Banorte Sub Debt on Negative Watch

Moody’s has placed under review for possible downgrade the Baa2 foreign currency debt rating of Banorte’s deeply subordinated non-cumulative junior subordinated notes eligible for Tier-1 capital treatment, following a change to its rating methodology for this type of instruments. Other ratings assigned to the bank are not subject to the review. “The review on Banorte’s subordinated notes follows Moody’s initiative to review bank hybrids and subordinated debt on a global basis,” says the agency. Moody’s has changed the way it rates these securities to take into account for the fact that some recent government interventions in troubled banks have not helped, and have even been to the detriment of, holders of such securities. For example, in some cases, support packages have been contingent upon a bank’s suspension of coupon payments on these instruments as a means to preserve capital, it adds. Prior to the current crisis, Moody’s had incorporated into its ratings an assumption that support provided by national governments and central banks to shore up a troubled bank would, to some extent, benefit subordinated debt holders as well as senior creditors. Globally, Moody’s anticipates that 40% of the potentially affected hybrid ratings could be lowered by 1-2 notches, 50% could be lowered 3-4 notches, and the remainder could be lowered by 5 or more notches.