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U.S. Banks' Ratings Cut by Moody's on Rising Sovereign Debt Concerns
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Moody's has downgraded a few major banks' long-term credit and deposit ratings, after it lowered the U.S. sovereign credit ratings.
Major banks, including JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , and Wells Fargo (WFC - Free Report) , had their long-term deposit ratings downgraded by Moody’s from Aa1 to Aa2. The rating agency also downgraded to Aa2 from Aa1 the long-term senior unsecured debt ratings and issuer ratings for certain rated subsidiaries and branches of BAC and The Bank of New York Mellon Corporation (BK - Free Report) .
Additionally, Moody’s downgraded the long-term counterparty risk ratings for certain rated subsidiaries and branches of BAC, BK, JPM, State Street Corporation (STT - Free Report) , and WFC to Aa2 from Aa1. Further, it downgraded to Aa2 from Aa1 the long-term counterparty risk assessments for the rated subsidiaries and branches of BAC, JPM and WFC.
The move came as Moody’s downgraded the U.S. sovereign credit rating on Friday, from Aaa to Aa1, due to rising national debt, ongoing political turmoil and concerns about the government’s long-term fiscal sustainability. “This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” Moody's stated in its news release.
The downgrade of the U.S. Government's rating indicates that its ability to support the global systemically important banks has weakened.
Implications of Moody’s Ratings Cut on Banking Stocks
Moody’s stated, “While we continue to believe there is a moderate probability of US Government support for the depositors, senior unsecured creditors, and counterparties of the systemically important subsidiaries of BAC, BK, JPM and WFC, and for the counterparties of the systemically important subsidiaries of STT, the downgrade of the US Government's rating indicates that it has less ability to support these highly-rated obligations.”
Moody’s downgrade of the U.S. sovereign rating indicates a lower perceived ability of the federal government to support major banks during crises. With reduced government backing, banks may encounter higher borrowing costs in capital markets.
Additionally, investors may require higher yields to offset increased risk. Moreover, the downgrade could also influence lending rates and credit spreads for banks like JPM, BAC, WFC, BK and STT.
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U.S. Banks' Ratings Cut by Moody's on Rising Sovereign Debt Concerns
Moody's has downgraded a few major banks' long-term credit and deposit ratings, after it lowered the U.S. sovereign credit ratings.
Major banks, including JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , and Wells Fargo (WFC - Free Report) , had their long-term deposit ratings downgraded by Moody’s from Aa1 to Aa2. The rating agency also downgraded to Aa2 from Aa1 the long-term senior unsecured debt ratings and issuer ratings for certain rated subsidiaries and branches of BAC and The Bank of New York Mellon Corporation (BK - Free Report) .
Additionally, Moody’s downgraded the long-term counterparty risk ratings for certain rated subsidiaries and branches of BAC, BK, JPM, State Street Corporation (STT - Free Report) , and WFC to Aa2 from Aa1. Further, it downgraded to Aa2 from Aa1 the long-term counterparty risk assessments for the rated subsidiaries and branches of BAC, JPM and WFC.
The move came as Moody’s downgraded the U.S. sovereign credit rating on Friday, from Aaa to Aa1, due to rising national debt, ongoing political turmoil and concerns about the government’s long-term fiscal sustainability. “This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” Moody's stated in its news release.
The downgrade of the U.S. Government's rating indicates that its ability to support the global systemically important banks has weakened.
Implications of Moody’s Ratings Cut on Banking Stocks
Moody’s stated, “While we continue to believe there is a moderate probability of US Government support for the depositors, senior unsecured creditors, and counterparties of the systemically important subsidiaries of BAC, BK, JPM and WFC, and for the counterparties of the systemically important subsidiaries of STT, the downgrade of the US Government's rating indicates that it has less ability to support these highly-rated obligations.”
Moody’s downgrade of the U.S. sovereign rating indicates a lower perceived ability of the federal government to support major banks during crises. With reduced government backing, banks may encounter higher borrowing costs in capital markets.
Additionally, investors may require higher yields to offset increased risk. Moreover, the downgrade could also influence lending rates and credit spreads for banks like JPM, BAC, WFC, BK and STT.