Those AAA rated subprime loans certainly didn’t help, and now comes fresh evidence that investors are increasingly ignoring rating actions at the ‘big three’ in favor of their own analysis.
The latest response to the Moody’s Investors Service downgrade of the biggest Nordic banks was rising bond and share prices, according to Bloomberg, the exact opposite of what should happen when a seismic event of this magnitude occurs.
“The reaction is the latest sign that investors are paying less attention to the views of rating companies and relying more on their own analysis to determine whether to buy or sell,” the news service says.
“We can see for ourselves just how strong the Swedish banks are so we don’t place much weight on what rating agencies tell us,” Nicklas Granath, a partner at the Stockholm-based asset manager Norron who helps manage about $200 million, said in an interview with Bloomberg. “More and more the market is likely to take the same approach.”
Bloomberg says “Investors are showing greater willingness to ignore Moody’s, Standard & Poor’s and Fitch Ratings” as European pokicymakers try to reduce the raters’ influence. “Denmark, which holds the European Union presidency, said this month it won backing in the 27-member bloc to curtail the influence of the raters. Danish banks have started firing Moody’s, while Swedbank AB, one of Sweden’s four biggest lenders, has said the views published by rating companies are ‘backward looking.’”
Moody’s last week lowered Sweden’s Nordea Bank and Svenska Handelsbanken to Aa3, and Norway’s DNB Bank to A1, all single-level downgrades. Credit grades of SEB (SEBA) and Swedbank were affirmed while Landshypotek was cut two steps to Baa2. All ratings carry stable outlooks, Moody’s said.
And the reaction, according to Bloomberg?
“Handelsbanken’s shares rose on the day after the May 24 downgrade. Nordea was up as much as 1.4% and DNB climbed as much as 1.6%, before erasing gains that day. Nordea shares advanced as much as 1.3% and were trading lower by 0.3% to 54.45 kronor. Handelsbanken increased 0.8% , topping the 0.9% loss of the Bloomberg Europe Banks and Financial Services Index.
“The yield on Nordea’s benchmark 1.25 billion-euro note maturing in 2019 has declined four basis points to 2.61% over the past three days, while the yield on a five-year Handelsbanken dollar note slid two basis points to 2.60% on May 25. The yield moves inversely to price. “
A similar response has also been seen in the sovereign debt markets, the news service concludes, where U.S. Treasuries last year rose after S&P stripped the world’s largest economy of its top grade. The Bank of England said in March there was “little market reaction” to Moody’s decision to cut the outlook on its rating to negative.