[DEBATE] : (Upgrading Moral Hazard?) Moody's upgrades Morgan Chase
Riaz K Tayob
riazt at iafrica.com
Wed Mar 7 16:46:33 GMT 2007
Assuming government bailout protection, Moody's upgrades Morgan Chase
Submitted by cpowell on 06:03AM ET Wednesday, March 7, 2007. Section:
Daily Dispatches <http://www.gata.org/node/4891>
By Joseph N. DiStefano and Steven Bodzin
Bloomberg News Service
Saturday, March 3, 2007
JPMorgan Chase & Co., Bank of New York Co., and State Street Bank &
Trust Co. gained higher credit ratings from Moody's Investors Service
Inc., which said the U.S. government would back the banks if they faced
Moody's left New York-based Citigroup Inc. and San Francisco-based Wells
Fargo & Co. unchanged because their financial strength ratings -- an
element of their overall ratings -- already were at the top of the
scale, the New York- based service said in a statement yesterday.
Moody's raised Bank of America Corp.'s rating for reasons unrelated to
Moody's last month announced new guidelines for bank credit ratings that
consider financial strength along with any support companies may get
from government and financial institutions if they get into serious
trouble. Such backing might be offered if regulators conclude the
effects of a failure would be catastrophic for the nation's economy, a
concept rooted in banks' financial woes in the 1980s.
The changes affected "only a few banks" in the U.S. because the nation
is a "low" support country, Moody's said. Each of Canada's six biggest
banks, including Toronto-based Royal Bank of Canada, gained higher
ratings earlier yesterday because of the new criteria.
"People already feel like they're too big to fail," said Jonathan
Hatcher, senior research analyst for corporate bonds at Delaware
Investments, which holds $98 billion in corporate bonds.
Moody's gave JPMorgan, of New York, and State Street, of Boston, ratings
of Aa2, a level higher than their prior Aa3. Bank of New York rose two
notches to the highest rating, Aaa, from Aa2. A higher credit rating can
lower a company's cost of raising money by signaling to lenders and
investors that they face less risk.
The ratings service gave JPMorgan a 98 percent chance of enjoying
government support because of its work clearing government securities,
its extensive derivative operations and its large deposit share. Moody's
assigned Bank of New York a 95 percent chance because of government
clearing work and State Street a 70 percent chance because it dominates
U.S. mutual fund servicing. The service rated Citigroup at 98 percent
and Wells Fargo at 70 percent.
Rival credit rating firms including Standard & Poor's haven't adopted
Moody's new criteria. Royal Bank of Scotland Group Plc, Dresdner
Kleinwort and Societe Generale SA objected to the new system last month
because it ranked Iceland's three biggest banks as better credits than
ABN Amro Bank NV and ING Bank NV, citing the Icelandic government's
statements in support of its banks.
Moody's made the switch to make its ratings reflect reality, said Gary
Bauer, Moody's managing director for banks in the Americas.
The new policy has the potential to produce "really interesting"
upgrades in Japan, where government support helped banks stay solvent
during the 1990s, Hatcher said.
New Moody's ratings for banks in Japan, China, Australia, and other
Pacific countries are due March 23. Ratings scheduled for March 9
include banks in France, Italy, Israel and Latin America.
The company upgraded Bank of America to A from A- for financial
strength, lifting its deposit and senior debt ratings to Aaa. The agency
said that while the government was 95 percent likely to help the bank
stay solvent, its financial position gave it the highest rating without
considering government aid.
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