S&P Bank Downgrades Hit Markets
European stocks fell, along with the euro, in early trade on Wednesday.
A move to ramp up the eurozone bailout fund drew a tepid response. And ratings agency, Standard and Poor’s, downgraded 15 major lenders – including Goldman Sachs and Citigroup.
HSBC, Barclays, Lloyds and Royal Bank of Scotland were also among those downgraded one notch. Their shares fell up to 2% in morning trade.
“We have a banking crisis because we still have a European debt crisis. That’s why I understand the rating agencies, but in comparison, the German banks are in good shape.”
The downgrades are the result of an overhaul of the way S&P calculates its ratings. S&P wants to make it easier to see when there’s a threat to bank funding, or if governments become less willing to bailout creditors.
They also put more emphasis on the health of the banking industry in the country where the bank operates, with S&P expecting banks in emerging markets to benefit from the changes.
The two banks given higher ratings were Bank of China and China Construction Bank Corp.
S&P warned a year ago it was revising its ratings. But the timing wasn’t ideal.
Banks are already on edge because of the eurozone debt crisis and now they could face higher funding costs.
There was some cheer later in the day, though, after China’s central bank cut the reserve requirement ratio for its banks for the first time in nearly three years.
Stocks reacted positively to the move, which will ease credit strains and shore up activity in the world’s second-largest economy.
Bottom line: Stocks fall and the euro weakened after Standard & Poor’s downgrades some of the world’s leading banks. And eurozone leaders’ failed to impress with their new bailout plan.