Moody’s has taken a brave or foolhardy – depending on your viewpoint – decision based upon its Joint Default Analysis (JDA) “tool” and created utter mayhem as a result.
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At the same time the agency updated its Bank Financial Strength Rating (BFSR) methodology. This is an ongoing process and once finished more than 1000 banks in over 90 countries will be affected. If the results of this first stage in the process are replicated there will be over 200 triple-A rated banks, where once there was a handful.
Most bank analysts are up in arms, while investors are dumbfounded. Here’s just one typical reaction: “We believe that the capital markets should ignore Moody’s entirely...Nothing has changed except that Moody’s credibility is lower and lower by the week...We would expect Moody’s to reimburse fees to issuers, investors and subscribers for the sale of defective products...Moody’s Investors Service is the name of the company coming up with these contrived multiplication tables, but how is the investor served,” said BNP Paribas analysts in a note to investors this morning.
JDA, in a nutshell, tries to shed light on how Moody’s incorporates implicit external support into ratings.