Frances Schwartzkopff Copenhagen
Denmark’s biggest banks are firing Moody’s Investors Service as they win assurances from some of the country’s biggest investors that the opinions of ratings companies hold limited value.
Nykredit, Denmark’s biggest mortgage lender and Europe’s largest issuer of covered bonds backed by home loans, terminated its contract with Moody’s on April 13, citing its “volatile” views.
Danske Bank’s mortgage unit, Realkredit Danmark, the country’s second-largest home-loan provider, dropped Moody’s in June last year. Jyske Bank, Denmark’s second-biggest listed bank, was looking into ending its dealings with Moody’s, Steen Nygaard, its head of treasury, said yesterday.
“They have just crossed the line for fairness,” Nygaard said in an interview. “It’s not just that we have an opinion and if they rule against us, we are mad and walk away. It is about the fundamentals where we simply cannot follow Moody’s arguments.”
In June last year Moody’s criticised Denmark’s $470 billion (R3.6 trillion) mortgage bond industry, the world’s third-largest after the US and Germany, for failing to curb refinancing risks fuelled by a mismatch in funding and lending maturities.
Since then, Nykredit’s benchmark index of Denmark’s most-traded mortgage bonds has risen 6.3 percent to a record, signalling investors are disregarding the warnings.
“Moody’s does not comment on its commercial relationships,” spokeswoman Jessica Sibado said in a phone interview this week. “Moody’s considers Denmark as having one of the strongest covered bond frameworks in Europe. However, since 2009, Danish covered bonds have been impacted by the weakening issuer credit strength” and “increasing refinancing risks”.
Moody’s generated 31 percent of its $2.3bn in sales last year from Europe, the Middle East and Asia combined, it said last month.
Nykredit and Jyske Bank declined to reveal what they paid the agency for their ratings.
“It’s not that ratings don’t matter. Of course they do,” said Inger Huus Pedersen, the head of fixed-income investments at Danish pension fund PKA, which oversees about $27bn in assets. “These mortgage bonds, we feel pretty secure about. It’s an old system that’s gone through a lot, which is why I’m quite secure about the system. History has shown us that ratings agencies make mistakes as well.”
Investors, companies and governments are starting to question the role of the ratings companies following their failure to identify some of the imbalances that led to the global financial crisis of 2008.
A US Senate report said last year that Standard & Poor’s (S&P) and Moody’s adjusted the way they graded mortgage-backed securities after Goldman Sachs, UBS and at least six more banks pressured them.
When the major ratings companies changed their assessments in July 2007, it helped trigger the financial crisis, the Senate permanent subcommittee on investigations said in April last year.
S&P’s decision to strip the US of its top credit grade in August last year was followed by gains in the nation’s treasury notes. US government securities with maturities longer than a year have returned 4.2 percent, including reinvested interest, since S&P’s August 5 downgrade.
The Bank of England said on March 27 that there was “little market reaction” to Moody’s decision to cut the outlook on the UK’s Aaa rating to negative.
In Denmark, Moody’s has been tougher on the nation’s mortgage banks than other rating companies. It ranked adjustable-rate bonds issued by Nykredit Aa1, compared with S&P’s AAA grade.
Nykredit’s issuer rating at S&P is A+, its fifth-highest grade, with a stable outlook. Moody’s ranks the lender A2, its sixth-highest rating, with a negative outlook. – Bloomberg