Moody's downgrades credit of 5 big U.S. banks
(MoneyWatch) Moody's Investors Service (MCO) has cut the debt ratings on five large U.S. banks, along with those of 10 other global financial institutions.
Morgan Stanley (MS) received a two-notch cut in its senior long-term debt rating, less than some market observers had expected. The credit rating agency also lowered its rating for Bank of America (BAC), which got a one-level cut, and Citigroup (C), Goldman Sachs (GS), and JPMorgan Chase (JPM), which each saw a two-notch drop.
In announcing the move after the close of trading Thursday, Moody's cited the banks' shrinking growth and dimming profit forecast in explaining the downgrade. The ratings agency also highlighted the firms' exposure to the capital markets at a time of significant market volatility.
"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," said Moody's global banking managing director Greg Bauer in a statement. "However, they also engage in other, often market-leading business activities that are central to Moody's assessment of their credit profiles. These activities can provide important 'shock absorbers' that mitigate the potential volatility of capital markets operations, but they also present unique risks and challenges."
Morgan Stanley's long-term senior unsecured debt was trimmed to Baa1, from A2. Rumors had circulated that the investment bank faced a three-notch hit to its credit, with particular concerns about the financial impact of such a cut on the firm's large derivatives holdings. Despite the downgrade, investors seemed relieved that the ratings cut was less severe than had been feared, pushing up Morgan shares 3.5 percent in after-hours trading.
Moody's had been reviewing large U.S. banks for a possible downgrade since February as part of a broader review of the capital markets. Weeks of speculation that the ratings cut would be announced by the end of June could mute the immediate impact for investors, who have been expecting the move for months.
As part of its assessment of global financial firms, Moody's in May downgraded Australia's Macquarie and Japan's Nomura. The KBW Bank Index (BKX), a basket of banking company stocks, fell 2.3 percent on the day, to $44.49, down from a 52-week high of $50.69.
But the ratings cut could increase borrowing costs for the affected banks and spur their trading partners to ask for more collateral in doing business with the firms.
Other non-U.S. banks that were downgraded include Barclays (BCS), BNP Paribas (BNP), Credit Agricole (ACA), Credit Suisse (CS), Deutsche Bank (DB), HSBC (HBC), Royal Bank of Canada (RY), Royal Bank of Scotland (RBS), Societe Generale (GLE), and UBS (UBS).
Credit Suisse suffered the biggest downgrade. Moody's chopped the bank's credit rating three levels, citing the Swiss bank's exposure to the global capital markets business, heavy wholesale funding requirements, and earnings volatility. The company's ADRs were down 3.8 percent, to $18.57, after hours.
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So the CEO's succeeded in kicking the can down the road by 2-4 years. Interest rates are still low, but credit is still tough and unemployment is not down far enough to raise consumer confidence high enough to declare prosperity. (GDP isn't growing fast enough)
On paper, banks appear solvent with nice cash reserves, but wealth is not circulating.
The biggest debate on Capital Hill today is the EXACT same one they had in the 1930's about how much federal spending was needed to get the economy moving back to prosperity. Deficit spending while trade exports are down is considered a poison pill by most economist's thinking.
US Banks and factories have to ride the coat tails of consumers.
If we can't get enough domestic consumers, then we need foreign ones.
Up to this point, for the past 60 years, the best industry in the USA that raises revenues is war-making suppliers. The world can find cheaper medicines for pains on their foreheads, but the USA sells the best resolve in the form of warheads. England was our principal importer from 1938-1945.
We just had a near depression with no meaningful legislatible fixes. The money poured into both parties to stop any such meaningful change keeps them, the system, and the Nation at risk. We still use CDS, we still allow hedging in back stores while promoting in front stores, there is still no TBTF legislative guardrails. We will look back on "Citizens United" as a root cause (even though the established "K" street methods were more than effective before the flood gates opened).
We are doomed to repeat and all it is going to take is Europe tanking or another crisis.
Three years into Fascist Obama's Communist administration and you're still blaming the Republicans. How sad but I don't don't blame you for being ashamed to admit that you're a Liberal.
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Because anybody should be able to fix something in three years that it took 30 years to create, right?
The demand-side has nothing left, especially as the supply-side keeps telling us to earn higher degrees, accept more work for less pay, training cheaper replacements (who have higher degrees that did not cost them six figures), et cetera, et cetera...
Since their credit score has gone DOWN, can I now start charging THEM interest?
In a truly free market, what you say should happen.
In our closet plutocracy, it won't.