(Source: Info-Prod Research (Middle East))Moody's Investors Service has today publisheda report that comments on the specific application of its revisedmethodology for bank hybrid securities and subordinated debt in Australiaand New Zealand. This new report on Australian and New Zealand banks follows thepublication on November 17 of "Moody's Guidelines for Rating Bank HybridSecurities and Subordinated Debt," and separately a press release onNovember 18, "Moody's reviews bank hybrids, subordinated debt fordowngrade". To summarise the rating actions on Australian and New Zealand banksreferred to in that press release: The ratings of all Tier 1 (preferred stock) and Upper Tier 2 (junior subordinated debt) securities of rated Australian and New Zealand banks have been placed under review for possible downgrade. There is no impact on the institution-level ratings of the banks, i.e. their deposit and senior debt ratings; nor their Lower Tier 2 ("plain vanilla" subordinated debt) ratings. "The application of the new methodology could potentially lead to downgrades averaging around three notches for the Tier 1 ratings, and one to two notches for the Upper Tier 2 ratings," says Patrick Winsbury, a Senior Vice President at Moody's Sydney office. "Moody's revised approach is in response to actions taken earlier byregulators and governments in response to the financial crisis. Theseactions have been contrary to historical precedent and have increased theloss probability for hybrid securities", explains Winsbury. "However, while we believe the global regulatory trend to emphasize theloss-absorbing role of hybrid instruments will be felt in the Australianmarket, it may be somewhat moderated by the traditionally supportive roleof the country's bank supervisors," adds Winsbury. At the same time, Moody's has emphasized that there was no impact on the deposit, senior debt and "plain vanilla" subordinated debt ratings of Australian and New Zealand banks. The banks remain among the highest rated globally, a reflection of their strong financial fundamentals and the relatively moderate impact of the global financial crisis on their home markets. A full list of the Australian and New Zealand Bank debt securitiesaffected by the review can be found in the report. Moody's aims to conclude its ratings reviews within three months.

Originally published by Info-Prod Strategic Business Information.

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