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Announcement:

Moody's to re-assess government support in bank sub debt ratings globally

 The document has been translated in other languages

Global Credit Research - 14 Feb 2011

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.

* * * * * * * * * *

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

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
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's to re-assess government support in bank sub debt ratings globally
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