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Moody’s tilts personification margin toward safe-haven banks

Fri Jun 22, 2012 2:17pm EDT

LONDON/NEW YORK (Reuters) – Downgrades by ratings organisation Moody’s will make appropriation some-more dear for banks that rest a many on material markets, while reinforcing a rival advantage of “safe-haven” banks that can comment themselves from fast patron deposits.

Stock and credit markets were dumbfounded over Moody’s proclamation that it had downgraded 15 of a world’s biggest banks, as a rating agency’s obscure by adult to 3 notches had been widely anticipated. The cost of word opposite default for any of a 5 biggest U.S. investment banks fell on service that Moody’s was not harsher, conspicuous Otis Casey, investigate executive during Markit in New York.

The KBW index of U.S. banks was adult scarcely 1 percent in early afternoon in New York after European bank shares rose 0.1 percent. Shares of New York-based Morgan Stanley were adult 0.9 percent after primarily jumping some-more than 3 percent in greeting to a rating carrying been cut reduction than feared.

Aside from a evident marketplace moves, a downgrades strengthen a trend that has seen weaker banks punished for their risk-taking, while stronger banks are rewarded for regressive appropriation models, ensuring reduce costs and aloft margins.

Not usually will appropriation costs arise for a worst-rated banks, though trade partners are organisation to ask for some-more material – and drive business to those viewed to be financially stronger.

“These downgrades will boost a cost of doing business for banks, possibly by reduced, or some-more costly, entrance to appropriation or a need to board additional material with creditors,” conspicuous Daiwa Capital Markets researcher Michael Symonds

Moody’s gave a top ratings to HSBC, Royal Bank of Canada and JP Morgan, that it conspicuous had stronger buffers than peers’.

All 3 are regarded as safe-haven banks, saved by deposits from millions of sell business and relying reduction than riskier banks on material markets for brief tenure financing.

Moody’s gave a lowest credit ratings to banks that have been influenced by problems with their risk government or whose material buffers are not as clever as rivals’.

Those embody banks like Morgan Stanley, with few sell deposits, as good as banks like Bank of America, Citigroup and Royal Bank of Scotland, that notwithstanding carrying large deposition bases have gotten into difficulty by mixing their sell business with riskier investment banking.

Moody’s placed Barclays, BNP Paribas, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, Societe Generale and UBS in a center organisation of banks, that it conspicuous embody firms that rest on indeterminate material markets revenues to accommodate shareholder expectations.

For banks that rest heavily on markets for funding, a reduce ratings make formidable conditions even worse during a time when they are pang given of a euro section predicament and a tellurian slack in growth.

“Markets tend to distinguish some-more between issuers during reduce ratings – in terms of appropriation costs – quite during times of stress,” conspicuous analysts from Citigroup.

The downgrades reflected a perspective in material markets that was “something some-more constructional and elemental rather than what is usually cyclical noise”, Johannes Wassenberg, Moody’s handling executive of European banks, told Reuters.

“We attempted to consider risk from material markets… and a startle absorbers banks have,” Wassenberg said.

Regulators have told investment banks to keep distant aloft material buffers, creation their business reduction profitable, while also holding a blade to some of their many remunerative businesses, such as trade for their possess accounts.

The zone has been left with poignant overcapacity, reports from consulting firms say, definition a conflict for a favors of clients can usually intensify.


The ratings organisation looked during a banks where exposures to material markets were a many pronounced, picking firms by a share of income generated by fees from debt and equity advisory, trade revenues and trade inventories.

Analysts contend banks that will be many influenced by aloft appropriation costs as a outcome of a downgrades are those that were many expected to have to put some-more material on a table.

“Most directly, there are contractual supplies in agreements that would need a organisation to post additional collateral, or to reinstate itself as a counterparty to transactions,” conspicuous analysts during Execution Noble, partial of Espirito Santo Investment Bank.

Moody’s conspicuous some of a lowest-rated banks had undertaken substantial changes to their risk government models and were implementing business plan changes dictated to boost gain from some-more fast activities such as sell banking. However, it conspicuous these transformations are ongoing and their success has nonetheless to be tested.

Moody’s conspicuous it had taken into comment government movement during firms like UBS, and it listed a bank’s reduced aspiration in investment banking as a certain factor.

The downgrades had been widely expected given Moody’s conspicuous in Feb it was reviewing a risks in investment banking and conspicuous how many it competence hillside a banks. Since then, Morgan Stanley shares, for example, mislaid some-more than 25 percent of their value.

Some analysts trust a hazard of additional downgrades has upheld for a while now that Moody’s has finished a four-month examination and Standard Poor’s overhauled a ratings for financial institutions late final year. Both reviews were a many extensive re-evaluations of risks during vital banks by a agencies given a financial crisis.

“The rating agencies should have rather aloft toleration for flighty opening during these reduce rating levels and therefore will palliate adult rather on these banks,” bank researcher David Hendler of CreditSights Inc in New York conspicuous in a news on Friday.

(Reporting by Matt Scuffham and Sarah White in London and David Henry in New York. Editing by Peter Graff and Dan Grebler)

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