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Mike Mayo on Moody's possible downgrades.
The buzz according to reports is that Moody's will announce a big downgrade of the world's biggest banks.
Exclusive: Big news - I'm told Moody's will announce downgrades of some of world's biggest banks, incl in UK, after US mkts close tonight.
It just so happens that Mike Mayo of CLSA has a note out about the possibility of an imminent bank downgrade.
He has three takeaways, and one possible surprise.
The bank debt rating downgrades by Moody’s are expected in the next week. We have three key takeaways. First, the downgrades (and S&P may now consider downgrades, too) seem inevitable given the correlation of banking with sovereigns and the weaker geopolitical outlook given the macro slowdown, problems in Europe, and less government backstops (or at least this intention by governments). Second, most of these expectations are likely already in the stock prices (see our chart below of past downgrades), especially when it comes to funding, though there could be franchise erosion and longer-term issues for lower-quality banks. The chatter has been that some investors are deciding who they may want as a counterparty after the downgrades. The big surprise would be if there is more than a one-notch downgrade for big banks, other than Morgan Stanley, or if another rating agency follows suit sooner than expected. Third, the moves by rating agencies should further cement the lead of quality banks such as Wells Fargo when it comes to funding, relationships and a quality premium when doing business.
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