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06-21-2012, 06:42 PM #1
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Moody’s downgrade hits 15 top banksMoody’s downgrade hits 15 top banks
By Tom Braithwaite, Ajay Makan and Tracy Alloway
Fifteen of the biggest global banks were downgraded on Thursday by Moody’s Investors Service, adding to pressure on their borrowing costs and questions over their business models.
Morgan Stanley, the focus of investor anxieties in the weeks leading up to the announcement, escaped the three-notch downgrade that the rating agency had threatened during its review of large trading banks. Its long-term credit rating was cut from A2 to Baa1, three notches above “junk”.
Stock markets fell in anticipation of the downgrades, which came after US markets closed, adding to fears over the global economy. Shares in Bank of America, Citigroup and Royal Bank of Scotland fell by more than 3 per cent by the closing bell. The S&P 500 closed down 2.2 per cent at 1,325.51.
Four years after the rating agencies’ views on banks and financial products were exposed as wildly optimistic they still have the power to shake markets.
Senior bank executives have argued bitterly that Thursday’s downgrades were unfair and Moody’s is overcorrecting its previous opinion.
James Gorman, chief executive of Morgan Stanley, had lobbied furiously to avoid the threatened three-notch downgrade. Moody’s said it refrained from the move because it believed there was a chance the bank’s creditors would be bailed out by Mitsubishi UFJ Financial Group, the Japanese bank that is Morgan Stanley’s largest shareholder.
“We incorporated a notch of uplift from the moderate possibility of support from MUFG,” said Bob Young, a Moody’s managing director. Shares in Morgan Stanley rose by more than 3 per cent in after-hours trading.
Moody’s warned in February that it was reviewing the ratings of 17 banks with global capital market operations. Nomura and Macquarie have already been downgraded.
Credit Suisse was the only bank to be downgraded by three notches. Morgan Stanley, UBS, Barclays, BNP Paribas, Citigroup, Crédit Agricole, Deutsche Bank, Goldman Sachs, JPMorgan Chase and Royal Bank of Canada received double-notch downgrades. Bank of America, HSBC, Royal Bank of Scotland and Société Générale received single-notch downgrades. In a separate action outside the review, Lloyds Banking Group had its rating cut by one notch.
“However, they also engage in other, often market-leading business activities that are central to Moody’s assessment of their credit profiles. These activities can provide important ‘shock absorbers’ that mitigate the potential volatility of capital markets operations, but they also present unique risks and challenges,” Moody’s said in a statement.
Counterparties of the banks have scrambled to reduce exposure since the review started and could push for billions of dollars in additional collateral.
Deborah Cunningham, chief investment officer for taxable money markets at Federated Investors, said: “We’re more likely to renegotiate contracts than replace counterparties outright, but we might demand more collateral, or shorten contracts with banks in light of downgrades.”
Morgan Stanley may have to post up to $6.7bn in additional collateral to derivatives counterparties and exchanges if another rating agency follows Moody’s action, according to regulatory filings. Goldman has said it would have to post up to $2.2bn with a two-notch downgrade.
Moody's press release
06-21-2012 06:42 PM # ADSCircuit advertisement
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06-21-2012, 07:32 PM #2
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That explain's why my stock portfolio fell on it's face today.....
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