Moody's goes to work on European banks.
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Y2K Bug A Possible Stumbling Block For Bank Ratings
By Richard Barley
LONDON (Dow Jones)‹Banks may find their credit ratings under pressure
due to the millennium computer bug, officials at two leading ratings
agencies say.
The so-called Y2K problem, where computers fail to recognize the year
2000 and see it instead as 1900 due to software and hardware design
flaws, is now a key topic of discussion when bankers meet with analysts
at Moody¹s Investors Service, Sam Theodore, Moody¹s managing director
for European banks, told Dow Jones Newswires.
By mid-1999, he said, there should be a clear understanding of what
banks are doing to deal with the issue and how prepared they are.
"If we become very uncomfortable" with a bank¹s level of preparedness
for Y2K, "it would be our job" to reflect that in the bank¹s ratings,
Theodore said.
David Andrews, managing director for financial institutions at Fitch
IBCA, said there is "increasing nervousness as the magic date (Jan. 1,
2000) approaches."
The agency has sent questionnaires on year-2000 readiness to all the
banks that it rates, and analysts are required to make reference to the
Y2K issue and preparedness in every report, he said.
If the level of readiness is "materially worrying," that could affect
ratings, Andrews said. But since Fitch cannot check physically within
systems whether progress on the issue is being made, the rating process
will depend on reports from banks, he said.
In general, smaller banks are seen as having more problems in fighting
the millennium glitch, Fitch¹s Andrews said.
Moody¹s Theodore said that the information-technology culture present in
larger banks is missing in their counterparts of lesser stature.
He added that smaller European banks without international exposure have
not come into contact with U.S. bank regulators that are adopting a
stiffer line on Y2K readiness.
Indeed, some smaller banks are exhibiting a trend of "self-complacency,"
he said, since they are taking the view that they have succeeded in the
transition to the euro and that defusing Y2K will be much the same.
But the currency conversion was largely a software issue; here hardware
is also at the root of the problem, Theodore said.
Some banks attempted to deal with the Y2K issue at the same time as the
introduction of the euro, Andrews said. "The worry is that even within
those new systems, there are embedded chips that will see the year 2000
as 1900," he said.
Andrews also pointed out a darker prospect - while it is possible that
the banking system will be ready to greet the dawn on Jan. 1, 2000, all
the technical work underway now will be useless if public utilities are
unprepared and the lights go out.
-By Richard Barley; 44 171 832 9057; richard.barley<P>cor.dowjones.com
(END) Dow Jones Newswires 11-02-99
1556GMT(AP-DJ- -02-11-99 1556GMT)
(via the South African Press Association's wire service) |
