
Moody's methodology change sparks controversy
The revised methodology also includes a scorecard approach that seeks to bring consistency and clarity to the way the agency estimates banks' financial strength.
One analyst estimates that Moody's will upgrade more than 200 banks to Aaa globally. Among the first was the Reykjavik-based Kaupthing bank, re-rated to Aaa after market close in New York on February 23. Over the next four days the spread on its 10-year senior debt narrowed from 56 to 38 basis points.
As a result, "it's likely that Icelandic bank credits will be included in a majority of basket trades for the foreseeable future", said Stuart Wain, head of credit solutions at JP Morgan in London, adding that by including relatively high-yielding Icelandic credits instead of some other Aaa rated credits, structurers will be able to generate some extra yield in basket trades.
But most analysts greeted the change with dismay. Some believe that any change in methodology that results in the majority of banks being rated Aaa undercuts the usefulness of Moody's ratings. Others question whether Moody's can rely on failing banks continuing to be bailed out in the future.
Moody's did not respond to Risk's request for comment.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact [email protected] or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact [email protected] to find out more.
You are currently unable to copy this content. Please contact [email protected] to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email [email protected]
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email [email protected]
More on Structured products
Regulation
What lies beneath: Nomura’s iceberg balance sheet
Collateral received by the Japanese bank exceeds its total on-balance-sheet assets – does it matter?
Receive this by email