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Entries in Moody's (20)

Tuesday
Sep112012

Moody’s Warns of US Debt Downgrade

Scott Eells/Bloomberg via Getty Images(NEW YORK) -- Major credit rating agency Moody’s warned today that it may downgrade the U.S. credit rating if the government fails to figure out a way to avoid the so-called fiscal cliff at the end of the year.

Credit rating agencies last year issued similar warnings when Congress and the White House were wrangling over the U.S. debt ceiling. While Moody’s did not downgrade the U.S. at the time, S&P, another of the big three agencies, downgraded the U.S. from AAA to AA+.

Despite their dubious role in the global financial crisis, credit rating agencies have an impact on the interest rates governments and businesses pay on their debt.  Lower ratings mean the government may have to pay higher interest rates on some of its $16 trillion in debt outstanding.

The fiscal cliff is what economists are calling the year-end expiration of the Bush-era tax cuts, plus  tax increases and spending cuts that will automatically take place as part of a deal to raise the debt ceiling.

MOODY’S STATEMENT:

Update of the Outlook for the US Government’s Debt Rating

The US government bond rating remains unchanged at Aaa with a negative outlook. The direction of the US rating and its outlook will most likely be determined by the outcome of budget negotiations during the course of 2013. In particular:

» If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable.

» If those negotiations fail to produce a plan that includes such policies, we would expect to lower the rating, probably to Aa1.

» The maintenance of the Aaa with a negative outlook into 2014 is highly unlikely unless the method adopted to achieve debt stabilization involved a large, immediate fiscal shock with a resulting unstable economic situation. Such a shock could come from the so-called “fiscal cliff.” In such circumstances, we would await evidence that the economy could rebound from the shock before considering a return to a stable outlook.

It is difficult to predict when during 2013 Congress will conclude negotiations that result in a budget package. The Aaa rating, with its negative outlook, is likely to be maintained until the outcome of those negotiations becomes clear.

It is also worth noting that maintaining the rating outlook assumes a relatively orderly process for the increase in the statutory debt limit. The debt limit will likely be reached around the end of this year, and the government’s ability to meet interest and other expenses out of available resources would likely be exhausted within a few months. Under these circumstances, the government’s rating would likely be placed under review after the debt limit is reached but several weeks before the exhaustion of the Treasury’s resources. Moody’s took a similar action during the summer of 2011 after the debt limit had been reached.


Copyright 2012 ABC News Radio

Sunday
Jul012012

Moody's Should Downgrade Congress

Ryan McVay/Photodisc/Thinkstock(NEW YORK) -- Last summer, August 5 to be exact, Standard & Poor's dropped the rating of United States debt below AAA for the first time in history. This year, with our flippers and masks barely out of the pool equipment room, Moody's downgraded the ratings of fifteen mega banks, including major American institutions such as Goldman Sachs and J.P. Morgan Chase. Bank of America and Citigroup were downgraded to Baa2, just two ticks above "junk" status.

S&P cited as one of the major reasons for last summer's historic downgrade the "Bedtime for Bonzo" antics that went on in Congress in connection with, among other things, the once perfunctory act of raising the national debt limit. If you were otherwise engaged and missed the circus, don't worry, it will be coming back to town near election time this year.
Moody's, on the other hand, did not have to make reference to our political paralysis (yet), they simply underscored our "globalized" exposure to the financial chaos in the Eurozone, describing its actions as follows: "Moody's downgrades firms with global capital markets operations;" which, among other things was a not-so-subtle reference to the recent revelation that J.P. Morgan Chase had casually dropped another $2-3 billion in a "whaling adventure" that went awry, a fact that produced a flurry of congressional posturing — filled with sound and fury — that seemed to signify very little.

Meanwhile a host of Washington conservatives are continuing their efforts to undermine Dodd-Frank by introducing a series of nine bills in the House and the Senate and launching litigation (with a willing co-conspirator — a bank in Texas) against the Consumer Financial Protection Bureau and select provisions of the law.

The S&P downgrade was a direct response to Congressional debt devilry, while the Moody's downgrade was considered by many to be an unspoken but pointed commentary on both globalization and the dismal performance of federal regulation of the banking industry as a whole. There are those who argue that that the banking industry is over regulated while others opine that it is under-regulated. However, it's very difficult to argue that given the history of financial events in the last few years, the banking industry is effectively regulated.

To top it all off, the Washington Post recently reported that during the ugliest days of the of the financial crisis, 34 members of Congress on both sides of the aisle had reworked their own financial portfolios after having interacted with Hank Paulson, Ben Bernanke, or Timothy Geithner. As you might imagine, those legislators managed to catch an earlier "flight to safety" than most of us. It would be hard to imagine anything more "extractive" than that, wouldn't it?

This is not an easy fix to be sure. Our economy has become so complex many would argue that it can't be effectively regulated. Let's hope they're wrong and that our representatives will have an epiphany that lifts them from the tar pit of partisanship, election year or not, and makes them leaders, not slaves to ideology or Grover Norquist inspired oaths. They must screw up the courage to get this thing right. If they fail, once again, the consequences are far worse than winning or losing an election. Because if we don't fix this problem — how shall I put this delicately? — we're screwed.

Copyright 2012 ABC News Radio

Friday
Jun222012

Moody’s Bank Downgrade May Mean Higher Lending Rates

Scott Eells/Bloomberg via Getty Images(NEW YORK) -- For the second time in a year, Moody’s downgraded 15 global banks. The credit ratings agency downgraded five of the biggest U.S. banks on Thursday, and that may lead to higher rates for consumer and even tighter lending policies.

All 15 banks were downgraded in response to lower bank profitability unlike the last downgrade in November, which was based on Moody’s change in methodology.  Moody’s and Standard & Poor’s ratings help set the rates at which banks can borrow and therefore the rates they can extend to businesses and consumers.

On Friday morning, stocks, led by banks, rallied after the second-worst sell-off of the year on Thursday. Analysts viewed the rally as a sign that Moody’s was off-base in lowering the credit ratings of the banks, which are much stronger financially than they were three years ago.

The Dow Jones Industrial average rose 0.49 percent to 12,635 at mid-morning while the S&P 500 advanced 0.41 percent to 1,331. The Nasdaq composite was up 0.52 percent to 2,874.

The stock prices of the five downgraded U.S. banks jumped on Friday morning.

Shares of Bank of America were up 0.64 percent to $7.87. JPMorgan Chase & Co. shares jumped 2.17 percent to $36.29. Shares of Goldman Sachs Group increased 0.64 percent to $94.50. Citigroup’s stock was up 1.15 percent to $28.15 a share. Morgan Stanley shares increased over 2 percent to $14.25.

On Thursday, Moody’s Global Banking Managing Director Greg Bauer said in a statement that the downgraded banks “have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities.”

“Ultimately, the downgrades are likely to trigger some near-term volatility,” said Jody Lurie, corporate credit analyst at Janney Capital Markets.

In the long term, banks that were downgraded into the triple B range will have higher costs to finance their lending activities. If those banks were actually in need of financing, that may affect retail lending activities, such as mortgages and small business loans. Theoretically, banks that were not downgraded may be able to provide better rates, Lurie said.

“In some ways, Moody’s move is a self-fulfilling prophecy: higher financing costs equals less profitability,” she said.

Copyright 2012 ABC News Radio

Thursday
Jun212012

Five of America's Biggest Banks Downgraded

Scott Eells/Bloomberg via Getty Images(NEW YORK) -- Moody’s Investors Service announced Thursday that it had downgraded the credit ratings of 15 banks, including five of America's biggest financial institutions: Goldman Sachs, Bank of America, Citigroup, JPMorgan and Morgan Stanley.

As The New York Times explains, a downgrade like this could have “serious implications for a bank’s bottom line, potentially increasing the cost of borrowing and eroding the confidence of customers and lenders. Trading partners may opt to move their business elsewhere."

Moody's lowered credit ratings were due to less confidence in the banks' long-term profit and growth prospects because of so many international debt problems.

While the action does make it more difficult for banks to fund investment activites because of a hike in short-term borrowing costs, Moody's action is not expected to have much of an impact on Wall Street Friday.

For the most part, the banks were anticipating the downgrade from Moody's and have been putting away cash on the side to deal with it.

Ultimately, however, consumers can expect a more difficult time getting loans for small businesses, cars and mortgages -- a development that will further slow down economic growth.

Copyright 2012 ABC News Radio

Tuesday
Feb142012

Moody's Downgrades Six European Countries, Warns Three Others

Scott Eells/Bloomberg via Getty Images(LONDON) -- Moody's downgraded the credit ratings of six European countries on Monday and warned that three others, including Britain, could be next.

The credit ratings agency cut Italy's grade to A3 from A2, Spain's to A3 from A1, Portugal's to Ba3 from Ba2, Malta's to A3 from A2, Slovakia's to A2 from A1, and Slovenia's to A2 from A1.  All six countries were also given negative outlooks.

Meanwhile, Moody's gave negative outlooks to the United Kingdom, France and Austria, meaning that the countries could lose their AAA ratings in the future if the economy remains weak.

Monday's downgrades and warnings are a reminder that the region continues to be plagued by debt problems.

Copyright 2012 ABC News Radio

Saturday
Dec102011

Moody's Downgrades Largest French Banks

Scott Eells/Bloomberg via Getty Images(PARIS, France) -- Credit ratings agency Moody's downgraded the three largest banks in France on Friday on fears of increasing economic instability.

The ratings for BNP Paribas, Credit Agricole, and Societe Generale, were all downgraded. BNP and Agricole were moved down a notch to AA3, while Societe Generale was downgraded to A1.

The downgrades were prompted by anxiety over the European debt crisis, although are a continuation of a pattern started by Moody's last summer.

Copyright 2011 ABC News Radio

Monday
Nov212011

Deal or No Deal, Downgrade from Moody’s Unlikely

Hemera/Thinkstock(WASHINGTON) -- With the members of the congressional supercommittee teetering on the cusp of failure, many are worried about the potential for a U.S. credit downgrade, but one Moody’s economist says that his firm is not likely to downgrade U.S. debt because it expected Congress to fail from the start.

“You know, it’s all relative to expectations and investor expectations with regard to the committee I think are -- have been and are still very, very low,” Moody’s economist Mark Zandi said on Fox News Sunday.

The committee has until Wednesday to complete and score a final deal, but last minute political posturing and blame games have led many to believe that Congress won’t meet the Thanksgiving deadline.  If that happens, Congress will have one year before supercommittee provisions kick in with $600 billion in automatic cuts from the Pentagon budget and 2 percent across-the-board cuts to Medicare providers’ payments.

Cuts of that magnitude would, in theory, calm the markets enough to prevent financial calamity.

“So this shouldn’t foster a downgrade or a run on the market or anything like that.  The $1.2 trillion in savings occurs one way or the other,” Republican Sen. Jon Kyl said on Meet the Press.

But Zandi also pointed to other looming Congressional deadlines, including an extension to unemployment benefits, a Medicare doctor payment fix, a patch to the alternative minimum tax and an extension to the payroll holiday, all of which would have a significant effect on the economy if Congress failed to act by the end of the year.

Copyright 2011 ABC News Radio

Saturday
Nov122011

Moody’s Considers Downgrading Penn State

Scott Eells/Bloomberg via Getty Images(UNIVERSITY PARK, Penn.) -- Moody’s credit rating agency is considering downgrading Penn State University because of the allegations of sexual abuse by former defensive coordinator Jerry Sandusky, related charges against two university officials and the firing of football head coach Joe Paterno, an icon at the school.

Penn State has approximately $1 billion worth of rated debt, according to Moody’s.

“Moody’s Investors Service has placed the Aa1 revenue bond rating of Pennsylvania State University (Penn State) on review for possible downgrade to assess credit risks emanating from the announcement this week by the Pennsylvania Attorney General of the filing of criminal charges involving child sexual abuse against a former assistant football coach, as well as perjury and failure to report charges against two senior university officials, including the CFO of the university,” the agency said in a statement released Friday.

The school reportedly pulled in $4.6 billion in revenue in 2011 and enrolls more than 80,000 students. Universities like Penn State typically incur debt to fund new construction and other capital improvement projects.

The university, like other state institutions, received $333.9 million from the Commonwealth of Pennsylvania in 2011 and faces a potential budget cut of $182 million in a proposal laid out by Pennsylvania’s Republican Gov. Tom Corbett.

Like most states across the country, Pennsylvania is undergoing economic hardship. Approximately 90 miles away from Penn State, the city of Harrisburg recently filed for bankruptcy, making it the sixth U.S. city to do so this year.

Copyright 2011 ABC News Radio

Monday
Oct242011

Merrill Lynch Warns of Another US Debt Downgrade

Jin Lee/Bloomberg via Getty Images(NEW YORK) -- The United States is in for another credit downgrade by year’s end if Congress fails to agree on a long-term plan to tame the nation’s $14.8 trillion deficit, Merrill Lynch warned.

In a research note, the Bank of America unit predicts that either Moody’s or Fitch will move to downgrade the U.S. AAA rating. Standard & Poor’s cut the nation’s bond rating in August, causing the stock and bond markets to tumble, after months of bickering by Congress on how to best reduce spending and cut the deficit. The United States spends about 40 percent more annually than it collects in taxes.

Instead of agreeing on spending cuts or new taxes, Congress and the president appointed a bipartisan “super committee” to reach a deal to reduce the U.S. deficit by at least $1.2 trillion by Nov. 23. If there’s no deal, automatic across-the-board cuts mostly in discretionary spending would occur.  Congress would be free to stop any or all of those reductions, if it chooses and the president agrees.

Moody’s Investors Service hasn’t said what it will do if there’s no deal, but it has placed U.S. credit under review for a possible downgrade.

Copyright 2011 ABC News Radio

Tuesday
Aug232011

Moody's Ex-Staffer Says Ratings Rife with Conflicts

Scott Eells/Bloomberg via Getty Images(NEW YORK) -- The former Moody's analyst who filed blistering comments with U.S. regulators about conflicts of interest at his former employer says analysts must be shielded from retaliation if the bond ratings system is to be fixed.

William Harrington, a Moody's senior vice president in the Derivatives Group who was an employee from June 1999 until his resignation in July 2010, filed a 78-page letter with the Securities and Exchange Commission about proposed rules for the ratings agencies.

Harrington described systematic problems within the ratings agencies that can lead to conflicts of interest and flawed ratings reports. Harrington seems to confirm the familiar concern that Moody's is being paid by the companies whose securities it rates and therefore has their best interests at heart.

The major ratings agencies Moody's and Standard & Poor's have come under fire for their role in assigning top ratings to bundles of mortgage securities that went delinquent, leading to the financial meltdown that began in 2008.

Harrington said analysts were intimidated or harassed, and dissenting analysis was not properly weighed in final decisions. "Putting up a spirited effort before caving-in made analysts look good in the eyes of management. Opposing a banker or issuer brought only trouble from Moody's senior management," Harrington wrote.

He wrote that "bankers and issuers were willing to have as many calls a day as were necessary to wear a rating team down."

Formal feedback in annual reviews for an analyst, or "contributor," centered on "the recurring themes that the contributor should make life easier for bankers and issuers and that he should be more alert to the bottom line."

Over 55 comments have been submitted after the SEC announced the beginning of the public comment period in May.

An agency spokesman said the commission is beginning to sort through the comments and may not begin further steps until January to June next year.

In response to the Harrington's letter, Moody's issued a statement:

"We cannot emphasize strongly enough the importance Moody's places on the quality of our ratings and the integrity of our ratings process. For that very reason, we have robust protections in place to separate the commercial and analytical aspects of our business."

The goal of management, Harrington wrote, "is to mold analysts into pliable corporate citizens who cast their committee votes in line with the unchanging corporate credo of maximizing earnings of the largely captive franchise."

He wrote that the management and the board "are squarely responsible for the poor quality of previous Moody's opinions that ushered in the financial crisis and should not be given first shot at debasing future opinions as well. Seriously, dudes, not for nothing, but something is way wrong with this picture. The phrase 'bass ackwards' recurs. Please re-calibrate."

Harrington asks why analysts would want to work at Moody's given the possibly troubled internal reporting process within the company.

He answers that "analysts once came to Moody's solely to do work of which they would be proud, not to kowtow to their superiors and certainly not to prostrate themselves in front of whichever external entity happened to be footing the bill on a given day."

Copyright 2011 ABC News Radio







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