Moody's considers downgrading top US banks

Moody's considers downgrading top US banks
Published: 23 August 2013
NEW YORK - Moody's has warned that it could cut the credit ratings of the six biggest US banks, saying the federal government may be less likely to bail them out if they got into trouble in the future. Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo could be downgraded, the rating agency said on Thursday.

The ratings of Bank of America and Citigroup are also under review, but with "direction uncertain", Moody's said.

The review by the second-largest rating agency in terms of market share follows a similar statement from rival Standard & Poor's in June, and comes as governments are reshaping the regulation of banking and trying to prevent a repeat of the bailouts of the credit crisis era.

Wall Street reforms under the Dodd-Frank Act ban the use of taxpayer money to save failing banks and require the setting up of a resolution authority to wind down institutions before they get into trouble, imposing losses on creditors in the process.

"In the past year, we have seen progress towards establishing a framework to credibly resolve these large systemically important banks, as called for under the Dodd-Frank Act," said Robert Young, Moody's managing director.

"We have also seen greater co-operation and discussion among international banking regulators to manage the co-ordinated resolution of global banking groups."

The rating agency said it had not decided if the new regime necessarily increased the risks to bondholders.

While a lower level of systemic support could result in a higher probability of default, it said, the potential for a more orderly workout and a required minimum level of holding company debt may limit losses in the event of a default.

Moody's review will take in both senior and subordinated debt issued by the six big banks, plus State Street and Bank of New York Mellon, which were already on notice of potential downgrades.
- FT


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