News

Moody’s downgrades 15 banks amid concerns of market volatility

Moody’s Investors Service reduced the credit ratings of 15 banks on Thursday, saying their potential for growth and profit is diminishing as financial markets become increasingly volatile.

The downgraded banks include Goldman Sachs, JPMorgan Chase and Bank of America, along with European giants like Deutsche Bank, HSBC and Barclays. Greg Bauer, Moody’s global banking managing director, said in a statement that the downgraded banks were susceptible to “outsized losses,” Boston.com reports.

Bauer also said, however, that some of the banks, including HSBC and JPMorgan Chase, have financial buffers in place that would serve as “shock absorbers” in the event of a financial crisis.

Moody’s has grown increasingly concerned about the ability of banks to cover their debts during a financial crunch. The ratings service said earlier this year that it was considering the downgrade of major European and U.S. banks, according to Boston.com.

Investors request higher interest for risky debt, which is reflected in the downgrade. As interest rates have stayed at very low levels, the downgrades may not significantly affect the banks’ borrowing.

Citigroup, another downgraded financial institution, said in a statement that it “strongly disagrees” with Moody’s decision, though the company’s investors have prepared for the ratings downgrade and have included it in their analyses, Boston.com reports.

The ratings downgrades come as worldwide economies struggle to deal with an uncertain future. Financial markets have also remained extremely unstable. The Dow Jones fell 251 points on Thursday, the second-worst loss in 2012, and recent reports indicate a slowdown of manufacturing in the U.S. and China, leading some analysts to believe that the world economy could be headed for another decline.

Moody’s downgraded Spain earlier this month after downgrading Spanish lenders in May. The ratings service also downgraded seven German lenders and three Austrian lenders this month, according to Boston.com.

Moody’s said in its report that downgraded banks were separated into three separate categories, with HSBC, Royal Bank of Canada and JPMorgan in the first category. Moody’s said that those banks have businesses that are stable and offset losses from those businesses in the volatile financial market.

Additionally, Moody’s said those banks have managed to minimize their exposure to risky European debt. Though all three banks were downgraded, their debt had the highest ratings among 15 downgraded banks.

Bank of America, Morgan Stanley, Royal Bank of Scotland and Citigroup, however, were determined to be the weakest banks, as Moody’s said these institutions have “problems in risk management or have a history of high volatility,” Boston.com reports.

One Response to Moody’s downgrades 15 banks amid concerns of market volatility

  1. Pingback: Moody’s Downgrades Hit Muni Market After Banks’ Cut – Wall Street Journal | 1st Capital FINANCE TODAY