Kroll Bond Rating Agency (KBRA) publishes “Bank Preferred Notching – A Sensible Approach.” A review of the preferred stock ratings of U.S. bank holding companies (BHCs) maintained by legacy rating agencies reveals that for much of this fundamentally sound group, preferred ratings remain non-investment grade despite deposit / senior debt ratings that are comfortably investment grade; in many cases in the ‘A’ category. Is deferral risk on preferred instruments really that much greater than the default probability on senior debt? Said more simply, should a well-diversified, fundamentally sound bank with a senior debt rating in the A category have a non-investment grade preferred rating? While it is clear that legacy agencies believe this to be an appropriate assessment of relative risk, KBRA thinks otherwise.

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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.