The NAB, Commonwealth and Westpac are expected to go ahead with dividend cuts after ratings agency Moody’s Investors Service downgraded the ratings outlook for ANZ Bank, the Commonwealth Bank and Westpac yesterday.
The trio joins the NAB in having a negative outlook from Moody’s, which announced its review last week.
The downgraded outlook follows the ANZ’s move to cut its dividend by 25% last Thursday.
The news came as the shares in Macquarie Group took another hit yesterday, as did the shares of the majors.
It is clear from the downgrade that the federal government’s guarantee (which many commentators and analysts criticised last year when it was introduced) has played a big part in the ratings agency not downgrading the actual ratings of the four banks (and other local banks).
Moody’s said two notches of its Aa1 rating of the four banks came from the support of Australia’s banking system provided by the federal government and Reserve Bank of Australia.
Moody’s said it was making the adjustment because of the potential impact of the economic slump, which seems to be gathering pace, judging by yesterday’s information flow.
But the actual ratings have not been changed: only the outlook.
The move affects the outlooks for the banks’ financial strength ratings of single-B, and long-term deposit and debt ratings of Aa1.
Moody’s also later announced that it had downgraded the long-term deposit and debt ratings of Suncorp Metway to A1 with a stable outlook, from Aa3.
Suncorp’s financial strength rating was downgraded to C+ with a negative outlook, from B-. Moody’s confirmed Suncorp’s short-term ratings of Prime-1.
Moody’s said the Aaa ratings of the bank-insurer’s government-guaranteed obligations and were not affected and their outlook remained stable.
Moody’s also lowered St George Bank’s bank financial strength rating (BFSR) to B- from B, with a stable outlook.
Moody’s also downgraded the outlook on St George’s long-term deposit and debt ratings of Aa1 to negative.
That was after Moody’s had downgraded the outlook for St George’s owner, Westpac, to negative.
"The negative outlook reflects the potential for the deepening global economic downturn to have a protracted impact on the banks’ asset quality and earnings,” Moody’s senior vice president in Sydney Patrick Winsbury said in a statement yesterday.
The three big banks remained well within Moody’s Aa debt rating band while the government guaranteed obligations remained Aaa rated with a stable outlook.
"All three banks continue to have strong credit profiles and benefit from a very high level of support from the Australian government,” Mr Winsbury said.
"Consequently, even in a severe downside scenario we would expect Australia’s major banks to remain solidly positioned within the Aa rating band.”
Moody’s had already revised National Australia Bank Ltd’s rating to negative last August.
Moody’s said the banks had all reported increased asset impairment, and the ratings agency is forecasting the Australian economy to enter a recession this year.
All four of Australia’s big banks had exposure to the relatively more stressed New Zealand economy.
However, Moody’s said the big four were better placed than other banks in the world because the recession was unlikely to be as deep nor long as other industrialised economies, the banks didn’t have a large exposure to "toxic assets” and corporate debt was well contained.
The downgraded outlook compares to the outlook for the likes of Citigroup in the US: it’s 36% owned by the US government, has $US1.6 trillion in assets, and not a chance of surviving on its own. It is valued at just $US9 billion.
NAB shares fell 2% to $17.51; ANZ shares slipped 2% to 13.10; Westpac, down 3.5% down to $16.30; the CBA fell 4.3% to $28.51.
