Moody's Investors Service said it is looking to upgrade most European banks to Aaa' under the agency's new Joint Default Analysis (JDA). Overall, the agency will bring the long-term and bank financial strength ratings for more than 1,000 banks in 90 countries in line with its new methodology.

The new ratings will be announced by region for approximately 120 to 150 banks over the next seven weeks after trading closes every Friday. The agency kicked off this process with ratings for banks in Scandinavia, the Benelux countries and Eastern Europe. No leading banks in these regions have defaulted in recent years because their governments have typically stepped in to save them. As part of the joint default analysis, Moody's now takes into consideration the likelihood of this external or systemic support when assigning bank ratings. "Though the effect of any potential assistance an ailing bank could expect was, to some extent, taken into consideration already in the past, different approaches were applied in different countries," Dresdner Kleinwort Wasserstein analysts said in a report. "The new JDA should now create a uniform procedure."

Morgan Stanley analysts said they did not anticipate dramatic spread tightening for senior unsecured bank paper on the back of this news, but did expect improvements of up to a couple of basis points due to a new Aaa' focused investor base opening up. "Most money managers require reference of two ratings rather than just one [Standard & Poor's and Fitch Ratings are not changing their stance], our bank analysts do not anticipate a strong technical bid for paper," Morgan Stanley analyst Sarah Barton said.

Neither does Barton expect an overhaul of European bank funding strategies as a result of the Moody's upgrades. "[Securitization] continues to offer competitive funding advantages for banks compared to unsecured funding, and Basel II motivates banks to think more strategically about capital management," she said, adding that the securitization market will continue to demonstrate strong growth.

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