Moody's Downgrades 15 of The World's Biggest Banks

The Hill ^ | June 21, 2012 | Peter Schroeder

[lbryce]

Moody's Investors Service issued downgrades to 15 of the world's biggest banks Thursday, saying that they all had "significant exposure" to volatility and risk inherent in their global trading activities.

Banks such as Goldman Sachs, JPMorgan Chase, and Bank of America were among the firms downgraded by the rating agency — a move that could require the banks to pony up billions in additional collateral to cover their derivatives transactions, and also make it more expensive for them to borrow.

"All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities", said Greg Bauer, the firm's global banking managing director. "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 had announced earlier this year that it planned to review its rating rationale for global banks in the wake of the financial crisis, and had already downgraded two other banks before Thursday.

The Swiss bank Credit Suisse was downgraded three notches by Moody's, while Morgan Stanley and UBS each saw their ratings drop two levels.

As rumors of the downgrades spread among financial markets Thursday afternoon, stocks took a steep turn for the worse. The Dow Jones Industrial Average close the day down 250 points or nearly two percent, its second worst day of the year.

[lbryce]

During the last crisis financial institutions showing tremendous weakness but despite their losses Moody's did not act in any way to reflect the banking institution's higher risk exposure that warranted a downgrade at the time. This time, they acted with greater expediency more so because their reputation took somewhat of a hit the last time around.

But not to worry. President Effete still has July, August, September, October to get the economy roaring. He's going to underwrite a chain of epicurean canine fast food family restaurants called Fido's that according to Geithner will add .0000043 to the GNP and those summer jobs he's been promising America's youth.

[VRW Conspirator]

...will add .0000043 to the GNP and those summer jobs he's been promising America's youth.

And a trillion dollars to the debt.

[moonshot925]

Let’s see, Moody’s is the same group of crony fools who were giving high ratings to the mortgage bundle securities even as that house was burning down.

So if these guys downgrade the banks a few steps, you can legitimately wonder if either the fix was in to spare the banks from a realistic projection, or else if the same dimwits who were assigned to rate mortgage backed securities did this work.

[scooby321]

Unless Ben Bernake does QE3 the money the Bank loan cost will rise.

Not good for Obama.

[no-to-illegals]

derivatives transactions

Have read and heard that word derivatives for countless years. Wonder how heavily invested the FED is invested in derivatives? The downgrade is telling, yet more telling is those financial institutions not receiving this downgrade (imho). All financial institutions are exposed to the financial risk associated with the global economy aren't they? If there was preferential treatment of some financial institutions who would dig out the truth? Am not that intelligent (myself) and would appear to be fraught with weapons to protect one wonders who. If global economies worldwide are beginning to or have already begun to slide, why are countries like Brazil on the upswing in their economy or is this a ruse? Like said, fraught with weapons if one goes seeking the truth. Will hope not to have to dodge bullets for those seeking answers should anyone care to tread into this story in search of the truth.

[ladyjane]

The title of the article talks about 15 banks but the article itself doesn’t give the list. Good journalism.

[Agamemnon]

So then if everybody's "downgraded" in reality nobody is downgraded because the risks are all equally bad ---

--- Only this time Moody's is perceived as being ahead of the curve rather than behind the curve back in 2007-2008?

6 were US banks and 9 others were the global power houses. "Ain't nobody doing good" -- Moody's says so.

All this amounts to little more than Moody's reputation self-preservation without providing any substantive or actionable investment information.

So Moody's ratings are now of less value to market speculators prognostications.

It follows then that a 250 Dow point drop I think has alot to do with the drop in the confidence in the veracity of Moody ratings than it does in the actual drop in confidence in 5 out of 6 big US banks.

The 6th -- Wells Fargo -- simply didn't report data out, else I suspect it would likely have been 6 out of 6. By the time they do report no one will care because the new "below performance expectation" for banks will be the "new norm."

FReegards!

[UCANSEE2]

Hey you.... Quit peeking behind the curtain.