Westpac Chief Says Planned Ahead for Bank Rating Cuts
06/22/2012| 04:54am US/Eastern
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--Westpac CEO says factored in bank ratings downgrades
--Gail Kelly says no immediate need to tap funding markets
--Moody's says no threat to Australian bank ratings
(Adds comments from Moody's in fifth and sixth paragraphs, further Gail Kelly remarks from seventh paragraph.)
By Caroline Henshaw
SYDNEY--Westpac Banking Corp. (>> Westpac Banking Corporation) said Friday it can ride out the storm affecting international funding markets after Moody's Investors Service downgraded the credit ratings of more than a dozen of the world's biggest banks overnight.
Speaking on the sidelines of a press conference, Chief Executive Gail Kelly said Westpac factored in ratings downgrades across the banking sector to its funding requirements and has no immediate need to tap capital markets.
"We've planned for ratings downgrades, we've planned for continued volatility, and we've planned for at various times markets simply being unavailable," she said. "We can stand back and watch the activities in Europe and don't need to participate in funding activities there until we find the right window of opportunity."
Moody's moves sent ripples through the global financial system after it slashed the ratings of 15 international banks, including Bank Deutsche Bank AG (>> Deutsche Bank AG), Barclays PLC, HSBC Holdings PLC (HSBC), Royal Bank of Scotland Group PLC (RBS), BNP Paribas (>> BNP PARIBAS), Credit Agricole SA (>> CREDIT AGRICOLE), Societe Generale (>> SOCIETE GENERALE) and UBS AG (UBS). The agency slashed the rating of Credit Suisse AG (CS) by three notches to A1 due to the bank's exposure to volatile capital-market activities.
Senior Vice-President of Moody's Financial Institutions Group in Sydney, Patrick Winsbury, said Australia's big four banks--Australia & New Zealand Banking Group Ltd. (>> Australia and New Zealand Banking Group), Commonwealth Bank of Australia (>> Commonwealth Bank of Australia), National Australia Bank Ltd. (>> National Australia Bank Ltd.) and Westpac--didn't face the same fate--even if the rating cuts push up the cost of their funding.
"As far as possible our ratings try to take into account future volatility in funding costs," he said in an interview.
Ms. Kelly said Westpac had been increasing its deposit base faster than its lending, meaning that the bank would need less wholesale funding, giving it a "buffer" against future volatility in credit markets.
"We're meeting (loan) demand, it's simply that demand isn't there because of the caution that exists at the moment," she said.
RBS analyst Andrew Lyons estimated in a recent note that Australian banks would need to raise 199 billion Australian dollars from wholesale markets over the next two-and-a-half years, a fall of 40% compared to the previous three years, thanks to lower demand for credit and higher saving rates, in addition to regulatory pressure on them to rely less on short-term funding.
Westpac shares ended the day 1.1% lower at $20.75, in line with falls across the other big banks.
Write to Caroline Henshaw at caroline.henshaw@dowjones.com
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