Moody's cuts debt rating of 15 banks
Published: Friday, June 22, 2012
Updated: Friday, June 22, 2012 11:06
CHARLOTTE, N.C. - Bank of America Corp. was one of 15 large banks downgraded by Moody's Investors Service on Thursday, putting the Charlotte bank's long-term debt rating just two notches above "junk" status.
The bank moved down one notch, the latest in a series of downgrades from the three primary ratings agencies over the last year and a reflection of the bank's volatile earnings and an increasingly uncertain global market.
Morgan Stanley's rating was cut two notches, less than had been feared. JPMorgan Chase & Co., Citigroup Inc., and Goldman Sachs Group Inc. were also affected. Wells Fargo & Co. was not reviewed.
The downgrades have been anticipated since Moody's announced it would put banks with global capital markets exposure under review in February, as the ratings agency wanted to take another look at them amid market volatility.
Since then, the capital market outlook has only worsened. The U.S. has turned in disappointing jobs numbers, Spain's sovereign bond yields and unemployment have worsened and China's growth has slowed.
Ratings agency downgrades have lost some of their importance since the financial crisis, when a number of investments given top ratings were found to be full of defective assets, said Ken Thomas, a Miami-based an independent bank analyst and economist.
"It will have some effects here and there, but how the markets will take it, how the average person in the street will take it, it's really not going to matter," Thomas said.
While Bank of America avoided the more severe downgrade that hit a number of its peers, the bank remains in the group Moody's deems the riskiest, with thinner buffers to absorb shocks and lingering mortgage issues weighing down progress.
Bank of America said it has adequately prepared for the downgrade.
"In addition to strengthening our governance and risk management, Bank of America ended the first quarter of 2012 with record capital ratios, record liquidity and substantial reserves," spokesman Jerry Dubrowski said in a statement. "We have significant liquidity and resources to serve clients and customers as we have transformed the company."
Moody's said Bank of America's downgrade was largely driven by the size and cost of its capital markets operation, its earnings volatility and potential losses in other divisions that give the bank less of a buffer from trading losses.
The ratings agency did say it was encouraged by Bank of America's increasing liquidity and capital levels as well as its improving risk management.
The bank's primary rating outlook remains negative, however, since its position is still influenced by the understanding that the government might prop up the bank if needed. Moody's recognizes, though, that the government guarantee is becoming less certain.
Downgrades generally mean that a company's borrowing cost will be higher, though the current market's low rates mean the banks' cost of funding won't become inordinate.