Moody’s Goes on a Bank Downgrade Spree
Moody’s unleashed a bevy of downgrades on Thursday, targeting 15 of the world’s largest banks, five of which are U.S. based.
Morgan Stanley (NYSE: MS), JPMorgan (NYSE: JPM), Goldman Sachs (NYSE: GS) and Citigroup (NYSE: C) were downgraded by two notches, Bank of America (NYSE: BAS) by one and Wells Fargo (NYSE: WFC) escaped review altogether dues to its relatively small investment banking operations.
The downgrades came as no surprise, according to Kenneth Polcari, Managing Director at ICAP Equities:
“They’ve been threatening to do this for two, three months. Moody’s – listen, these banks have been downgraded by the other agencies – Moody’s is now going to downgrade them. It’s been expected. Moody’s has threatened that they were going to do it. By now people are almost a little bit immune to the fact that they have been downgraded.”
Moody’s leveled the downgrades over what it perceives as overexposure to international investment, says Greg Bauer, a managing director of global banking at Moody’s, quoted by The Wall Street Journal:
“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.”
In response to the downgrade, Citigroup expressed disagreement, stating:
“Citi strongly disagrees with Moody’s analysis of the banking industry and firmly believes its downgrade of Citi is arbitrary and completely unwarranted.”
And Morgan Stanley released the following:
“While Moody’s revised ratings are better than its initial guidance of up to three notches, we believe the ratings still do not fully reflect the key strategic actions we have taken in recent years.”
Among Euro banks to suffer a downgrade are Deutsche Bank (NYSE: DB), Barclays (NYSE: BCS), HSBC Holdings (NYSE: HBC), Royal Bank of Scotland (NYSE: RBS), BNP Paribas (EPA: BNP) and Credit Agricole (EPA: ACA). Credit Suisse (NYSE: CS), also on the list, was the only European bank to receive a three-notch downgrade.