PrefBlog

Moody’s has announced:

In Canada, proposed changes to the methodology used by Moody’s Investors Service to rate bank subordinated capital (i.e., subordinated debt, preferred shares, and other hybrid securities) could lead to ratings being lowered by an average of two to three notches on $65 billion of rated instruments.
Neither bank financial strength nor deposit ratings would change as a result of implementing Moody’s bank subordinated capital ratings proposal, the rating agency said. “These potential rating actions do not reflect on the underlying financial strength of the Canadian banking system, which Moody’s views as one of the soundest globally,” said Moody’s Senior Vice President, Peter Routledge. “Rather, they would capture the risk that subordinated capital generally does not benefit from systemic support and take into consideration the risk posed by each instrument’s features.”
…
Before the current financial crisis, Moody’s had assumed that any support provided by national governments and central banks to shore up a troubled bank and restore investor confidence would not just benefit the bank’s senior creditors but, at least to some extent, investors in its subordinated capital.

The rating agency notes that with recent government interventions oustide Canada, investors in certain types of subordinated capital have been left to absorb losses. In some cases, support packages have been contingent upon the banks’ suspension of coupon payments on these instruments as a means to preserve capital.

In other words, this is the same rationale as that used by DBRS when it mass-downgraded bank preferreds and IT1C.

This entry was posted on Tuesday, June 30th, 2009 at 8:11 pm and is filed under Miscellaneous News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.