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ECONOMICS > Moody’s lowers credit rating for large banks

NEW YORK - The Associated Press

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Moody’s has lowered the credit rating for some of the world’s largest banks like HSBC, Barclays, and Citibank as seen in this shot of London’s Canary Wharf.

Moody’s has lowered the credit rating for some of the world’s largest banks like HSBC, Barclays, and Citibank as seen in this shot of London’s Canary Wharf.

Moody’s Investors Service has lowered the credit ratings on some of the world’s biggest banks, including Bank of America, JPMorgan Chase and Goldman Sachs, reflecting concern over their exposure to the swings in global financial markets.

The downgrades late June 21 are a measure of Moody’s view on the ability of the banks to repay their debts. The ratings agency also cut its ratings on Barclays, Deutsche Bank and HSBC, some of the largest banks in Europe, a region fighting to contain a government debt crisis.

The banks “have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities,” Moody’s global banking managing director Greg Bauer said in a statement outlining the rational for the downgrades.

The behemoth banks are all major players in the global stock and bond markets, which have become extremely volatile. However, Bauer noted that some of the banks, including JPMorgan Chase and HSBC, have reliable buffers in more stable businesses that could act as “shock absorbers” during a crisis.
Moody’s had said in February that it was considering downgrading the ratings of major banks in the U.S. and in Europe.

A downgrade usually means banks will have to pay more for its debt. Investors demand higher interest for riskier debt, which is what the downgrades represent. However, with interest rates already at rock-bottom levels, the lower ratings may not significantly affect the cost of funding for the banks.
The stock market has also priced in any negative impact from the ratings downgrades, according to Bert Ely, a banking consultant in the Washington, D.C. area. “They’ve been telegraphing this thing for months,” he said.

In its latest report, Moody’s didn’t treat all large banks alike. It sorted the banks it was downgrading into three categories, with JPMorgan, HSBC Holdings PLC, and Royal Bank of Canada in the top one. The second group included Goldman Sachs Group Inc., Deutsche Bank AG and Credit Suisse Group AG. In its last group were the weakest banks - Bank of America, Citigroup, Morgan Stanley, and Royal Bank of Scotland Group PLC.

June/23/2012

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