According to Credit Suisse, Moody's ratings review remains an overhang on the U.S. banking sector and could be an important catalyst for the bank stocks over coming weeks (sometime during May). Moody's has placed the ratings of 17 global banks with significant capital markets operations under review for potential downgrades. This review comes on the back of similar actions by the ratings agency Standard & Poor's last year.
On average, Credit Suisse believes the potential downgrades by Moody’s could reduce the median credit rating (long-term holding company ratings) of major banks with global capital markets operations by two notches from A2 (6th highest rating) to Baa1 or just three notches above non-investment grade status.
The potential impact to the holding company credit ratings for the major U.S. banks under review are as follows: JP Morgan on review for a two notch downgrade to A2; Goldman Sachs on review for a two notch downgrade to A3; Morgan Stanley on review for a three notch downgrade notches to Baa2; Citigroup on review for a two notch downgrade to Baa2; and Bank of America on review for a one notch downgrade to Baa2. Credit Suisse believes the major U.S. banks have undergone meaningful reforms and risk reductions since the crisis and does not believe the current backdrop or industry outlook warrants this magnitude of ratings downdraft, the reality is Moody’s actions will likely have real-world impacts.
Bank of America (BAC : NYSE : US$7.73), Net Change: -0.06, % Change: -0.77%, Volume: 172,384,379
Citigroup (C : NYSE : US$30.45), Net Change: -0.87, % Change: -2.78%, Volume: 47,795,624
Goldman Sachs (GS : NYSE : US$107.29), Net Change: -2.08, % Change: -1.90%, Volume: 4,756,035
JP Morgan Chase (JPM : NYSE : US$40.64), Net Change: -0.74, % Change: -1.79%, Volume: 37,114,056
Morgan Stanley (MS : NYSE : US$15.49), Net Change: -0.35, % Change: -2.21%, Volume: 33,108,472