Ratings agency Moody’s downgraded the credit ratings of 15 banks last night, including J.P. Morgan, Credit Suisse, HSBC, BNP Paribas, Royal Bank of Canada (RBC), and Socit Gnrale.
The holding company of Credit Suisse Group was slashed three levels from Aa2 to A2, while holding companies of Barclays, Citigroup, Goldman Sachs Group, JPMorgan Chase & Co. and Morgan Stanley were cut two levels.
No banks avoided a rating cut, but neither were any of them sliced more than Moody’s had forecasted. The ratings agency announced on February 15 that they would be reviewing 17 banks with capital markets operations because confidence was shaky and regulations increasing.
Among operating companies, Credit Suisse was brought down three levels from Aa1 to A1, and Barclays, BNP Paribas, Citibank, Credit Agricole, Deutsche Bank, Goldman Sachs, J.P. Morgan, Morgan Stanley, RBC and UBS were all reduced by two.
Ratings for Bank of America, HSBC, Royal Bank of Scotland and Socit Gnrale were all downgraded one level.
“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,” says Moody’s managing director of Global Banking, Greg Bauer.
Defying these ratings, however, the stock market rallied around banks after the announcement. Bloomberg’s 43-member Europe Banks and Financial Services Index shed earlier losses and rose 1% to 73.63 this morning.
Eleven banks have a stable outlook, according to Moody’s: Credit Suisse, Bank of America, BNP Paribas, Citi, Deutsche Bank, Goldman Sachs, J.P. Morgan, Morgan Stanley, RBC, Socit Gnrale and UBS.
Responding to the downgrades, Citi said it “strongly disagrees with Moody’s analysis of the banking industry and firmly believes its downgrade of Citi is arbitrary and completely unwarranted.”
Commenting on the liquidity levels of the bank, Citi said: “Citi exceeds the proposed Basel III Liquidity Coverage Ratio requirement with a ratio of approximately 125%.”
The bank further commented on th strides taken to reduce the size of its balance sheet: “Citi Holdings today being approximately one-quarter of the size it was in 2008.” “As of the end of the first quarter of 2012, Citi Holdings assets were $209 billion, or just 11% of Citi’s total assets.”
“… Citi believes that the U.S. financial system is stronger, not weaker, than it was before the crisis. Actions by legislators, regulators and firms themselves have substantially enhanced the stability, and resilience, of the system. Moody’s actions ignore this fact.”
The full result of the ratings can be found on Moody’s Web site.
(OS)