Sunday, October 25, 2009

Newsflash, Moody's Does Something

"Spanish banks are failing to recognize the true scale of their losses during the deep slump in Europe's fifth-largest economy--something that could hamstring the sector's growth for years, Moody's Investors Service said Tuesday. ... Moody's said the banks set aside less than half the Euro108 billion ($160 billion) in loan losses it estimates they will suffer during the course of the downturn. ... Spanish banks deny they are concealing any losses. A spokeswoman for Spain's banking association said its members, which include Spain's listed banks, continued to report strong earnings and had moved to bolster their capital. She added that the Bank of Spain [BOS] had performed stress tests on the banks and hadn't detected any irregularities. An official at the [BOS] said the Spanish regulator 'certainly doesn't allow banks to hide any losses, and will continue to act with rigor'," Thomas Catan & Christopher Bjork at the WSJ, 14 October 2009, link: http://online.wsj.com/article/SB125545053140882671.html.

I'm sure the BOS cleared its stress test protocol with Zimbabwe Ben before applying it. I wonder if Moody's contacted the various banks CPAs about its findings.

1 comment:

Anonymous said...

This is interesting because the Euro banks and especially the Spanish ones are less capitalized than the US banks (not saying much...)

The issue is contentious between the Europeans, who are pushing for a limit to bonuses as a proportion of a bank’s revenue or profits, and the U.S., which argues the best way to prevent future financial crises is to bolster banks’ capital cushions.

The global politics of revising bank capital structures is interesting to watch (is vampire squid directing this too... or is their a higher power? I remember Gerald Corrigan say to House of Commons committee "increased shock absorbers" a year and a half ago... little Timmy has been parroting since then.)

So Moody's is taking the banks with the worst capital structures to the whipping post first... this allows all the other banking types (cenbanker and other) to gauge the relative measure of their bank's need for capital... of course I have NO faith in any accounting firms doing any auditing that comes close to useful here... they all say "solvent!"

Accountants have become minor bit players in this drama... except the standard setters... (any spare courage lying around to post over to them?)