Frankfurt am Main, February 14, 2011 -- Moody's Investors Service is conducting a re-assessment of
government support in its debt ratings of banks, which could ultimately
lead to the downgrade of bank subordinated debt across several countries.
The re-assessment is driven by current moves to reform banking
regulations to allow authorities greater resolution authority and flexibility
in dealing with a distressed bank. These reforms demonstrate the
increased willingness and capacity of governments to share with debtholders
the cost of bailing out a failing bank.
In all, the subordinated debt instruments of some 177 banking entities
across 46 countries will be re-assessed.
The analysis of government support has long been captured in Moody's
bank ratings, including for subordinated debt. However,
in the wake of extensive bank bailouts, regulators have expressed
an intent to reach more deeply into the capital structure to recover in
future bailouts the cost to taxpayers. The mechanisms they use
may include bridge banks, bail-in powers, contingent
capital, or combinations of various regulatory tools.
"The range of creditor classes exposed to potential losses currently
varies widely across jurisdictions. But government policies of
sharing with creditors the cost of bank bailouts has generally been expanding,
from the imposition of losses on equity to the inclusion of preferred
stock, other forms of hybrid capital and now, in many countries,
subordinated debt", says Moody's Global Banking Managing
Director Greg Bauer.
Moody's will begin its re-assessment immediately with banking
systems whose regulators have shown a clear intent to impose losses on
creditors through workable resolution regimes, which would include
the EU countries where we currently have bank ratings under review.
The re-assessment of subordinated debt ratings will consider the
willingness of governments to provide support, their capacity to
provide support, and the workability of their proposed resolution
regimes.
As resolution powers are enacted or announced and as their impact can
be analyzed, Moody's will review the ratings likely to be
affected in that country. Moody's expects to complete its
re-assessment of support in the ratings of banking systems'
subordinated debt within the next nine months.
Moody's also sees the potential for losses to be imposed on senior
debt. However, there is currently no consensus across jurisdictions
on the desirability and feasibility of imposing losses on these creditors
at systemically important institutions. As such, Moody's
anticipates that its re-assessment will focus mainly on subordinated
debt, although there may be a limited number of circumstances where
senior debt ratings might also be re-assessed.
For more information on the scope of Moody's re-assessment
and the factors that will guide the agency's conclusion, see
the special comment "Supported Bank Debt Ratings at Risk of Downgrade
Due to New Approaches to Bank Resolution" available on moodys.com.
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Frankfurt am Main
Detlef Scholz
MD - GBL Financial Institutions
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
New York
Gregory W. Bauer
MD - Global Banking
Financial Institutions Group
Moody's Investors Service
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SUBSCRIBERS: 212-553-1653
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
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Moody's to re-assess government support in bank sub debt ratings globally