You probably knew this already — but the chart’s still striking.
That’s the amount of bonds and loans which Moody’s-rated financial firms have defaulted on, during each of the last major crises. In the most recent one, 72 firms defaulted on $318bn worth of debt. 41 banks also defaulted on deposits (most of these were deposit freezes in the Ukraine). Unsurprisingly, 69 of the over 100 financial firms that defaulted in the 2008-2010 period were banks.
The discrepancy between subordinate and senior financial debt is also interesting:
In addition to record levels of defaults, the current financial crisis also saw increasing number of cases where default probabilities were different among various debt classes. While this was, in part, due to rising number of distressed exchanges which often involved only junior debt but not senior ones, the difference in default probabilities also resulted from varying patterns of government intervention across jurisdictions in this cycle. Specifically, some cases saw different levels of support offered to senior versus junior debt liabilities, as some regulators have broad powers to take control of financial institutions, including the right to restructure debt and impose losses on creditors.
But perhaps the most interesting bit in the whole Moody’s report is a tiny (microscopic) bit of self-reflection on the firm’s ratings accuracy over the past crisis.
Below are Moody’s so-called cumulative accuracy profile (CAP) charts — which measure a ratings’ success in distinguishing between defaulters and non-defaulters.
And the accompanying Moody’s commentary:
In Exhibit 16 we plot the CAP curves for both financial and non-financial corporations. The CAP curves for the entire period of 1983- 2010 are presented in Panel A and the ones for this cycle are shown in Panel B. Over the past 28 years, Moody’s ratings of financial institutions were slightly more accurate than those of non-financial corporates in discriminating defaulters from non-defaulters. For example, the riskiest 20% of financial institutions accounted for 87% of the defaults whereas among non-financial corporates, the riskiest 20% accounted for about 80% of defaults. However, over this last cycle (Panel B) the ratings of financials were somewhat less accurate. Among financial institutions, the CAP curves do not vary much regardless if non-debt issuers are included or not.
Ahem.
Related link:
A senior haircut precedent in … Denmark - FT Alphaville