(New York, NY) – As expected Moody’s is cutting the credit rating
of several major banks. The agency announced Thursday that it’s
cutting the ratings of Morgan Stanley, Bank of America, Citigroup,
JPMorgan and Goldman Sachs plus several European institutions. The
credit rating agency says Morgan Stanley and BofA are “affected by
problems in risk management” and their “shock absorbers are in some
cases thinner or less reliable than those of higher-rated peers.” The
long-term rating for Morgan Stanley was cut two full steps. Stocks in
all of the affected institutions fell Thursday on rumors of the rating
Shares of all the firms affected by yesterday’s action rose as of 10:18 a.m. in New York, and the cost to protect Morgan Stanley (MS) debt against losses dropped to the lowest in more than seven weeks, according to data compiled by Bloomberg, after the bank was cut two levels rather than a threatened three grades. Credit-default swaps tied to Bank of America Corp., which was lowered to within two levels of junk along with Citigroup Inc. (C), also improved. The Bloomberg Europe Banks and Financial Services Index added as much as 1.5 percent.
“American banks are stronger today than they were three years ago,” said Gerard Cassidy, an analyst with RBC Capital Markets, adding that market prices have long reflected concerns raised by Moody’s. “Yes, their ratings are lower, but is Citi tomorrow going to have to pay an extra 50 basis points for commercial paper? I don’t think so.”
The prospect of downgrades had weighed on banks since Moody’s said Feb. 15 it was reviewing 17 financial firms with capital-markets operations because of fragile confidence and tighter regulations that pinched revenue. Pressure mounted as Europe’s sovereign-debt crisis intensified and cast doubt on the health of some of the continent’s lenders.
By the time the results came out four months later, investors such as Thornburg Investment Management Inc.’s George Strickland said, the worst-case scenario for downgrades was already reflected in securities prices.