Moodys

 

Moody’s Corporation (NYSE:MCO) released the names involved in its downgrade list which the company had previously announced this morning.  The rating agency was supposed to release the names after the close today but was over one hour late.  Moody’s downgrades a total of 15 banks: 4 by 1 notch, 10 by 2 notches, 1 by 3 notches.

Below are some of the details:

Bank of America Corp (NYSE:BAC) was cut to Baa2, and Moody’s attached negative outlook on the bank.

Barclays plc cut from  A3 from A1 with a positive outlook.

Goldman Sachs Group, Inc. (NYSE:GS) was cut from A3 to A1 with a negative outlook.

Citigroup Inc. (NYSE:C) was cut from A3 to Baa2 with a negative outlook.

JPMorgan Chase & Co. (NYSE:JPM) was cut two notches from AA3 to A1.

Credit Suisse Group AG (NYSE:CS) was cut three notches, from A2 to Aa2.

Morgan Stanley (NYSE:MS) was cut two notches to Baa1 from A1.

Royal Bank of Scotland Group plc (NYSE:RBS) was cut from A3 to B1.

Wells Fargo & Company (NYSE:WFC) appears to be the only big US bank not downgraded.

Below is part of the press release:

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New York, June 21, 2012 — Moody’s Investors Service today repositioned the ratings of 15 banks and securities firms with global capital markets operations. The long-term senior debt ratings of 4 of these firms were downgraded by 1 notch, the ratings of 10 firms were downgraded by 2 notches and 1 firm was downgraded by 3 notches. In addition, for four firms, the short-term ratings of their operating companies were downgraded to Prime-2. All four of those firms also now have holding company short-term ratings at Prime-2. The holding company short-term ratings of another two firms were downgraded to Prime-2 as well.

“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”, says Moody’s Global Banking Managing Director Greg Bauer. “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.” The specific credit drivers for each affected firm are summarized below.

Today’s rating actions conclude the review initiated on 15 February 2012 when Moody’s announced a ratings review prompted by its reassessment of the volatility and risks that creditors of firms with global capital markets operations face. In the past, these risks have led many institutions to fail or to require outside support, including several firms affected by today’s rating actions. Today’s actions, however, reflect not only the credit implications of capital markets operations. They also reflect (i) the size and stability of earnings from non-capital markets activities of each firm, (ii) capitalization, (iii) liquidity buffers, and (iv) other considerations, including, as applicable, exposure to the operating environment in Europe, any record of risk management problems, and risks from exposure to US residential mortgages, commercial real estate or legacy portfolios.

OVERVIEW OF TODAY’S RATING ACTIONS

Moody’s has taken action on the following holding company ratings:

Bank of America Corporation

Long-term senior unsecured debt to Baa2 from Baa1, outlook negative; Short-term P-2 affirmed

Barclays plc

Long-term issuer rating to A3 from A1, outlook negative; Short-term to P-2 from P-1

Citigroup Inc.

Long-term senior debt to Baa2 from A3, outlook negative; short-term P-2 affirmed

Credit Suisse Group AG

Provisional senior debt to (P)A2 from (P)Aa2, outlook stable; Provisional Short-term (P)P-1 affirmed

The Goldman Sachs Group, Inc.

Long-term senior unsecured debt to A3 from A1, outlook negative; Short-term to P-2 from P-1

HSBC Holdings plc

Long-term senior debt to Aa3 from Aa2, outlook negative; Provisional Short-term (P)P-1 affirmed

JPMorgan Chase & Co.

Long-term senior debt to A2 from Aa3, outlook negative; Short-term P-1 affirmed

Morgan Stanley

Long-term senior unsecured debt to Baa1 from A2; outlook negative; Short-term to P-2 from P-1

Royal Bank of Scotland Group plc

Long-term senior debt to Baa1 from A3, outlook negative; Short-term P-2 affirmed

Moody’s has taken action on the following operating company ratings:

Bank of America, N.A.

Long-term deposit rating to A3 from A2, outlook stable; Short-term to P-2 from P-1

Barclays Bank plc

Long-term issuer rating to A2 from Aa3, outlook negative; Short-term P-1 affirmed

BNP Paribas

Long-term debt and deposit rating to A2 from Aa3; outlook stable; Short-term P-1 affirmed

Citibank, N.A.

Long-term deposit rating to A3 from A1, outlook stable; Short-term to P-2 from P-1

Credit Agricole S.A.

Long-term debt and deposit rating to A2 from Aa3, outlook negative; Short-term P-1 affirmed

Credit Suisse AG

Long-term deposit and senior debt rating to A1 from Aa1, outlook stable; Short-term P-1 affirmed

Deutsche Bank AG

Long-term deposit rating to A2 from Aa3, outlook stable; Short-term P-1 affirmed

Goldman Sachs Bank USA

Long-term deposit rating to A2 from Aa3, outlook stable; Short-term P-1 affirmed

HSBC Bank plc

Long-term deposit rating to Aa3 from Aa2, outlook negative; Short-term P-1 affirmed

JPMorgan Chase Bank, N.A.

Long-term deposit rating to Aa3 from Aa1, outlook stable; Short-term P-1 affirmed

Morgan Stanley Bank, N.A.

Long-term deposit rating to A3 from A1, outlook stable; Short-term to P-2 from P-1

Royal Bank of Canada

Long-term deposit rating to Aa3 from Aa1, outlook stable; Short-term P-1 affirmed

Royal Bank of Scotland plc

Long-term deposit rating to A3 from A2; outlook negative; Short-term to P-2 from P-1

Societe Generale

Long-term debt and deposit to A2 from A1; outlook stable; Short-term P-1 affirmed

UBS AG

Long-term debt and deposit to A2 from Aa3, outlook stable; Short-term P-1 confirmed.

The full release can be found here.

Since February, Moody’s said that they were going to be reviewing the credit ratings of 17 global financial institutions.  Moody’s has already downgraded a handful of Italian and Spanish banks, along with several German and Austrian banks as well.  The agency seems to be cutting credit ratings of all banks that have exposure to the European crisis in some way.  On the downgrade watch list, Moody’s may further downgrade some European banks such as Barclays PLC (ADR) (NYSE:BCS) and Credit Suisse Group AG (ADR) (NYSE:CS).

However, US banks were on the watch today for a rating cut as conditions soften in the US as well.  Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C), Goldman Sachs Group, Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM) and Morgan Stanley (NYSE:MS) were the banks that could have been downgraded and have been warned prior that a rate cut may be coming.  As a result, all of these banks were down well over 1% in today’s trading session.  As a side note, we know that a Canadian bank is on the watch for a downgrade.  Many analysts are saying Royal Bank of Canda (USA) (NYSE:RY) is the likely target.

Unfortunately, the banks that did end up receiving a downgrade will have a tougher time not only getting capital but it will cost them more in interest also.  This could put extra stress on the bank in an already difficult period for banks to prosper.

Back in April, Morgan Stanley CEO, James Gorman told CNBC that a downgrade could hurt 8% of the bank’s derivatives contracts.  Additionally, a downgrade would cost Morgan Stanley an additional $868 million to $7.2 billion on their senior notes.  Bank of America, Citigroup, Goldman and JP Morgan have all described similar situations of higher costs to their bottom line.

The bottom line here is that Moody’s continued its downgrade campaign today but at what cost?  The downgrades could have significant consequences for the banks involved which could put further strain on the markets.