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Downgrades......Get ready!!!!

Discussion in 'Off Topic Threads' started by bigdogtx, Jun 21, 2012.

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  1. bigdogtx

    bigdogtx Well-Known Member

    Aug 5, 2006
    Bank of America’s debt was downgraded to Baa2 from Baa1. That’s just a couple of notches above junk status.
    JPMorgan Chase’s debt was downgraded to A2 from Aa3
    Citigroup’s to Baa2 from A3
    Morgan Stanley’s to Baa1 from A2
    Goldman Sachs’s to A3 from A1
    HSBC’s to Aa3 from Aa2
    Barclay’s to A3 from A1
    Moody‘s Investors Service lowered the credit ratings of 15 the world’s largest banks late Thursday, including Bank of America, JPMorgan Chase, Citigroup, and Goldman Sachs, saying their long-term prospects for profitability and growth are shrinking.

    “Citi strongly disagrees with Moody’s analysis of the banking industry and firmly believes its downgrade of Citi is arbitrary and completely unwarranted,” the bank said in an angry response to downgrade.

    The ratings agency said it was especially concerned about banks with significant financial markets businesses because those markets have become so volatile. Some of the largest European banks were also downgraded, including Barclays, Deutsche Bank, and HSBC.

    The downgrades mean Moody’s is more concerned about the ability of the banks to repay their debts. As reported earlier on The Blaze, Moody’s has been flirting with the idea of mass downgrades for awhile now.

    So now that it has happened, what does it mean?

    A downgrade usually means that it becomes more costly for banks to raise money by selling debt. Investors demand higher interest for riskier debt, which is what the downgrades represent. However, with interest rates already at rock-bottom levels, the downgrades may not affect the cost of funding for the banks that much.

    Moody’s made its announcement after regular stock trading had closed. Morgan Stanley rose the most, 3.3 percent, gaining 45 cents to $14.41. JPMorgan Chase rose 41 cents to $35.92 and Bank of America rose 12 cents to $7.94.

    “While Moody’s revised ratings are better than its initial guidance of up to three notches, we believe the ratings still do not fully reflect the key strategic actions we have taken in recent years,” Morgan Stanley said in a statement that, as Zero Hedge notes, was released curiously fast.

    “With our de-risked balance sheet, stable sources of funding, diverse business mix and strong leadership team, we are well positioned to deliver for clients and shareholders,” the statement adds.

    The downgrades come at a time of great uncertainty in the global economy. Europe’s currency union is under threat from bad bank loans. The U.S. economy is slowing and the fast-growing emerging economies of India, Brazil, and China are also cooling. Financial markets have also been volatile.

    On Thursday the Dow Jones industrial average plunged 251 points, its second-worst loss of the year, as new reports indicating slower manufacturing in the U.S. and China made investors fearful that the global economy will continue to deteriorate.

    (Related: Market Recap: Dow Suffers Second-Biggest Drop of the Year, Loses 251 Points)

    Moody’s has been on a downgrading spree lately. In June Moody’s downgraded Spain by three notches, after downgrading 16 Spanish lenders in May. It also cut the ratings on seven German and three Austrian lenders in June.

    Here’s the full list [via Business Insider]:

    Cut One Notch:

    HSBC downgraded to Aa3 from Aa2

    Lloyds TSB downgraded to A2 from A1

    RBS downgraded to Baa1 from A3

    Societe Generale downgraded to A2 from A1

    Cut Two Notches:

    Bank of America downgraded to Baa2 from Baa1

    BNP Paribas downgraded to A2 from Aa3

    Barclays downgraded to A3 from A1

    Citigroup downgraded to Baa2 from A3

    Credit Agricole downgraded to to A2 from Aa3

    Goldman Sachs downgraded to A3 from A1

    JP Morgan Chase downgraded to A2 from Aa3

    Morgan Stanley downgraded to Baa1 from A2

    RBC downgraded to Aa3 from Aa1

    UBS downgraded to A2 from Aa3

    Cut Three Notches:

    Credit Suisse downgraded to (P)A2 from (P)Aa2

    The Associated Press contributed to this report
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