15 World’s Largest Banks Downgraded

June 22, 2012Bankingby EW News Desk Team

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Credit ratings agency Moody’s yesterday downgraded 15 of the world’s largest financial institutions, citing significant exposure to the volatility and risk of outsized losses inherent to their capital market activities.

Morgan Stanley, UBS, Barclays, BNP Paribas, Citigroup, Crédit Agricole, Deutsche Bank, Goldman Sachs, JPMorgan Chase and Royal Bank of Canada received double-notch downgrades while Bank of America, HSBC, Royal Bank of Scotland and Société Générale received single-notch downgrades.

Credit Suisse was the only bank to be downgraded by three notches.

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Moody’s warned in February that it was conducting a review on banks and the downgrades come as jitters continue to plague global markets.

Among the risks Moody's cited were "more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions."

Many retail and institutional investors have been sceptical of the banks’ ability to withstand another economic crunch and Moody’s latest rating action will increase pressure on borrowing costs and raise questions over their business models.

While Moody’s said it recognises the “clear intent of governments around the world to reduce support for creditors,” it believes that “the policy framework in many countries remains positive for now, not least because of the economic stress currently stemming from the euro area and the potential systemic repercussions of large, disorderly bank failures and the difficulty of resolving large, complex and interconnected institutions.”

In a statement, Moody’s global banking managing director Greg Bauer said that the downgraded banks have significant exposure to capital markets, and they “also engage in other, often market-leading business activities that are central to Moody’s assessment of their credit profiles.”

He added that “these activities can provide important ‘shock absorbers’ that mitigate the potential volatility of capital market operations, but they also present unique risks and challenges.”  

However, bank executive contested the downgrades arguing that they were unfair.

In a statement, RBS responded to its downgrade saying: "The group disagrees with Moody's ratings change which the group feels is backward-looking and does not give adequate credit for the substantial improvements the group has made to its balance sheet, funding and risk profile."

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