Showing posts with label Moody's. Show all posts
Showing posts with label Moody's. Show all posts

Wednesday, March 26, 2008

Rating Agency Reform

Recently, California State Treasurer Bill Lockyer "has been leading a national effort to persuade the rating agencies to change the way they rate municipal bonds. Munis are held to a much higher standard than corporate bonds, as the rating agencies' own default studies demonstrate. This unjustifiable system has cost taxpayers billions of dollars." This "also helped trigger (a) meltdown..when several (municipal) bond insurers suffered downgrades below the minimum ratings required for money market eligibility." See: States and Cities Start Rebelling on Bond Ratings.
Also see:
http://www.sec.gov/rules/proposed/s70405/wcunningham9442.pdf

"Three weeks ago, the Treasurer took the lead in writing a letter to the rating agencies requesting that they change the way they rate municipal bonds. The letter was signed or endorsed by 13 state treasurers, as well as four other state and local municipal issuers across the country." Other institutional investors..or issuers have backed the effort," including the nation’s largest public pension fund (the California Public Employees’ Retirement System)."

Moody’s has issued a "Request for Comment" on its plan to change the way it rates munis. The firm requested that "feedback..be emailed to cpc@moodys.com any time before April 15, 2008."

According to Mr. Lockyer, "It is important that a wide range of market participants make it clear to the rating agencies that the current system is unfair to taxpayers and detrimental to the market" and he "urges (institutional investors) to respond to the Moody’s request for comment. We also urge you to make your opinions known to the other rating agencies."

We agree.

Wednesday, January 23, 2008

Banco Popular de Puerto Rico Upgraded

Following a reduction in subprime market exposure, ratings for the holding company that owns one of the largest Hispanic banks were upgraded today. Moody's "changed the rating outlook on Popular Inc. (BPOP) and its units to stable from negative. The company is rated A3 for senior debt and its unit, Banco Popular de Puerto Rico, is rated C+ for bank financial strength and A2 for deposits.The outlook change follows Popular's sale of a significant portion of its Equity One mortgage and consumer loan portfolio to American International Group Inc. The outlook was downgraded to negative Dec. 24, 2007.

Moody's said the transaction will reduce the company's exposure to U.S. subprime mortgages and significantly strengthen its holding company liquidity position since Popular has largely financed its U.S. consumer finance business with short- and medium-term wholesale borrowings at the parent company level."

Of course, we still have issues with AIG, Popular, and the rating agencies, but this change indicates that value may be returning to the minority banking sector faster than we had anticipated.