Here We Go Again With The Big Banks

The Bull of Wall Street

The Bronze Sycamore Harbinger (Warning) on Wall Street

Moody‘s Investors Service lowered the credit ratings of 15 the world’s largest banks late Thursday, including Bank of America, JPMorgan Chase, Citigroup, and Goldman Sachs, saying their long-term prospects for profitability and growth are shrinking.
The ratings agency said it was especially concerned about banks with significant financial markets businesses because those markets have become so volatile. Some of the largest European banks were also downgraded, including Barclays, Deutsche Bank, and HSBC.
The downgrades mean Moody’s is more concerned about the ability of the banks to repay their debts. As reported earlier on The Blaze, Moody’s has been flirting with the idea of mass downgrades for awhile now.
So now that it has happened, what does it mean?
A downgrade usually means that it becomes more costly for banks to raise money by selling debt. Investors demand higher interest for riskier debt, which is what the downgrades represent. However, with interest rates already at rock-bottom levels, the downgrades may not affect the cost of funding for the banks that much.
Moody’s made its announcement after regular stock trading had closed. Morgan Stanley rose the most, 3.3 percent, gaining 45 cents to $14.41. JPMorgan Chase rose 41 cents to $35.92 and Bank of America rose 12 cents to $7.94.
“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,” Morgan Stanley said in a statement that, as Zero Hedge notes, was released curiously fast.
“With our de-risked balance sheet, stable sources of funding, diverse business mix and strong leadership team, we are well positioned to deliver for clients and shareholders,” the statement adds.
The downgrades come at a time of great uncertainty in the global economy. Europe’s currency union is under threat from bad bank loans. The U.S. economy is slowing and the fast-growing emerging economies of India, Brazil, and China are also cooling. Financial markets have also been volatile.
On Thursday the Dow Jones industrial average plunged 251 points, its second-worst loss of the year, as new reports indicating slower manufacturing in the U.S. and China made investors fearful that the global economy will continue to deteriorate.
Moody’s has been on a downgrading spree lately. In June Moody’s downgraded Spain by three notches, after downgrading 16 Spanish lenders in May. It also cut the ratings on seven German and three Austrian lenders in June.
Cut One Notch:
•HSBC downgraded to Aa3 from Aa2
•Lloyds TSB downgraded to A2 from A1
•RBS downgraded to Baa1 from A3
•Societe Generale downgraded to A2 from A1
Cut Two Notches:
•Bank of America downgraded to Baa2 from Baa1
•BNP Paribas downgraded to A2 from Aa3
•Barclays downgraded to A3 from A1
•Citigroup downgraded to Baa2 from A3
•Credit Agricole downgraded to to A2 from Aa3
•Goldman Sachs downgraded to A3 from A1
•JP Morgan Chase downgraded to A2 from Aa3
•Morgan Stanley downgraded to Baa1 from A2
•RBC downgraded to Aa3 from Aa1
•UBS downgraded to A2 from Aa3
Cut Three Notches:
•Credit Suisse downgraded to (P)A2 from (P)Aa2