Home » Financial » Moody’s Cuts Credit Ratings of 15 Major Banks Including Bank of America, Citigroup, JPMorgan

Moody’s Cuts Credit Ratings of 15 Major Banks Including Bank of America, Citigroup, JPMorgan

June 21 (Bloomberg) — Credit Suisse Group AG’s credit
rating was cut 3 levels by Moody’s Investors Service, Morgan
Stanley was reduced dual levels and 13 other banks were
downgraded in moves that might shake adult foe among Wall
Street’s biggest firms.

Credit Suisse, a second-largest Swiss bank, perceived the
maximum rebate that Moody’s pronounced in Feb it might make
during a examination of tellurian banks with material markets operations.
Morgan Stanley and UBS AG (UBSN), a other firms singled out for such
a high cut, were lowered dual stairs instead.

“All of a banks influenced by today’s actions have
significant bearing to a sensitivity and risk of outsized
losses fundamental to capital-markets activities” Moody’s Global
Banking Managing Director Greg Bauer pronounced currently in a statement.

The downgrades might force banks to post additional
collateral to trade partners in derivatives deals while
boosting a companies’ borrowing costs. Moody’s pronounced when it
announced a examination that it was seeking to simulate a banks’
reliance on frail certainty in appropriation markets and increased
pressures from law and a formidable marketplace environment.

The ratings organisation pronounced Feb. 15 it was reviewing grades for
17 banks. Moody’s cut Macquarie Group Ltd. (MQG) and Nomura Holdings
Inc. (8604) one turn any in March. It also started a examination of
lenders in some-more than a dozen European nations and already has
reduced grades in Spain, Germany, Italy, Sweden, Austria and

Competitive Changes

The downgrades might impact a rival landscape in
derivatives that aren’t mainly cleared, a business that
provides about 15 percent of a industry’s trade revenue,
Kinner Lakhani, a Citigroup Inc. (C) analyst, wrote in an Apr 30
note. Banks with a largest cuts might remove income from such
long-term derivatives, Charles Peabody, an researcher with Portales
Partners LLC, pronounced in a Jun 4 talk on a “Bloomberg
Surveillance” radio program.

“Right now there are a lot of inner bank policies that
if you’re doing a longer-term structured derivative, we want
the counterparty to be A-rated or above,” pronounced David Konrad, an
analyst during KBW Inc. in New York. Because Moody’s is downgrading
the whole banking attention rather than one or dual firms, “a
lot of those policies might be rewritten over time.”

A three-level cut for Morgan Stanley (MS) could cost it $400
million in annual trade income from those forms of derivative
deals, estimated Brad Hintz, an researcher during Sanford C. Bernstein
Co., before Moody’s expelled a decisions.

More Collateral

The downgrades also might dive obligations to post
additional material and stop payments. New York-based
Morgan Stanley pronounced final month it might face payments of $9.61
billion in a eventuality of a three-level cut from Moody’s and two
grades by Standard Poor’s, according to a filing formed on
March 31 data. The sum enclosed $7.21 billion in collateral.

Credit Suisse pronounced in a annual news that a three-level
downgrade in a bank’s long-term debt ratings would outcome in
additional material mandate or stop payments under
certain derivative instruments of 4.5 billion Swiss francs ($4.7
billion), as of Dec. 31. UBS pronounced it would face 2.1 billion
francs of material calls from a two-level cut.

Banks’ vast liquidity buffers will make collateral
requirements “manageable,” Amit Goel, a Credit Suisse analyst,
wrote in a May report.

‘New World’

“Pre-crisis bank ratings used to be clustered together,”
Lakhani wrote. “In a new world, apportionment has increased.
Markets tend to distinguish some-more between issuers during lower
ratings — in terms of appropriation costs. Over time, this could
provide a rival corner for higher-rated firms,” including
HSBC Holdings Plc. (HSBA) and JPMorgan Chase Co. (JPM)

Morgan Stanley’s batch fell on Jun 4 to what was afterwards its
lowest tighten given Dec 2008 as investors weighed a
potential credit-rating cut. The shares have rallied 15 percent
since afterwards by yesterday.

Moody’s wrote on Jan. 19 that credit profiles of global
lenders are weakening as governments onslaught with their
finances, and mercantile doubt and aloft appropriation costs
persist. When Moody’s places a company’s ratings on examination for a
downgrade, it typically decides either to cut them within three

The ratings organisation pronounced Feb. 15 it was reviewing grades for
17 banks and bonds firms with what it called “global
capital-markets operations.” That’s when it put Morgan Stanley,
Bank of America Corp. (BAC), Citigroup, Goldman Sachs Group Inc. (GS),
JPMorgan and Royal Bank of Canada (RY) on examination for downgrades.

‘Deliberate Approach’

Moody’s has pronounced all a reviews will be wrapped adult by the
end of this month, after it behind a rating actions on the
largest banks, that had formerly been scheduled for mid-May.

“Moody’s is holding an reasonably counsel approach
during this examination routine and will interpretation when it is
confident that all applicable information has been perceived and
analyzed,” a organisation pronounced in an Apr 13 statement.

Events that have occurred given a examination was announced,
including developments in a European debt predicament and
JPMorgan’s $2 billion trade loss, have forced Moody’s to take
longer with a decisions, pronounced David Hendler, an researcher at
CreditSights Inc. in New York. Morgan Stanley Chief Executive
Officer James Gorman pronounced this week that a examination has been “a
long routine to be unresolved out there in a wind.”

Companies have oral out opposite a Moody’s review,
citing a firm’s methodology and approach. UBS Chief Financial
Officer Tom Naratil pronounced his firm’s financial position is
“completely inconsistent” with one that would have a short-
term rating cut from P-1.

‘Somewhat Stunning’

Gorman pronounced it would be “somewhat stunning” if his firm
was cut 3 levels given a bank’s increasing material and
liquidity. Goldman Sachs CFO David Viniar has pronounced that he and
other executives “strongly disagree” with Moody’s approach.

“If we demeanour during each singular credit metric there is for
Goldman Sachs and honestly for many of a competitors, nothing of
the actions they’ve talked about are warranted,” Viniar said
during an Apr 17 discussion call with analysts and investors
after a association reported first-quarter results. “We are, as
you know, we’re utterly analytical. And when we do all of the
analysis, we can't figure out since they are where they are.”

David Knutson, a Chicago-based credit researcher with Legal
General Investment Management, pronounced Moody’s is in a difficult
business since it collects fees from a banks.

“When we ascent someone, we suppose they’re happy to sign
the check since they acquire it behind in reduce rates,” Knutson
said. “When we hillside them, signing that check is a much
harder thing to do.”

To hit a reporters on this story:
Dakin Campbell in San Francisco at
Michael J. Moore in New York at

To hit a editors obliged for this story:
Rick Green at

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