Moody’s ratings of Credit Suisse, Morgan Stanley and UBS are set to fall up to three notches after the ratings agency announced reviews of both European banks, and global banks and securities firms with credit market operations. Some banks, of course, fall into both categories and will be reviewed on both counts.
There were several statements, so rather than pasting them all in full, here are a few highlights.
This list relates to the combined European and global credit reviews:
POTENTIAL LONG-TERM RATING IMPACT FOLLOWING REVIEWS:
The following guidance is indicative only. The final rating impact will be determined during the review.
UP TO 1 NOTCH:
Bank of America
Royal Bank of Scotland
UP TO 2 NOTCHES:
Royal Bank of Canada
UP TO 3 NOTCHES:
Here’s an outline of the rationale for the European banks review (our emphasis):
Rating Action: Moody’s Reviews Ratings for European Banks
Global Credit Research – 15 Feb 2012
London, 15 February 2012 — Moody’s Investors service has today announced rating actions affecting 114 financial institutions (counted by group) in 16 European countries. The actions reflect, to differing degrees, the combined pressures from (i) the adverse and prolonged impact of the euro area crisis, which makes the operating environment very difficult for European banks; (ii) the deteriorating creditworthiness of euro area sovereigns, which led to the adjustment of the ratings for nine European sovereigns on 13 February 2012 http://www.moodys.com/EUSovereign; and (iii) longer-term, the substantial challenges faced by banks and securities firms with significant capital market activities. While there are mitigating factors such as the currently supportive stance of many governments towards their banking systems and accommodative monetary policies, these are overshadowed by the aforementioned pressures, in Moody’s opinion. Moody’s expects that once the reviews announced today are resolved, its EU bank ratings will fully reflect the effects of currently foreseen adverse credit drivers.
The reviews announced today follow an earlier announcement from 19 January 2012 according to which the ratings of a number of European banks were expected to be placed on review for downgrade during first-quarter 2012; see release titled “Moody’s: Global bank ratings likely to decline in 2012″ http://www.moodys.com/research/Moodys-Global-bank-ratings-likely-to-decline-in-2012–PR_235663
Moody’s actions can be summarised as follows:
IMPACT OF THE EURO AREA CRISIS ON EUROPEAN BANKS
(i) For 99 financial institutions, the standalone credit assessments have been placed on review for downgrade.
(ii) For 109 institutions, the long-term debt and deposit ratings have been placed on review for downgrade.
(iii) For 66 institutions, the short-term ratings have been placed on review for downgrade.
From the announcement on global banks (our emphasis again):
Announcement: Moody’s Reviews Ratings for Banks and Securities Firms with Global Capital Markets Operations
Global Credit Research – 15 Feb 2012
New York, February 15, 2012 — Moody’s Investors Service has announced a review of 17 banks and securities firms with global capital markets operations. Underpinning this review is Moody’s view that these firms face challenges that are not fully captured in their current ratings. Capital markets firms are confronting evolving challenges, such as more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions. These difficulties, together with inherent vulnerabilities such as confidence-sensitivity, interconnectedness, and opacity of risk, have diminished the longer term profitability and growth prospects of these firms.
Full list of euro area banks is here (PDF).