Courtesy of Mish.
Every day I get emails and links from all over the world. I wish I had time to comment on all of them. Here are a pair of stories regarding Canada and Australia.
The Financial Post reports Six Canadian banks on review for Moody’s downgrade
Debt rating heavyweight Moody’s Investors Service served notice on six of Canada’s biggest banks that it may cut their rating by as much as two notches because of concern over high consumer debt levels and soaring housing prices.
The downgrade warning covers Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, Caisse Centrale Desjardins and National Bank of Canada.
Moody’s said it will also consider the removal of government support from the ratings of some of the subordinate debt issued by the institutions, a move that would have significant negative implications on the country’s major lenders which have traditionally enjoyed an implicit promise of a bailout by the state if ever they got into serious trouble.
“Today’s review of the Canadian banks reflects our concerns about high consumer debt levels and elevated housing prices which leave Canadian banks more vulnerable to increased risks to the Canadian economy, and for some banks a sizeable exposure to volatile capital markets businesses is of concern,” Moody’s analyst David Beattie said in a statement.
The move comes about four months after Moody’s downgrade Royal Bank of Canada, the country’s biggest bank by assets, by two notches because of its exposure to increasingly volatile global capital markets. At the same time the rating agency also cut the ratings of 14 other large banks mostly based in Europe and the U.S.
Moody’s noted that consumer indebtedness has been rising steeply for the last several years, with the ratio of household debt to income recently hitting a record 163%, up from 137% in 2007, a reflection of what it called growth in debt outpacing growth in income.
Meanwhile, the rating agency is calling for economic growth of just 2% to 3% for this year and next year respectively, at the same time that external risks arising from the crisis in Europe and the struggling U.S. economy continue to rise.
Moody’s Late To The Party
As is typically the case, Moody’s is way late to the party. It is also overoptimistic about Canadian growth prospects.
The big three rating agencies and the IMF all fail to understand the global forces at play.
Australian Banksia Securities Assets Frozen…
