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Capital Markets

Has Moody’s credibility been downgraded?

Moody’s efforts to sell a new methodology for rating banks met with a vitriolic chorus of disapproval from market participants and ended in a humiliating climb-down. Now that the agency has patched up its joint default analysis it faces another struggle – to regain its credibility. Alex Chambers reports.

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MOODY’S INVESTORS SERVICE made a dramatic and rapid revision to its joint default analysis (JDA) in March following widespread complaints that it had created a ridiculous disparity between senior unsecured bank ratings and the underlying intrinsic financial risk of the same banks. Few could make sense of the dramatic changes, which raised several banks’ senior debt ratings close to or at the sovereign level – as well as creating numerous other anomalies.

The strength of the market’s ridicule of Moody’s was quite extraordinary. Bankers asked if the JDA acronym stood for joke default analysis, research pieces with titles such as Moody’s makes an Aaas of itself were published.

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