Moody's Investors Service „lost credibility” with investors after it adopted new criteria for rating banks, according to a Merrill Lynch & Co. survey of money managers.
New York-based Moody's last month upgraded banks in the Netherlands, Belgium, Luxembourg and Nordic countries to take account of likely support from governments. The criteria pushed Iceland's three biggest banks to the top Aaa level, ahead of ABN Amro Bank NV. 85% of respondents in Merrill's survey said they were less likely to take Moody's debt ratings of banks seriously because of the new criteria. CreditSights Inc., an independent bond research firm in New York, yesterday called the new ratings „worthless” for investors looking to compare bond yields. „Investors appear not to have taken the methodology favorably,” said Teo Lasarte, a London-based strategist at Merrill who wrote the report with Barnaby Martin and Richard Thomas. „While this opened up a whole new market for some securities, we don't think it's going to change things much in the medium term.” A quarter of the investors surveyed said they were likely to sell securities that benefited from ratings upgrades to lock in any gains. Two-thirds said they had no plans to change their holdings of bank debt, Merrill said.
The yield premium on Kaupthing Bank hf's €150 million ($197 million) of 5.901% perpetual bonds over comparable government debt narrowed about 29 basis points to as low as 146 basis points after Moody's raised the rating of Iceland's biggest lender by four levels. The spread has since widened to 164 basis points, according to Royal Bank of Canada. The spread on Glitnir Banki hf's €500 million of 4.375% bonds due in 2010 narrowed to 37 basis points after Moody's upgraded the debt of Iceland's second-biggest banks. The spread has rebounded to 48 basis points, its level before the ratings increase. A basis point is 0.01 percentage point. Antonio Carballo, a Moody's managing director in London responsible for bank ratings, said in recent days that the new debt ratings should be read in conjunction with the bank financial strength rating. This gives the rating company's opinion of a lender's intrinsic strength as a standalone institution. Carballo didn't immediately respond to a message on his mobile phone seeking comment.
„Moody's shouldn't have bothered, to be honest,” said Mondher Bettaieb-Loriot, who helps manage $50 billion of securities at Swisscanto Asset Management in Zurich, Switzerland. „If a bank gets into trouble, the people who will get the first chance at the money will be the depositors. Only if there's anything left will bondholders get anything.” Moody's is rolling out its new ratings on banks region by region. The company on March 2 gave its highest ratings to the main banking unit of JPMorgan Chase & Co., saying the government would back the biggest lenders in a crisis. Shares of Moody's Corp. rose 1.9% to $65.69 as of 9:43 a.m. in New York. The stock has lost 5% this year compared with the 2.2% decline in the benchmark Standard and Poor's 500 Index. (Bloomberg)