The first answer has to be "when it's an Icelandic bank". In early 2007, only a couple of years ago, Moody's had a brainstorm and rated all Icelandic banks Aaa. Fortis too, come to that. All gone now, in any recognisable form. So much for long-term ratings. And another illustation of the folly of relying blindly on the output of rating agencies.

I've recently been looking into the reliability and stability of ratings for an ABS fund. (This is of course based on the fact that some ABS is ludicrously underpriced-but we have to avoid the dogs!). Fitch has produced some useful research in the last couple of months.

There are interesting conclusions regarding 2008.
-98% of all RMBS downgrades were in the US; but we're not looking there
-99.8% of European prime RMBS AAAs remained AAA.0.2% was downgraded to AA. No downgrades below this
-Only 50.9% of US Alt-A AAAs remained AAA. A massive 36.4% went to sub-investment grade
In European CMBS, 98.9% of AAAs remained AAA, 1.1% went down only to AA.

Remember, these were all AAA 12 months earlier. The obvious conclusions are
-Not all AAAs are going to stay that way
-Some sectors look pretty solid and, subject to some professional credit, modelling and monitoring work, there are good profits to be made.

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