Amid developing rules designed to end state support for banks, Moody’s Investors Service has shifted its outlook on the long-term ratings of 82 European banks to negative.
The rating agency also affirmed the long-term ratings of 109 European financial institutions. But it also lowered dozens of rating outlooks, citing the recent adoption of measures to wind up failing banks with resorting to taxpayer support (the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism (SRM) regulation) in the EU.
Moody’s says that the negative outlooks reflect its view that, “with the legislation underlying the new resolution framework now in place and the explicit inclusion of burden-sharing with unsecured creditors as a means of reducing the public cost of bank resolutions, the balance of risk for banks’ senior unsecured creditors has shifted to the downside.”
Today’s rating actions involved 12 German banks, 10 French banks, eight from Austria, five Swedish banks, four Italian banks, three in the Netherlands, two in Spain, and one in the UK. Another 24 banks in other EU member states were also affected, it notes.
Additionally, while Norway and Liechtenstein aren’t part of the EU, 13 banks in these countries were among those whose outlooks were changed to negative too. Moody’s says that the move reflects its expectation — based on public comments, and their governments’ track record, of mirroring EU banking regulations — that these countries will look to introduce similar resolution mechanisms.
Moody’s says that it will continue to assess the implications of the new regulations for systemic support as the new framework develops, and as it gains further clarity about how it might be applied in practice. If it determines that the probability of support has materially changed, affected issuers’ ratings would be placed under review to consider their specific circumstances, it says.