) would likely be absorbable
within each bank's annual earnings and would therefore not be significant
enough to prompt rating actions, says Moody's Investors Service
in a new report published today. However, losses from potential
litigation over the alleged manipulation, though highly uncertain
and difficult to quantify, could turn out to be much larger than
any regulatory fines, and would therefore be more likely to have
credit-negative rating implications.
The new report, "Lingering LIBOR Risks and Potential Impact
on Bank Ratings", is now available on www.moodys.com.
Moody's subscribers can access this report via the link provided at the
end of this press release.
Moody's report describes the LIBOR rate-setting process,
details the alleged misconduct, and highlights credit and litigation
risks facing the LIBOR panel banks. In addition, Moody's
assesses potential near-term developments -- such
as additional settlements or lawsuits, class action suits and judicial
decisions -- that the rating agency believes could increase
the risk of losses or franchise damage.
Moody's considers that the potential risks to firms fall into the
following categories (1) regulatory fines/penalties; (2) litigation
settlements; and (3) other (reputational damage, management
upheaval, strategic changes).
Moody's does not believe that the imposition of regulatory fines
is likely to prompt rating actions. However, Moody's
says that negative pressure on LIBOR panel banks' ratings could
develop following (1) associated management upheaval and/or strategic
changes; and/or (2) revelations of previously unidentified risk-management
or control failures. With litigation efforts in their very early
stages, Moody's says that the magnitude of any monetary damages
or settlements is difficult to quantify, but they could ultimately
have credit-negative implications.
Moody's notes that the largest LIBOR panel banks have more earnings
and capital with which to absorb potential losses. However,
those banks are not necessarily less vulnerable than the smaller banks,
especially if higher absolute transaction levels associated with the larger
banks lead to larger litigation losses.
Given the fluid nature of the current investigations and pending litigation,
Moody's intends to monitor the ongoing developments and will use
the framework described in this report as a basis to consider the potential
credit implications. Well before any final court decision or legal
settlements are reached, Moody's would expect numerous related
legal and regulatory developments over an extended timeframe. This
will bring greater clarity to the likely impact of regulatory fines,
potential litigation losses and penalties on LIBOR panel banks'
credit profiles.
Subscribers can access this report via this link: http://www.moodys.com/research/Lingering-LIBOR-Risks-and-Potential-Impact-on-Bank-Ratings--PBC_147101.
***
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Moody's on LIBOR allegations: litigation costs remain uncertain, but are a greater risk to bank ratings than regulatory sanctions
No Related Data.
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