Moody’s Investors Service has lowered its 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 violent swings in global financial markets.
The downgrades which came late on Thursday are ultimately 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 rationale for the downgrades.
The banks are all major players in the global stock and bond markets, which have become extremely volatile.
However, Bauer said 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 US and Europe.
The stock market has priced in any negative impact from the ratings downgrades, according to Bert Ely, a banking consultant in the Washington area.
“They have been telegraphing this thing for months,” he said.
In a sign that investors were taking the news in their stride, stocks in major US banks rose in afterhours trading. Moody’s made its announcement after regular stock trading had closed.
Morgan Stanley rose the most, 3.2 percent, gaining US$0.45 to US$14.41. JPMorgan Chase rose US$0.38 to US$35.89 and Bank of America Corp rose US$0.06 to US$7.88.
In Europe, the main stock markets slid at the start of trading, with bank shares the biggest fallers.
At the open of business yesterday, HSBC shares fell 0.6 percent and Barclays slid 2 percent in London. In Paris, shares in BNP Paribas dropped 1.25 percent, Credit Agricole by 1.5 percent and Societe Generale by 1.18 percent.
Citigroup Inc said it “strongly disagrees” with Moody’s assessment. Citi said it did not believe the downgrade would impact its funding costs because the ratings actions had already been expected by the market and its business partners had included them in their analyses.
Morgan Stanley also disagreed with Moody’s, saying it did not think the ratings agency had fully considered the actions the bank has taken to shore up its finances.
Royal Bank of Scotland said yesterday that the downgrade was “backward-looking and does not give adequate credit for the substantial improvements the group has made to its balance sheet, funding and risk profile.”
Moody’s has been on a downgrading spree lately. This month it has already downgraded Spain by three notches, after downgrading 16 Spanish lenders last month. It also cut the ratings on seven German and three Austrian lenders this month.
In its latest report, Moody’s did not 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.