Moody's Tries to Make Up for Past Mistakes?

Wow, where was this analysis several years ago.

Banks have failed to make adequate provision for the losses on loans and securities they face before the end of next year, Moody’s Investors Service said.

U.S. banks may incur about $470 billion of losses and writedowns by the end of 2010, which may cause the banks to be unprofitable in the period, the ratings company said in a report published today.

“Large loan losses have yet to be recognized in the banking system,” Moody’s said. “We expect to see rising provisioning needs well into 2010.”

So, if true, who is the zombie bank? Check this amazing quote from the Bloomberg Article:

“The fundamentals of financial institutions are still traveling on a downward slope,” Moody’s said. “No-one should consider recent improvements as assurance that the current rebound can be sustained.”


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more info, references, citations?

I'm confused on the second quote and the details. Did Moody's just issue the second quote? Can you edit this and give up more information and if they did just issue the second quote a little more details on why they said what they said?

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Here is more complete summary of the report

The report itself costs $550. But Seeking Alpha has a summary of the report.

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$550? Jez!

Well, I'm not sure if Seeking Alpha has seen it and this is the author's bullet points or if this is contained within Moody's report:

  • Recent signs of recovery are largely due to government support and the return of investors’ confidence and risk-taking.
  • The losses that we expect financial firms to incur over the coming quarters are high, keeping financial fundamentals weak, and their ability to generate sufficient earnings to offset credit losses and maintain investors’ confidence remains a key question.
  • A crucial challenge will be the transition to a world where government systemic support is withdrawn and replaced by tighter regulation. The main pitfall associated with this transition will be rolling over significant sums of maturing debt at reasonable cost. As discussed here, the withdrawal of support is expected to be particularly stressful for banks, which benefit systemically and individually from this support in proportionally greater number than other types of financial institutions.
  • Higher credit and funding costs will lead to lower earnings, which may in turn force a re-pricing of credit risks and, by extension, a contraction of liquidity for corporates and households. Such contraction, if material from a macroeconomic point of view, would cause a credit squeeze and a potentially negative feedback loop on banks’ and other firms’ business opportunities and credit quality.
  • The form and timing of new regulation affecting capital and liquidity resources, as well as the resulting impact on equity returns, could result in significant business model challenges. This could contain both positives and negatives for creditors.
  • These forces will allow for a greater credit differentiation among firms, with clearer “winners” and “losers”, especially once government support has been withdrawn.


But it looks fairly common sense. Can we get $550 if we write common sense?

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