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Nine building societies downgraded
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silentfox
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Moody’s downgrades building societies
http://www.ft.com/cms/s/0/e30e0940-29f7-11de-9d01-00144feabdc0.html
By Jane Croft, Retail Banking Correspondent
Published: April 15 2009 22:08 | Last updated: April 15 2009 22:08
Nine building societies, including Nationwide, have been downgraded by Moody’s amid concerns about their exposure to falling house prices and specialist mortgage loans.
The ratings agency said it had made the downgrades after stress testing how mutuals would perform against a base case scenario of a 40 per cent fall in house prices from the peak of the boom. It also stress-tested a more extreme scenario based on a 60 per cent fall.
Some societies have been downgraded by three notches, making it tougher and more expensive for them to raise or roll over funding in the wholesale markets – although all mutuals rely primarily on retail deposits to fund themselves.
It is also possible that some societies will find it harder to attract deposits from local councils or small pension funds which may only invest money in banks or building societies with an A grade credit rating.
Moody’s said it had changed its assumptions about UK house prices in the past few months. It also stress-tested the mutuals’ commercial loan portfolios, where it expects the performance to worsen during the next few years.
Marjan Riggi of Moody’s said: “What’s different is the loss expectation is higher than it was three or four months ago looking at the economic forecasts on housing.
“Last year we were looking at mortgage lenders and stress-testing a 25 per cent fall in house prices. In the past three or four months that assumption has changed to a 40 per cent fall, which is a considerable difference.”
On Wednesday Adrian Coles, director-general of the Building Societies Association, said Moody’s had included an extreme stress test of a 60 per cent fall in house prices, even though the Nationwide house price index has only seen a 18.9 per cent fall in prices from October 2007 until now.
“The Moody’s stess test seems pessimistic and extreme.”
He said each building society had been judged by the regulators as having sufficient capital strength to use the government’s credit guarantee scheme, which allows mutuals to issue government-backed debt.
Moody’s actions have resulted in Chelsea Building Society being downgraded four notches from A2 to Baa3 – one notch above junk status. West Bromwich was downgraded from A3 to Baa3.
Cardiff-based Principality and Newcastle were downgraded two notches from A3 to Baa2. Norwich & Peterborough was downgraded three notches to Baa2.
Nationwide, the largest building society, was downgraded from Aa2 to Aa3. Coventry has been downgraded from A2 to A3 and Skipton and Yorkshire have both been downgraded from A2 to Baa1.
One building society chief executive, who did not wish to be named, said: “I think the ratings agencies got it wrong on the way up and they are overreacting on the way down.”
Matthew Bullock, chief executive of Norwich & Peterborough said it was possible the Moody’s stress test had given more weight to certain aspects such as loan to value ratios.
He said: “We look at a variety of things including the quality of the borrower as well as loan to value ratios. Do I feel this radically alters anything? No.”.
Several societies, including Chelsea, plan to discuss their ratings with Moody’s and may challenge them.
Alan Cleary, managing director of Exact mortgage experts, said: “This is an overreaction based more on the fact that rating agencies now have something to prove rather than on the credit quality of building societies.”
Copyright The Financial Times Limited 2009
http://www.ft.com/cms/s/0/e30e0940-29f7-11de-9d01-00144feabdc0.html
By Jane Croft, Retail Banking Correspondent
Published: April 15 2009 22:08 | Last updated: April 15 2009 22:08
Nine building societies, including Nationwide, have been downgraded by Moody’s amid concerns about their exposure to falling house prices and specialist mortgage loans.
The ratings agency said it had made the downgrades after stress testing how mutuals would perform against a base case scenario of a 40 per cent fall in house prices from the peak of the boom. It also stress-tested a more extreme scenario based on a 60 per cent fall.
Some societies have been downgraded by three notches, making it tougher and more expensive for them to raise or roll over funding in the wholesale markets – although all mutuals rely primarily on retail deposits to fund themselves.
It is also possible that some societies will find it harder to attract deposits from local councils or small pension funds which may only invest money in banks or building societies with an A grade credit rating.
Moody’s said it had changed its assumptions about UK house prices in the past few months. It also stress-tested the mutuals’ commercial loan portfolios, where it expects the performance to worsen during the next few years.
Marjan Riggi of Moody’s said: “What’s different is the loss expectation is higher than it was three or four months ago looking at the economic forecasts on housing.
“Last year we were looking at mortgage lenders and stress-testing a 25 per cent fall in house prices. In the past three or four months that assumption has changed to a 40 per cent fall, which is a considerable difference.”
On Wednesday Adrian Coles, director-general of the Building Societies Association, said Moody’s had included an extreme stress test of a 60 per cent fall in house prices, even though the Nationwide house price index has only seen a 18.9 per cent fall in prices from October 2007 until now.
“The Moody’s stess test seems pessimistic and extreme.”
He said each building society had been judged by the regulators as having sufficient capital strength to use the government’s credit guarantee scheme, which allows mutuals to issue government-backed debt.
Moody’s actions have resulted in Chelsea Building Society being downgraded four notches from A2 to Baa3 – one notch above junk status. West Bromwich was downgraded from A3 to Baa3.
Cardiff-based Principality and Newcastle were downgraded two notches from A3 to Baa2. Norwich & Peterborough was downgraded three notches to Baa2.
Nationwide, the largest building society, was downgraded from Aa2 to Aa3. Coventry has been downgraded from A2 to A3 and Skipton and Yorkshire have both been downgraded from A2 to Baa1.
One building society chief executive, who did not wish to be named, said: “I think the ratings agencies got it wrong on the way up and they are overreacting on the way down.”
Matthew Bullock, chief executive of Norwich & Peterborough said it was possible the Moody’s stress test had given more weight to certain aspects such as loan to value ratios.
He said: “We look at a variety of things including the quality of the borrower as well as loan to value ratios. Do I feel this radically alters anything? No.”.
Several societies, including Chelsea, plan to discuss their ratings with Moody’s and may challenge them.
Alan Cleary, managing director of Exact mortgage experts, said: “This is an overreaction based more on the fact that rating agencies now have something to prove rather than on the credit quality of building societies.”
Copyright The Financial Times Limited 2009
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Comments
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the bright side these nine may have to offer higher rates West Brom has already started, still got £50k protection, so not all bad.0
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The higher rates are more likely to be on the capital markets.the bright side these nine may have to offer higher rates West Brom has already started, still got £50k protection, so not all bad.
In order to rebuild their capital positions they will inevitably have to offer lower savings rates for a decade
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