Moody's Makes Good On Threat To Downgrade Biggest BanksJune 21, 2012 @ 6:50 PM EST
Although the move was widely expected by the time it was actually announced, Moody’s Investors Services downgrade the credit ratings of 15 of the world’s top banks and securities firms on Thursday.
The ratings agency said that the banks were downgraded because their long-term prospects for profitability and growth are declining.
Back on February 15, Moody’s announced that it was reviewing the ratings of the major banks. At that time the rating agency said that the current ratings did not account for an increasingly challenging environment.
Moody's Global Banking Managing Director Greg Bauer said, "All of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities."
Bloomberg noted that the downgrades may force banks to post additional collateral to trading partners in derivatives deals while boosting the companies’ borrowing costs.
The banks affected include Bank of America (BAC), which saw its rating term rating cut to Baa2 from Baa1, Barclays, BNP Paribas, Citigroup (C), Credit Agricole, Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), HSBC Holdings (HSBC), JPMorgan Chase (JPM), Morgan Stanley (MS), Royal Bank of Canada, Royal Bank of Scotland Group (RBS), Societe Generale, and UBS.
Most of the moves met with expectations with the exception of Morgan Stanley, where the downgrade was only two notches instead of three.
Morgan Stanley immediately released the following statement: “"While Moody’s revised ratings are better than its initial guidance of up to three notches, we believe the ratings still do not fully reflect the key strategic actions we have taken in recent years. However, their acknowledgment of our long-term partnership with MUFG as well as our industry-leading capital and liquidity highlight some of the transformative steps we have taken. With our de-risked balance sheet, stable sources of funding, diverse business mix and strong leadership team, we are well positioned to deliver for clients and shareholders."
The expected downgrades hit the wires early Thursday morning and were at least partially responsible for the Dow’s drop of 250 points. However, futures were rebounding a bit in the after-hours session in what appears a sigh of relief move.
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