Moody's downgrades 15 major banks

BBC News, 22 June 2012

Big Banking 

• Minority vote no to HSBC boss pay
• Barclays hit by revolt over pay
• Barclays to sell Blackrock stake
• HSBC profits fall on debt value

RBS said it "disagrees" with Moody's
move

The credit ratings agency Moody's has downgraded 15 global banks and financial institutions.

The UK banks downgraded were Royal Bank of Scotland, Barclays and HSBC. Lloyds also had its rating cut by Moody's in a separate announcement.

In the US, Bank of America and Citigroup were among those marked down.

BBC business editor Robert Peston said that banks were concerned as the downgrades may make it harder for them to borrow money commercially.

Moody's global banking managing director Greg Bauer said in the agency's statement: "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."

The other institutions that have been downgraded are Goldman Sachs, Morgan Stanley, JP Morgan Chase, Credit Suisse, UBS, BNP Paribas, Credit Agricole, Societe Generale, Deutsche Bank and Royal Bank of Canada.

'Disagrees'

Moody's said it recognised "the clear intent of governments around the world to reduce support for creditors", but added that they had not yet put the frameworks in place that would allow them to let banks fail.

Some of the banks were put on negative outlook, which is a warning that they could be downgraded again later, on the basis that governments may eventually manage to withdraw their support.

In a statement, Royal Bank of Scotland (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."

RBS estimated that the downgrade could mean it needing to find an extra £9bn in collateral for its debts.

Lloyds said it believed that the change would have "limited impact on our funding costs and market capacity".

Of the banks downgraded, four were cut by one notch on Moody's ranking scale, including HSBC, Royal Bank of Scotland, and also Lloyds.

A further 10 banks had their rating reduced by two notches, including Barclays. Credit Suisse was lowered by three notches.

"The biggest surprise is the three-notch downgrade of Credit Suisse, which no one was looking for," said Mark Grant, managing director of Southwest Securities.

Peter Hahn, a former executive at Citigroup and now a lecturer at Cass Business School in London, said the downgrades could limit the banks' activities.

He added: "Banks are going to have to put up collateral in their transactions with other banks.

"As they get downgraded, other banks and system players don't want exposure.

"It's a constraint on capital, it's a constraint on business, so it's obviously not welcome for us, trying to get more money into the economy."

Related Articles:

China and Brazil in $30bn currency swap agreement

Brics’ move to unseat US dollar as trade currency