Will Wonders Never Cease.....

One of my long-time favourite irks is the position of the rating agencies for whom the catch phrase "heads I win tails you lose" could be their byline. So it was quite surprising that I read an article about the recent ratings review of Citi, Wells and BofA by Moody's and found it to contain useful/interesting comments.

In affirming the long-term and short-term ratings of Bank of America, Citigroup and Wells Fargo Moody's noted that due to the recent passage of the financial reform legislation that they were changing the outlook on the three from stable to negative.

Imagine, the rationale of the rating agency was that the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) is "a law that, over time, is expected to result in lower levels of government support for U.S. banks."

The review went on to state "Since early 2009, Bank of America, Citigroup and Wells Fargo's ratings have benefited from an unusual amount of support...the intent of Dodd-Frank is clearly to eliminate government-i.e. taxpayer-support to creditors."

I don't want to sound too partisan, but I seem to recall that one of the major reservations of Republicans was that Dodd-Frank would create big government and would stifle business with regulation. And yet here is Moody's clearly stating that the major effect of the bill will be to remove government support-and replace it with oversight.

Indeed, Moody's sees the law as an attempt to strengthen the ability of regulators to resolve complex financial institutions and to reduce the probability that they will need to be resolved in the future.

Imagine my continuing surprise about the comments of the CEO's of a number of major U.S. banking institutions in describing their company's recent performance. None of them focused on the new legislation directly although many mentioned that there will be losses of revenue associated with them. These "costs" are essentially crackdowns on fees banks currently charge which will reduce bank's profits, to the benefit of their clients.

The CEO's generally painted a picture of an economy that is fragile, but, in a wonderful example of American optimism, they all discussed the potential just around the corner. None of them blamed the government. They all espoused hard-headed business acumen. The basic sentiment was that they are poised to take advantage of opportunities when the uncertainty in the economy dissipates.

U.S. Bancorp even spent money to make money-and produced some of the best results. Maybe there is a message to those commentators who continue to blame the government for industry's unwillingness to invest.