The banks of 15 countries in Europe have been put on notice by Moody’s: their subordinated debt ratings may be cut by the agency because there is the possibility that government support for that debt will not be forthcoming.
Bloomberg reported Tuesday that the ratings agency said all subordinated, junior-subordinated and Tier 3 debt ratings of 87 banks in countries where the subordinated debt incorporates an assumption of government support have been placed on review for downgrade. Subordinated debt may be reduced by two levels, the agency said in a statement, while the rest may be cut a single level.
Austria, France, Italy and Spain are the countries where lenders have the most ratings on review, according to Moody’s, which also said that the whole region is under threat because of “rapid escalation” of the sovereign debt crisis. The agency said, “Systemic support for subordinated debt may no longer be sufficiently predictable or reliable to be a sound basis for incorporating uplift into Moody’s ratings.”