Moody's Investors Service - the credit rating arm of
) - has put the senior and subordinated debt ratings of four
major U.S. banks -
The Goldman Sachs Group, Inc.
Wells Fargo & Company
JPMorgan Chase & Co.
) - under review for a downgrade.
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
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Change in federal policies to support troubled banks is the
rationale behind Moody's review. Regulators are planning to build
liquidation plans for U.S. banks to combat another financial
crisis. Therefore, Moody's believes the level of government
support might be lower as compared with the bailout of banks
owing to financial crisis in 2008.
Bank of America Corporation
) are also under review but without any direction. According to
Moody's, these two banks with improving financial performance
might overshadow the reduction in government support. For
JPMorgan and Wells Fargo, the debt is rated A2, while Goldman
remains one notch below at A3. Further, Morgan Stanley is at Baa1
and Citigroup along with BofA is rated Baa2.
Moody's plans to reconsider its assumptions over government
support to the banking system by the end of 2013. In the last
year, progress was visible in the government's plan to structure
policies for plausibly resolving these large systemically
Moreover, such plans might compel debtholders to record losses or
convert stakes to equity. Further, the federal policies might
affect the ratings of the companies' deposit-taking subsidiaries.
Therefore, Moody's reviews for ratings of the banks will be based
on the level of government support.
Notably, this review also includes trust and custody banks -
The Bank of New York Mellon Corporation
State Street Corporation
), which are already under scrutiny. While reviewing the ratings
of these custody banks, Moody's will focus on the long-term
profitability challenges bracing them. These banks aggressively
price their core custody products and services, thereby creating
a barrier-to-entry market for its competitors.
If Moody's downgrades the ratings of major global banks, it will
lower investors' confidence in the stocks. Moreover, it might
increase funding costs, thereby leading to higher expenses in the