U.S. Banks to Sing the Moody’s Blues

Published Tue, Jun 12th, 2012   Wall Street Daily Research

 

It wasn’t long ago that the Fed gave most U.S. banks a passing grade in its “stress test.” And just like that financials started looking healthy again. It was only a prolonged flash in the pan, apparently, because banks are now readying themselves for a credit downgrade from Moody’s.

Among the majors receiving the demotion are Morgan Stanley (NYSE: MS), Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), JPMorgan (NYSE: JPM), Bank of America (NYSE: BAC) and Wells Fargo (NYSE: WFC).

Is this downgrade the crown of a slippery slope? Does it spell the beginning of a renewed financial crisis? Jim Leonard, Senior Credit Analyst at Morninstar.com, says such fears are unwarranted:

“The question always becomes is this just one more step in a series of steps where things go bad. We don’t expect that it will be. Most of the major players in the market don’t – for the U.S. banks – expect that to be the case but that will always be that concern when you see a major set of downgrades that actually come through the market.”

The official word of the downgrade – and just how bad it will be – is coming from Moody’s by the end of the month.