Stockbyte
Australia's four largest banks were downgraded one notch by Moody's Investors Service on Wednesday, and you have to wonder if Canadian banks are next.
Moody's cut the debt ratings of Westpac Banking Corp., Commonwealth Bank of Australia, National Australia Bank Ltd. and Australia & New Zealand Banking Group Ltd. to AA2 from AA1, bringing it in line with ratings from Standard & Poor's and Fitch.
While the Wall Street Journal put the downgrade in context of increased scrutiny of international banks following the 2008 financial crisis, The Australian was more precise, pinning the move on the banks' exposure to the commodities market.
"With the domestic economy increasingly biased to the commodity sector, terms of trade that are exceptionally favourable by historical standards, and high asset prices, there is a potential for confidence shocks to impact the banks' access to funding," Moody's said in a statement, according to The Australian.
The share prices of all four Australian banks fell when the downgraded was announced, but recovered soon after, leaving the stocks mixed.
Are Canadian banks - probably as exposed to the commodities market as Australian banks - next?
In December, Moody's cut the credit rating of Royal Bank of Canada to AA1, from AAA, leaving Toronto-Dominion Bank as the only Canadian bank with a triple-A rating. Moody's said the move was related to Royal Bank's growing international capital markets business "which potentially exposes bondholders to increased earnings volatility and poses significant risk challenges."
At the time, my colleagues Grant Robertson and Tara Perkins wrote: "The downgrades [Manulife Financial was also cut]signal that Canadian financial institutions, which have come through the financial crisis in better shape than peers in many developed countries, still face headwinds. But the moves also signal new caution that credit rating agencies are applying to their decisions in the wake of the crisis, which they have been partially blamed for. Investors are placing new pressure on agencies like Moody's, S&P and DBRS Ltd. to keep up with the risks that companies face after those agencies failed to downgrade a number of debt securities whose values plunged."
David Berman