Moody’s backtracks on bank ratings

Following criticism over the use of Joint Default Analysis (JDA) in calculating its bank ratings, New York-based Moody’s Investors Service will review the practice.

Moody’s began a global programme of alterations to bank ratings in February, using JDA and updated bank financial strength rating methodologies.

Chris Mahoney, chairman of Moody’s credit policy committee, said: “In our initial application of JDA to banks, some rating outcomes were heavily dependent on high external support assumptions.” He added those in the market desired ratings with “more emphasis on intrinsic credit fundamentals”.

A slew of controversy followed recent upgrades made to some bank ratings under JDA, most notably the re-rating of some Icelandic banks to Aaa. Fresh changes to the way in which Moody’s works out bank ratings and notches for bank issuance will be published by March 30. They will be applied to ratings that have been affected in North America, Central Europe and the Nordic, Benelux and Baltic states by April 10. Many of the banks whose ratings were upgraded are now likely to see them fall.

Moody’s will publish a revised schedule for JDA implementation elsewhere when the revised methodology is released. The agency expects to finish its programme of reviewing all bank ratings by May 18.

See also: Moody’s methodology change sparks controversy