“Moody’s continues to recognize Credit Suisse as one of the most highly rated banks in its peer group, citing our balanced business portfolio, strong liquidity position, improving capital position as well as our low exposure to the peripheral European economies,” David Mathers, Credit Suisse’s chief financial officer, said in a statement.
The Swiss bank, at A2, is on par with six other lenders in the review and trails the ratings of HSBC and RBC. Four U.S. firms and British banks Barclays and RBS have lower ratings.
“Funding for Credit Suisse shouldn’t be a problem,” said George Strickland, who helps oversee $14 billion of fixed-income assets as a managing director at Santa Fe, New Mexico-based Thornburg Management Inc. “Their short-term rating is still money-market eligible and their long-term rating is mid-tier A and as good as almost any bank.”
The downgrades may force banks to post additional collateral to trading partners in derivatives deals while boosting the companies’ borrowing costs. Moody’s said when it announced the review that it was seeking to reflect the banks’ reliance on fragile confidence in funding markets and increased pressures from regulation and a difficult market environment.
The ratings firm said Feb. 15 it was reviewing grades for 17 banks. Moody’s cut Sydney-based Macquarie Group Ltd. and Nomura Holdings Inc. one level each in March. It also started a review of lenders in more than a dozen European nations and already has reduced grades in Spain, Germany, Italy, Sweden, Austria and Denmark. Nomura, based in Tokyo, is the lowest-rated of the 17 at Baa3, one level above junk.
The downgrades may affect the competitive landscape in derivatives that aren’t centrally cleared, a business that provides about 15 percent of the industry’s trading revenue, Kinner Lakhani, a Citigroup analyst, wrote in an April 30 note. Banks with the largest cuts may lose revenue from such long-term derivatives, Charles Peabody, a Portales Partners LLC analyst, said in a June 4 interview on the “Bloomberg Surveillance” radio program.