At a time when bank executives are apprehensive about the
credibility of credit ratings, Moody's Investors Service, the
credit rating arm of
), has brought further disappointment. Following its review of 8
major U.S banks, the rating agency lowered the senior holding
company ratings of
The Goldman Sachs Group, Inc.
JPMorgan Chase & Co.
The Bank of New York Mellon Corporation
Moody's downgraded BNY Mellon's long-term senior unsecured debt
to A1 from Aa3 and subordinated debt to A2 from A1. Similarly,
Goldman's long-term senior unsecured debt was downgraded to Baa1
from A3, whereas its subordinated debt was downgraded to Baa2
Also, JPMorgan's long-term senior unsecured debt was lowered to
A3 from A2 and subordinated debt was reduced to Baa1 from A3.
Further, the rating agency lowered Morgan Stanley's long-term
senior unsecured debt to Baa2 from Baa1 and subordinated debt to
Baa3 from Baa2.
The ratings downgrade reflects Moody's belief of there being less
chances of the U.S. government bailing out financial institutions
in the case of a future financial crisis. Regulatory guidelines
under the Dodd-Frank Act prohibit the use of taxpayers' money to
bail out a failed bank. The Act also demands formation of a
decision-making body to systematically wind down troubled firms.
These regulations might increase losses for debtors or compel
them to convert stakes to equity.
On the other hand, Moody's affirmed the senior holding company
ratings of four other banks, namely
Bank of America Corp.
State Street Corp.
Wells Fargo & Co.
). We believe that the reiteration of ratings reflect these
banks' improved capital position for the quarter ended Sep 30.
Given the sluggish economic recovery and stringent regulations,
the ratings downgrade could increase the banks' cost of capital.
Overall, banks are taking considerable measures to meet
regulatory capital requirements. However, whether these endeavors
prove successful is yet to be seen.
BANK OF AMER CP (BAC): Free Stock Analysis
BANK OF NY MELL (BK): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis
JPMORGAN CHASE (JPM): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis
STATE ST CORP (STT): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
To read this article on Zacks.com click here.