Moody's says may cut 46, mostly European, banks

...of its joint default analysis (JDA) methodology, which had come under intense criticism in its original form.

The credit ratings agency said most of the downgrades would be by one notch, although "several" two- or three-notch downgrades are possible. The reviews will be completed on April 10.

The move will reverse upgrades made late in February and early in March that surprised analysts and investors in their far-reaching scale.

As expected, Iceland's three major banks -- Glitnir , Kaupthing and Landsbanki -- are on the list for possible downgrades.

Moody's decision to upgrade the three banks to triple-A -- an upgrade of four or five notches -- based on the potential for government support under the new methodology had sparked derision by analysts and concern among investors.

Also on the list are ABN AMRO , Fortis Bank , ING Bank , Nordea Bank and SEB AB , along with Polish, Hungarian and Czech banks. Among non-European banks, Canadian Imperial Bank of Commerce and National Bank of Canada may be downgraded. For the full list please double click on [ID:nWNA6522].

"The refined methodology ... reduces the level of external support incorporated into bank deposit and debt ratings in order to give greater weight to banks' intrinsic financial strength," Moody's said.

"A number of bank ratings that were upgraded prior to the refinement have been identified as being potentially inconsistent with the refined methodology," the agency said.

Market participants had said that the clustering of banks in the triple-A and very high double-A categories made Moody's ratings less useful as it was more difficult to distinguish between banks' relative credit quality.

Mark Harmer, a financial credit analyst at ING in Amsterdam, said in a note to clients that he expected the Icelandic banks to be cut by three notches to Aa3, while the stronger Benelux banks and the Nordic banks should only see one-notch cuts.

Harmer said he expected the reaction in credit spreads on the banks to be muted.

"In all, the market is suffering JDA fatigue and has a variety of more pressing issues to consider, other than what has been a circular rating exercise," he said.

Moody's also said it might raise capital securities issued by 12 banks as a result of a change in its conventions for rating such debt instruments versus a bank's long-term debt rating. For more details, please double click on [ID:nWNA6524].