Ratings agency Moody’s surprised everyone this week by downgrading SA’s major banks — FirstRand, Standard Bank, Absa Bank and Nedbank — and placing them on review for further cuts.

In light of the news, we chatted to Michael Furter, director at Consequence Private Wealth, about the action taken by Moody’s and the expected result of the downgrade on the economy.

‘The downgrading is possibly an over-reaction given that the big SA banks are in fairly good shape. There are different categories of debt; ABIL generally lent at very high rates to those with questionable ability to repay whereas the bigger banks generally lend  at lower rates and on more sound terms. Unsecured lending is a questionable model in SA anyway and maybe the ABIL situation will help clean things up a bit.

In terms of the overall investment effect, ABIL  has not had a massive impact although some funds have had exposure ‘side-pocketed’ which means that investors may find a small component of their unit trust investments temporarily frozen until the curators are able to begin repayments on debt instruments.

Obviously yesterday’s downgrades are not a great vote of confidence in SA but the overall market effect of the downgrading is difficult to predict at this point. Standard Bank’s share price is down 2% today which is a fair drop but let’s see what happens through the rest of the week – there may be some buying at those levels too. The ALSI as a whole has held  level today so certainly no major selling yet on this.”

If you want to get in touch with Michael, or to speak to someone about wealth management, see the consequence website here.