Fresh from Moody’s — a threat of bank downgrades Down Under (sorry).
The start of the rating agency’s statement:
Sydney, February 16, 2011 — Moody’s Investors Service has placed on review for possible downgrade the Aa1 long-term, senior unsecured debt ratings of Australia’s four major banks: the Australia and New Zealand Banking Corporation (ANZ), the Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), and Westpac Banking Corporation (WBC). The Aa1 rating of Bank of Western Australia, a subsidiary of CBA, was also placed on review.
The four majors’ Bank Financial Strength Ratings (BFSR) of B, which reflect their stand-alone credit profiles and equate to a baseline credit assessment (BCA) of Aa3, were also placed on review for possible downgrade. Bank of Western Australia’s BFSR of C- was affirmed with a stable outlook.
The ratings outlooks for ANZ, CBA and WBC had been negative since March 2009 and, in the case of NAB, since August 2008.
At the same time, all the banks’ short-term ratings of Prime-1 were affirmed with a stable outlook.
“The review will focus on the Australian banking system’s structural sensitivity to conditions in the wholesale funding market,” says Patrick Winsbury, a Senior Vice President based in Moody’s Sydney office.
“The global financial crisis has underlined the speed with which shifts in investor confidence can impact bank funding, warranting a review of the four major banks, for whom market funds comprise on average 43% of total liabilities” adds Winsbury.
At the same time, Moody’s considers systemic support for the four major banks to be strong, in view of their dominant roles in the Australian financial system.
Consequently, Moody’s anticipates that after the conclusion of the review, their long-term, senior unsecured debt ratings — which incorporate the prospect of systemic support — will remain within the Aa category …
You could insert a snarky comment about Moody’s finally recognising the capricious nature of wholesale funding markets here — but instead (aha) we’ll just note that some analysts think Moody’s is still “12 months too late” with their concern.
The Australian banks say potential funding problems have been on their radar for some time — and indeed the Moody’s note goes on to say that many have taken steps to mitigate it. Still though, there seem to be some downgrades a comin’ along with this review, which means we’re getting some furious defensives from the banks involved.
Here, for instance, is some of Westpac’s response:
… Westpac continues to attract strong investor support for its wholesale funding. The Group has taken a number of steps in recent years to diversify its funding sources and improve its funding tenor, allowing it to continue to support its customers.
Moody’s notes that, “The Banks have reduced their sensitivity to market shocks by increasing the average tenor of their wholesale funding and by increasing liquid asset coverage of their short-term maturities”. Moody’s also notes that, “in many other respects Australia’s major banks continue to exhibit strong credit characteristics,” and that their “capital is also much improved, providing a buffer against asset quality shocks and facilitating the transition to Basel III” …
Related links:
Australian bubble pornography - Bronte Capital
[Australian banks] on unstoppable path to collapse or bailout - Naked Capitalism
The chink in Australian banking’s armour - The Big Chair
Developments in banks’ funding costs and lending rates - RBA