FINANCIAL INSTITUTIONSSECTOR IN-DEPTH 2 June 2016TABLE OF CONTENTS Bank Market-Implied Ratings Gaps Show Improvement in Several Regions 1Market-implied ratings tables for global banking regions and companies 4 Monthly Bank Risk Report: key CDS credit metrics5Monthly Bank Risk Report: key bond credit metrics 9 Appendix: Moodys Capital Markets Research - recent publications on finance sector17ContactsAllerton G. Smith 212-553-4058 Sr Dir-Sr Research Analyst allerton.smith@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research,Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products.For further detail, please see the last page.Bank Risk ReportBank Market-Implied Ratings Gaps Show Improvement in Several Regions Bank credit spreads became a bit more constructive outside of the US after May 1. The bond-implied ratings for the Africa and Middle East region and the Asia-Pacific region rallied by one notch each, from Ba1 to Baa3 and from Baa2 to Baa1, respectively.In Europe, CDS spreads moved in by 16 bp from one month ago and by 53 bp from three months ago to 182 bp at present. As a result the average CDS-implied rating for the European banks rose by one notch from Ba3 to Ba2. No other region has experienced a change in its average CDS-implied rating since May 1.Bank credit spreads in the USA performed in line with the broad market lately. The market-implied rating averages are unchanged from one month ago at Baa1 for the CDS-implied rating and A3 for the bond-implied rating. Over the last 31 days US bank five-year mid-spreads CDS contracted by an average of 7 bp to 72 bp, matching the broad market.We believe the slight positive movement in US banks credit spreads can be attributed to at least five sources:¯ There is a growing sentiment that the Federal Reserve Bank may raise interest rates sooner rather than later. Higher short-term rates and a more steeply upward sloping yield curve would bolster the net interest margins (and thus the overal...
