Moody’s cuts bank ratings

From the SMH:

Moody’s downgrades ratings for big four banks Chris Zappone May 18, 2011 – 3:52PM .Moody’s Investors Service has downgraded the debt ratings of Australia’s big four banks from Aa2 to Aa1, citing their relatively high reliance on wholesale funding. Moody’s gave the banks – Commonwealth, NAB, ANZ and Westpac – a stable outlook for their ratings after the cut.

Here is the press release:

http://www.scribd.com/doc/55699607/Moody-s-Downgrade-Major-Banks-180511-1

David Llewellyn-Smith
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Comments

  1. Don’t wait for the crowd. Start selling your bank shares now. Look at the timing of the announcement!

  2. Picky, but – from AA1 to AA2.

    Anyway, what’s the fuss, another ratings agency late to the party. The situation is not new.

    • Thats starting to be a bit long in the tooth now i.e by legitimately raising the point that the rating agencies got it wrong in the GFC by then stating they will always get it wrong thereafter.

      They needed to thoroughly go through the recent results (as we did too) to see if any fundamental factors – i.e a lesser or greater reliance on wholesale funding or other issues – had changed.

      Since they hadn’t, and credit growth is weakening, they notched it down one level.

      Still good though – you’re quite correct. But it sends the signals regardless.

      • Granted, it was a cheap point.

        Ratings agencies will need to engage in exceptional analysis to regain my respect.

      • Agreed 3.

        That won’t happen until the scourge of EMT, CAPM, Black Scholes and other fallacies are washed out of Business “Schools”.

        That will take a generation and a probable GFC Episode 2 “The Debt Strikes Back” to get going.

        • Ranier Wolfcastle

          “That won’t happen until the scourge of EMT, CAPM, Black Scholes and other fallacies are washed out of Business “Schools”.”

          I hope you’re not holding your breath. Unfortunately all of the above seem here to stay.

          • Ranier Wolfcastle

            CAPM also suffers (in terms of being able to get rid of it) from having an industry surrounding it to generate and sell betas etc.

            I remember exchanging many emails with a beta provider 6-7 years ago asking why they quote a beta to the 2nd or 3rd decimal place but they didn’t give an error estimate. They didn’t get it. When I spelled it out, that the errors in the beta were probably 10-20% maybe more (admittedly a guess) yet they were selling people an implied precision by quoting to a second or third decimal place, they went into email silence!

            Unfortunately I don’t see any of this ever changing. People just want numbers without caring much about what they mean.

          • Rainer

            “People just want numbers without caring much about what they mean.” In a nutshell.

            Taleb reminds that the ‘expert’ who gives the talk/the numbers in an absolute fashion, even when proven wrong time again is preferred to one who may give a more nuanced view. People want certainty, where none can be given. Beware of ‘experts’.

  3. I think we should talk about elephants in the room, and the debt Godzilla. Trust me it works. We now have four elephants:

    1 The inflation trade getting ultra-crowded and threatening commodity prices as QE2 unwinds.
    2. China switching to domestic demand.
    3. A housing bubble.
    4. Tightening monetary policy around the world as emerging markets try to combat inflation (maybe before the US) driving up the cost of wholesale funding?

    Godzilla: Ongoing deleveraging.

    A fair summation?

    • Wondering whether the cut might prompt the big 4 to get more competitive and chase the retail deposits?

      I hope so but would not bet on it considering the current slowing credit growth in the economy. It seems like they have more “product selling” problem rather than “input restriction” one 😉

  4. Sam Birmingham

    A bit congratulations (and thanks!) to Team MacroBusiness for being so far out in front of the pack on this topic…

    It goes to show what a bunch of knowledgeable and passionate (and independent!) people can do when they leverage the power of the internet and build a thriving community of people who share a common interest.

    Time to double-down on calls for a Sons Of Wallis Inquiry, perhaps?

    PS: I wonder how APRA is feeling this evening…?

    • I don’t reckon APRA give a rats @$$.

      A law unto themselves.

      Did they disclose the WBC & NAB emergency loans from the Fed? Did they require WBC / NAB to notify shareholders?

      No.

      And their sidestepping when questioned on this by Sayce at Money Morning made Freddie Fittler look like a lower limb amputee sans prosthetics.

      • David, APRA couldnt have disclosed any payments even if they wanted to (the APRA Act prevents it), it was up to the banks to do that. Additionally APRA has no powers to compel disclosure to market. The response given to Sayce is the only one available.

        If disclosure is an issue then ASIC/ASX should run with it.

        As for how they are feeling, i am sure they are well aware of these issues. The question is whether there is anything they can do about it. Given the structural imbalances, and the Basel 2 framework that they need to apply, i would say there is little except warn the banks, watch and wait

  5. Who cares about name callers, i.e. Moody’s.

    Situation serious but not imminent. Yet.
    Never attack when they are beating themselves up. Give them enough rope first.

    Wait until the real soldiers of fortune turn up.

    The derivative mercenary armies with their high tech alphabet siege weapons will pound the arse off Glenn and Wayne.

    Nowhere to run, nowhere to hide.

    Professional mercenaries vs amateur imposters. (at wealth redistribution-rob the robbers-no honour amongst thieves).

    Quote for this Market: “It’s almost worth the Great Depression to learn how little our big men know.”- Will Rogers.
    Source:itulip.com

    There is plenty of time for the individual to prepare. Not so collectivists. Hubris.

    We may suffer a few sorties over the short term, but the main derivative hooligan army won’t arrive until our export income is in jeopardy. About 4 years from now.

    BTW what is the Chinese bad luck number? Oh, that’s right, 4.

    An unlucky number for the lucky country.