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Moody's Downgrades 15 World's Biggest Banks, US Stocks Plunge on Weak Data and Euro Concerns

Moody's downgrades 15 world's biggest banks

NEW YORK, June 21, 2012 (Xinhua) --

Ratings agency Moody's Investors Service announced downgrades of 15 world's biggest banks after the markets closed on Thursday.

Five U.S. banks were affected. The long-term debt ratings of Bank of America was slashed by one notch, while Morgan Stanley, Citigroup, Goldman Sachs, and J.P. Morgan were cut by 2 notches.

Royal Bank of Canada and nine European banks, including Barclays, Deutsche Bank, BNP Paribas, UBS, Credit Suisse, Credit Agricole, HSBC Holdings, Royal Bank of Scotland and Societe Generale also had their ratings cut. Credit Suisse, the second- largest Swiss bank, received the maximum reduction of 3 notches.

"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," Moody's Global Banking Managing Director Greg Bauer said in a statement.

The ratings agency said the long-term prospects for profitability and growth of the 15 banks were shrinking.

After the downgrades, the borrowing costs for the banks were supposed to rise as investors would ask for higher return for buying their bonds.

In February, Moody's said that it would review the ratings of 17 global investment banks. Before Thursday's downgrade, it has already cut the ratings of Macquarie and Nomura.

The current credit actions are part of a comprehensive review of the overall global banking system by Moody's. In mid-May, Moody's cut credit ratings of Italian, Spanish, German and Austrian banks. The U.S. banks with global capital markets capabilities have had an open dialogue with the ratings firm, in an effort to soften the severity of the downgrades.

U.S. stocks plunge on weak data and euro concerns

NEW YORK, June 21, 2012 (Xinhua) --

The U.S. stocks plunged on Thursday on disappointing data and euro concerns.

According to Benedict P. Willis, Managing Director of Albert Fried & Company, Thursday's drop was mainly caused by a sharp decline of the Philadelphia manufacturing data.

The Federal Reserve Bank of Philadelphia said that manufacturing activity in the region fell to negative 16.6 in June, the lowest level since August 2011. The reading was negative 5.8 in May.

Adding to the concerns, the National Association of Realtors also reported that U.S. existing-home sales for May slowed down, while the weekly U.S. jobless claims declined only slightly.

The weak economic data raised investors' concerns about the U.S. economy, as manufacturing, housing and jobs are considered the three main factors of economic recovery.

In addition to the negative U.S. economic scenario, news from the eurozone also worried the investors. Spain said its banking sector might need 51 billion to 62 billion euros for bailout.

The Dow Jones industrial average slipped 250.82 points, or 1.96 percent, to 12,573.57. The Standard & Poor's 500 lost 30.18 points, or 2.23 percent, to 1,325.51. The Nasdaq Composite Index declined 71.36 points, or 2.44 percent, to 2,859.09.

Besides the equity markets, gold and oil also plunged on Thursday. Gold dropped about 3 percent and the U.S. crude oil price ended below 79 dollars a barrel for the first time since October 2011.

Light, sweet crude for August delivery tumbled 3.25 dollars, or 3.99 percent, to settle at 78.20 dollars a barrel on the New York Mercantile Exchange.

In London, Brent crude for August delivery also fell sharply and hit an 18-month low of around 89 dollars a barrel.

The U.S. dollar rose against major currencies in late New York trading on Thursday, with the dollar index gaining 0.754 to 82.488.

The yields of U.S. 10-year bond dropped nearly 1.5 percent on Thursday, as desperate investors had nowhere to go but safe heavens such as the U.S. treasury bonds.

Moody's tilts playing field towards safe haven banks

By Matt Scuffham and Sarah White

Friday, Jun 22, 2012 8:29am EDT

LONDON (Reuters) -

Downgrades by ratings agency Moody's will make funding more expensive for banks that rely the most on capital markets, while reinforcing the competitive advantage of "safe haven" banks that can fund themselves from stable customer deposits.

Stock markets took Moody's announcement that it had downgraded 15 of the world's biggest banks in their stride, as the rating agency's lowering by up to three notches had been widely anticipated.

European bank shares rose just under 1 percent. But longer-term, the downgrades could have a lasting impact.

But over the medium term, the downgrades will reinforce a trend that has seen weaker banks punished for their risk taking, while stronger banks are rewarded for conservative funding models, ensuring lower costs and higher margins.

Not only will funding costs rise for the worst-rated banks, but trading partners are bound to ask for more collateral - and steer business to those perceived to be financially stronger.

"The new ratings landscape could provide a competitive edge for higher-rated firms," said analysts at Citigroup.

Moody's gave the highest ratings to HSBC, Royal Bank of Canada and JP Morgan, which it said had stronger buffers than peers.

All three are regarded as safe haven banks, funded by deposits from millions of retail customers and relying less than riskier banks on capital markets for short term financing.

Moody's gave the lowest credit ratings to banks that have been affected by problems with their risk management or whose capital buffers are not as strong as rivals.

Those include banks like Morgan Stanley with few retail deposits, as well as banks like Bank of America, Citigroup and Royal Bank of Scotland, which despite having big deposit bases have gotten into trouble by combining their retail business with riskier investment banking.

Moody's placed Barclays, BNP Paribas, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, Societe Generale and UBS in a middle group of banks, which it said include firms that rely on unpredictable capital markets revenues to meet shareholder expectations.

For banks which rely heavily on markets for funding, the lower ratings make difficult conditions even worse, at a time when they are suffering because of the euro zone crisis and a global slowdown in growth.

"Markets tend to discriminate more between issuers at lower ratings - in terms of funding costs - particularly during times of stress," said Citigroup analysts.

The downgrades reflected a view on capital markets that was "something more structural and fundamental rather than what is just cyclical noise", Johannes Wassenberg, Moody's managing director of European banks, told Reuters.

"We tried to assess risk from capital markets... and the shock absorbers banks have," Wassenberg said.

Regulators have told investment banks to keep far higher capital buffers, making their business less profitable, while also taking a knife to some of their most lucrative businesses, such as trading for their own account.