Ratings agency Moody's Investors Service on Thursday downgraded the credit ratings of 15 major banks and securities firms that have operations in the global capital markets, including U.S. banks Citigroup, Bank of America, Morgan Stanley, Goldman Sachs and JPMorgan Chase. Among the largest European banks affected by the ratings downgrade are Barclays, Credit Suisse, Deutsche Bank, UBS and HSBC.
The actions follow the conclusion of a ratings review initiated by Moody's on February 15 amid the continued volatility and risks in global capital markets. The ratings agency said it would review 17 banks and securities firms with global capital markets operations, as it believes these firms face challenges not fully captured in their current ratings.
"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. However, they also engage in other, often market leading business activities that are central to Moody's assessment of their credit profiles," Moody's Global Banking Managing Director Greg Bauer said in a statement.
The long-term senior debt ratings of four of these banks were lowered by a notch, the ratings of ten banks were lowered by 2 notches and one bank was lowered by 3 notches.
Following the ratings review, the banks were segregated into three groups, with HSBC Holdings plc (HBC,HSBA.L), Royal Bank of Canada (RY,RY.TO) and JPMorgan Chase & Co. (JPM) in the top group that have stronger buffers, or 'shock absorbers,' than many of their peers and managed to contain their exposure to risky European sovereign debt.
JPMorgan had its long-term senior debt lowered to A2 from Aa3, and HSBC's long-term senior debt was downgraded to Aa3 from Aa2, both with a negative outlook. Meanwhile, RBC's long-term deposit rating was cut to Aa3 from Aa1, with a stable outlook.
The second group includes Barclays Plc (BCS,BARC.L), BNP Paribas SA (BNP.L,BNPQY.PK), Credit Agricole SA (ACA,CDA.L,CRARF.PK), Credit Suisse Group AG (CS), Deutsche Bank AG (DB), Goldman Sachs Group, Inc. (GS), Societe Generale SA (SCGLY.PK) and UBS AG (UBS). These banks had their senior debt ratings downgraded to between A2 and A3.
Meanwhile, the third group included all the others that were deemed to be the weakest such as Citigroup, Inc. (C), Bank of America Corp. (BAC), Morgan Stanley (MS), and Royal Bank of Scotland (RBS). These banks had their senior debt ratings downgraded to between Baa1 and Baa2.
Moody's said the banks in the third group "have been affected by problems in risk management or have a history of high volatility, while their shock absorbers are in some cases thinner or less reliable than those of higher-rated peers." The agency also added that "Most of the firms in this group have undertaken considerable changes to their risk management or business models."
Separately, Citigroup's, which had its long-term senior debt rating downgraded to Baa2 from A3 with a negative outlook, said Moody's analysis is arbitrary and completely unwarranted. Citi added that it strongly disagrees with Moody's analysis of the banking industry.
The company added that Moody's approach is backward-looking and fails to recognize Citi's transformation over the past several years, the strength and diversity of Citi's franchise, and the substantial improvements in Citi's risk management, capital levels and liquidity.
Moody's began the year by downgrading the sovereign credit ratings of Eurozone countries Italy, Spain, Malta, Portugal, Slovakia and Slovenia with a 'negative' outlook in mid-February. It then cut Greek sovereign debt rating in early March, and downgraded the credit ratings of 16 Spanish banks in mid-May.
Additionally, Moody's also downgraded six German banks and three Austrian banks, lowered the sovereign credit ratings of Spain and Cyprus as well as downgraded five Dutch banks, including ING Groep NV (ING), earlier in the month.
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