Moody's downgrades big US banks on government bail-in plan

Deutsche Welle, 15 November 2013

Moody’s investors’ service has cut the credit ratings of four US banks after a review of the countries nine biggest banks. The move comes amid a US government plan to wind down troubled lenders without taxpayers’ money.

 The holding companies of US banks Morgan Stanley, Goldman Sachs, JPMorgan Chase and Bank of New York Mellon had their credit ratings downgrade by one notch each, US ratings agency Moody's announced Thursday.

Moody's made the decision in view of new US banking regulation which will make the government less likely to bail out troubled lenders if they fail. Under new rules, US bank regulators would take over the management of such a bank to ensure that investors accept losses as bonds would be converted into equity capital.

Moody's described the plan as a credible framework to resolve a large, failing bank. However, the regulation would increase their borrowing costs and force them to post more collateral in their trading, weighing on profits.

“Rather than relying on public funds to bail out one of these institutions, we expect that bank holding company creditors will be bailed-in and thereby shoulder much of the burden to help recapitalize a failing bank,” Moody's Managing Director Robert young said in a statement.

With the cut, the holding company of Morgan Stanley is now rated Baa2, which is just two steps above junk status. Goldman Sachs was cut to a level three steps above non-investment grade, while JP Morgan is now five steps away and BNY Mellon six.

uhe/hc (dpa, Reuters, AFP)