By James Salmon
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Moody's was facing a backlash yesterday as markets shrugged off its decision to downgrade 16 of the world’s biggest lenders.
Victims of the downgrade lined up with banking analysts to accuse the ratings agency of having its eyes on the rear view mirror.
State backed Royal Bank of Scotland led the chorus of criticism, lashing out at its one-notch downgrade that relegated it to the ‘Division One’ of lenders, the lowest tier among the big banks.
In a strongly-worded riposte, RBS said it disagreed with its demotion. The bank described its downgrade as ‘backward looking’ and claimed it was not given ‘adequate credit’ for the progress it has made at reducing the toxic loans accumulated under disgraced former boss Fred Goodwin.
US investment banks Citigroup and Morgan Stanley â€" whose two-notch cut was not as bad as feared â€" also refused to take the rebuke lying down.
Analysts, with less of an axe to grind, were equally unimpressed. ‘If Moody’s designed a car, you’d have the driver’s seat facing backwards,’ said Alan Miller, founding partner at SCM Private.
Financial markets have been braced for a phalanx of bank downgrades since February when Moody’s revealed it was looking at over 100 of the largest institutions amid the chaos in the eurozone.
Shares in Barclays, RBS and HSBC and Lloyds were all flat or marginally up on the announcement.
Ratings agencies lost credibility over their failure to warn of the toxic financial products littering bank balance sheets before the crisis broke, lulling millions of savers into a false sense of security. They are being investigated by the Treasury Select Committee of MPs.
Its chairman Andrew Tyrie said: ‘Ratings agencies were asleep on the job, along with regulators, central banks and finance ministers. We need to find out what, if anything, can be done to make blunders on a similar scale less likely for the future.’
Some critics now fear they are over-reacting in the opposite direction and coming down too harshly on the banks.
But the downgrade is undeniably a blow to Britain’s biggest lenders which could be forced to pay billions of pounds more to borrow money on the wholesale markets.
There are fears this could feed through to customers, as banks hike their rates.
RBS said the impact would be ‘manageable’ but added it would have to raise an extra £9bn in security against its lending.
Despite the bank’s efforts to scale back its ‘casino banking operation’ the agency cited concerns over its ‘large capital markets business’ and its toxic loan book in Ireland.
It was also given a ‘negative outlook’ meaning it could face further cuts to its rating.
Lloyds was feeling slightly more happy with itself after being downgraded one notch instead of the two it had been expecting.
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What took them so long? they should have been downgraded 5 years ago!
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It would appear that as many haven't been downgraded as bad as expected,in their own opinion they've had an upgrade.
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It's a bit like rating serial killers and Fred West complaining.
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The three main credit rating agencies being Moody, Fitch and Standard Poor are nothing more than headline grabbers. Nobody should forget that before the credit crunch in 2008, all of them gave high credit ratings to the countries in the Eurozone that are now seeking bailouts because of the debts they have run up. Anyone who believes what these credit ratings agencies are either naive or totally deluded and out of touch with reality. They are a waste of space.
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