Standard & Poor’s announced Tuesday it is cutting the credit ratings of three major European banks: Credit Suisse Group AG (NYSE:CS), Barclays PLC (NYSE:BCS) (LON:BARC) and Deutsche Bank AG (NYSE:DB) (ETR:DBK).
Bank Ratings Downgraded
The ratings agency downgraded all three banks to A from A+, citing greater regulation and uncertain market conditions.
In a statement, S&P 500 (INDEXSP:.INX) said the ratings action was due to “increasing risks that Europe’s large banking groups active in investment banking face as regulators and uncertain market conditions continue to make operating in the industry more difficult.”
The ratings agency also affirmed the A/A-1 long- and short-term ratings on Swiss bank UBS AG (NYSE:UBS).
Global Banks Under Increased Pressure to Meet Stricter Requirements
There has been increasing speculation that under Basel III regulators, i.e., The Federal Reserve, are considering raising the minimum supplementary ratio from the current proposal of 3 percent, according to reports from Bloomberg, Reuters and other major news outlets on June 21, 2013.
Current reporting according to “people with knowledge of the talks,” suggests a potential doubling of the minimum supplementary ratio from 3 percent to 6 percent. Banks in the US have yet to provide any disclosure on what their supplementary leverage ratio would look like.
Global banks are under increased pressure now to meet stricter capital requirements together with new regulations which will change the face of the sector. As well, yesterday the President of the Federal Reserve Bank of New York, Charles Dudley, cited the protracted recession in Europe as one of the main factors holding back growth in the United States this year.
S&P’s View on Downgrade
In S&P 500 (INDEXSP:.INX)’s words “we consider that these banks’ debt holders face heightened credit risk owing to the industry’s tighter regulation, fragile global markets, stagnant European economies and rising litigation risk stemming from the financial crisis. A large number of global regulatory initiatives are increasingly demanding for capital market operations.”